After The Close
A strong advanced GDP report and poor earnings from a slew of tech companies competed for control of Friday’s equity market, with the latter drawing most of investors’ interest. Accordingly, declining shares doubled advancing issues, while each of the major large-cap indexes registered notable losses. Besides technology, the healthcare and industrial sectors were particularly impacted by the bearish tilt to the week’s final session.
The consensus outlook for the second-quarter GDP rate was 4.2%, so the 4.1% tally reported this morning was considered a solid sum. Indeed, it is the highest rate of growth in four years, and was supported by personal and government expenditure spending, among several other areas, especially exports. The figure will be updated in each of the next two months, with crucial third-quarter data beginning its release cycle in late October. This ostensibly added to a recent wave of macroeconomic optimism that was kick-started by this week’s positive developments on trade. Still, traders have been consumed with a busy earnings week, limiting the lifespan of these otherwise supportive elements.
But ultimately, like on Thursday afternoon, the concerns within the technology industry persisted. While Facebook’s (FB) potentially muted growth prospects served as the primary drag yesterday, today’s soft reports from Twitter (TWTR) and Intel (INTC – Free Intel Stock Report) brought on a bout of selling that extended into each market sector, save for the telecommunications space. We think the tech-heavy NASDAQ’s relative outperformance in the past year (it has outdistanced both the Dow and S&P 500) set the stage for the latter half of the week’s selloff. Still, investors are apparently craving stronger guidance in the sector before driving share prices higher again.
Meanwhile, domestic crude oil registered its fourth-consecutive weekly decline, dropping 1.3% on Friday. Weakness in the equity market likely trickled into commodity trading, largely offsetting the early gains that stemmed from a temporary shutdown of a key Saudi Arabian shipping lane.
Despite the choppy close to the week, both the Dow and S&P 500 remained solidly in the black for the five-day span. In fact, though it shed value on Friday, the blue chip composite was somewhat split. Strength from Boeing (BA – Free Boeing Stock Report), McDonald’s (MCD –Free McDonald’s Stock Report), and Johnson & Johnson (JNJ – Free Johnson & Johnson Stock Report) was especially notable. Looking forward, developments on trade may steal away some attention from a just-heating-up earnings campaign, but most of the focus will likely remain fixed on Corporate America through early August. Stay tuned.
– Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell
But it was a much different story for the NASDAQ, as the aforementioned Facebook shares, which had closed Wednesday at $217, tumbled more than 42 points within that initial hour of trading, or nearly 20%. That sharp descent in that high-profile issue pushed the NASDAQ, where the social media giant is domiciled, to a loss of one percent. Still, more stocks were up on the day on both the Big Board and the NASDAQ. Indeed, even as the NASDAQ was falling by nearly 100 points at its nadir, the Dow was advancing more than 160 points. It was that kind of a morning.
The profits and revenue miss by Facebook notwithstanding, the earnings news has been generally supportive, and the stock market has responded well. In fact, Wall Street, save for the NASDAQ, was performing well again yesterday morning, as not only the Dow but the S&P Mid-Cap 400 and the small-cap dominated Russell 2000 were rising strongly. The selloff in Facebook, meantime, sent other NASDAQ giants lower, as well, but could not take the market down with it. And the good news on trade was the apparent reason for that persisting strength.
Of course, the trade situation with China remains tense, and is not affected by the news from Europe. As to the market, there were more sectors gaining than declining as the morning rolled along, with particular strength in the consumer non-cyclical group and the utilities. In other news, food wholesaler United Natural Foods (UNFI) was proposing to buy fellow food wholesaler Supervalu (SVU) for $32.50-a-share. That was a 67% premium to the Supervalu closing price the day before. Not surprising shares of the latter surged yesterday, while United Natural stock dropped by 14% in the morning.
The bifurcated market continued in place as the morning ended and the afternoon began, with the Dow's gain easing somewhat to about 125 points as we past the halfway mark, while the NASDAQ's drop, which had eased to some 50 points, increasing again to about 75 points. The market then continued along this path as the afternoon wore on, with the Dow's advance staying between 100 and 150 points and the NASDAQ deficit generally remaining in the 70- to 80-point range. The S&P 500 Index also remained in the red, while the S&P 400 and the Russell 2000 were positive throughout.
In addition to Facebook and trade, investors also were looking ahead to this morning's just-issued advance report on second-quarter gross domestic product, where an increase of 4.2% had been the consensus forecast (see below). Meanwhile, the market carried a split result into the close, with the Dow rising 113 points while the NASDAQ fell 80 points. The small caps prospered, while the S&P 500, a more broad-based composite languished with a loss of nine points. Gaining stocks, though, held a lead on declining issues, with the tech stocks leading several of the chief sectors lower.
Now, a new day begins and we see that stocks were generally higher in Asia overnight, save for China; in Europe, the key bourses are showing early gains, as well. Elsewhere, yields on the 10-year Treasury note, which climbed to 2.98% late yesterday, are at 2.96% so far this morning. As to the GDP report, growth came in at 4.1%, with the three months aided by positive contributions in personal consumption expenditures, exports, nonresidential fixed investment, and federal and state government spending. Please note that this result will be revised in late August and again in late September. The report on third-quarter GDP will be out in late October. Our early forecast is for growth of more than 3%, but materially less than the 4.1% just reported. The equity futures up modestly before the before the report's issuance, are now showing more of a mixed pattern.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
