After the Close
The U.S. equity markets opened lower on Friday as traders weighed a disappointing earnings update in the tech sector with an encouraging advance in the initial second-quarter GDP reading. With roughly even market breadth as a backdrop, the S&P 500 and NASDAQ extended their Thursday losses early in the day. Though the afternoon saw each pare their respective losses intermittently, with a final-hour push from the bulls, the rallies lacked the staying power to instill a change in direction at the end of the day. The Dow Jones Industrial Average was slightly more resilient, bouncing above the breakeven point briefly this morning behind the strength of American Express (AXP - Free American Express Stock Report), Chevron (CVX - Free Chevron Stock Report), and Intel (INTC - Free Intel Stock Report). The blue chip grouping expanded on this positivity as the closing bell approached.
Much of today’s selling pressure can be attributed to a weak earnings report from tech behemoth Amazon.com (AMZN). Shares of the online retailer-turned-diversified conglomerate slipped more-than 3% during the morning hours after it reported a $0.40 share profit. That was lower than the $1.42 consensus estimate. Consolidated revenues were higher, however, as were contributions from Amazon Web Services, its burgeoning cloud-computing business. Still, the high-profile miss was enough for profit takers looking for an opportunity to collect some income amidst high valuations before the end of the week. The stock regained some value during the afternoon, and the tech sector shook off the selling of the stalwart’s shares on its way to a modest aggregate full-day run up. Overall, second-quarter earnings season continued to be a positive harbinger for economic growth, as roughly three-quarters of all reporting companies have met or exceeded profit estimates so far.
The pre-market release of the government’s GDP reading, which showed the economy growing 2.6% in the second quarter, was a significant step up from the opening quarter’s downwardly revised 1.2% advance. The boost was driven by better results in the personal spending, exported goods, and nonresidential fixed investment categories, and suggests that the U.S. economy is positioned to maintain this steady, if unexciting, rate of growth for the remainder of the year. With weakness persisting in inventory accumulation and residential fixed investment, however, today’s report ought to ensure the Federal Reserve stands pat on its dovish stance on monetary policy tightening until at least late this year.
Meanwhile, the oil market avoided the same Friday correction that negated the momentum seen early last week. An easing oversupply picture at home, as well as Saudi Arabia’s promise to reduce drilling by a meaningful amount in the near term, drove the commodity to its best weekly performance of 2017. At the close, U.S. crude had risen to $49.71 per-barrel, an 8.6% rebound.
As we crossed into the afternoon, each of the indexes turned higher, with the bulls making a final hour push that saw several market sectors climb briefly into positive territory, before most of them settled lower. But despite the narrowed losses in the latter half of trading, the S&P 500 and NASDAQ ultimately remained in the red for the day and the week. The Dow benefitted from optimism from the blue chips on its way to a roughly 1% advance from Monday to Friday.
Looking out to next week, corporate earnings will remain the headline story influencing investor sentiment. We also expect some eventual clarity on the Trump Administration’s plans to implement fiscal reform in the shape of tax, regulatory, and infrastructure initiatives. Following this week’s failed attempt at restructuring the healthcare system thus far, the White House will likely look to reinvigorate optimism from the political front by offering some transparency on the progress and timing of the economic promises that stoked the historic rally seen across most of the stock market since November’s election. Stay tuned. – Robert Harrington
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 12:15 PM EDT
The U.S. equity markets started the day modestly to the downside, and trading was somewhat mixed throughout the morning session.
The latest attempt to repeal or replace the Affordable Care Act failed to pass an overnight Senate vote. While the setback was not the first, the potential implications for the rest of the Trump Administration’s agenda, particularly the proposals viewed as being favorable to the nation’s economy, likely contributed to the downbeat start. Meanwhile, on the economic news front, gross domestic product growth for the second quarter was reported at 2.6%. While this was in line with estimates, the March-period advance was revised downward to 1.2% (versus the 1.4% originally reported). Earnings season is also holding sway on stock prices today. Notably, tech shares have taken a hit in the wake of disappointing earnings from net retailing giant Amazon.com (AMZN).
As we pass the noon hour of trading in New York, the key U.S. indexes were still somewhat out of step. The Dow Jones Industrial Averages were faring the best of the lot, with a mid-morning rally lifting that index to just above the breakeven mark. Meanwhile, the broader S&P 500 had bounced off its lows, but was still off by five points. Lastly, the tech-laden NASDAQ, which had clawed its way to the highpoint for the morning, was down 10 points.
In terms of sector performance, decliners outnumber advancers by a wide margin, with the former led by consumer cyclicals, telecommunications, and consumer non-cyclical stocks. Energy and healthcare shares were showing modest gains.
Meanwhile, trading on the overseas bourses has been markedly more negative. France’s CAC-40 Britain’s FTSE were both down a full percentage point as the afternoon session neared its close, while Germany’s DAX was showing a loss of half a percent. – Mario Ferro
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before the Bell
Fresh off of an earnings-driven record high in the Dow Jones Industrial Average on Wednesday, generated by a strong profit gain from aerospace and defense giant Boeing (BA – Free Boeing Stock Report), and some follow-up gains in that issue yesterday morning, Wall Street began the penultimate session of the week pressing nicely higher. In fact, within minutes of the open, the Dow had fashioned a gain of nearly 80 points. A strong profit showing by social networking behemoth Facebook (FB), announced late Wednesday, helped the NASDAQ jump by close to 40 points in the first few minutes, meanwhile.
Of course, it was not just earnings that have helped the stock market along in recent weeks, but also relief that the Federal Reserve had ended its FOMC meeting on Wednesday with the decision to keep interest rates unchanged. The Fed also struck a cautious note going forward suggesting its tightening efforts will be very gradual. For the most part, though, the equity market's strength reflects optimism that the rest of earnings reporting season will be a good one. The upward bias persisted further into the morning, though the early gains would prove the high-water mark for the day.
Also on the profit front, Dow issue Verizon (VZ – Free Verizon Stock Report) pleased investors with its profit report, and that stock, off notably in 2017, perked up nicely, gaining more than 7% by mid-session. That telecom giant was joined for a second day in a row by competitor AT&T (T), which gained additional ground. Overall, earnings season has been a good one, albeit with some high-profile misses. The reporting period still has another few weeks to go, but as far as the large-cap companies are concerned, this is the biggest week of the cycle. By early next month, more of the mid-and smaller-cap names will be on the clock.
The market's advance, which was mostly large-cap driven, as the S&P Mid-Cap 400 again was lower as the afternoon began, lost a bit of its edge, as we the day progressed. This was especially the case with the NASDAQ, which once had been up nearly 40 points, but was barely in the plus column as we passed the halfway mark of trading. The Dow, though, on the aforementioned strength in Boeing, was still up some 50 points at that juncture. But even that gain proved short-lived. Indeed, as we moved into the middle of the afternoon, a decidedly bearish tilt developed.
This was particularly so the NASDAQ, which went from the earlier 40-point advance to a decline just north of 100 points. The sharp reversal was apparently brought about by valuation concerns in the tech space, following the morning's euphoria. Still, Facebook retained some strength as the day wound down. Elsewhere, though, things slipped back, as well, with the selloff most pronounced in some of the heretofore pockets of strength. On the other hand, the market was helped by additional firmness in the oil pieces on optimism that output can be better managed.
Encouragingly, when the afternoon selloff did not mushroom into a severe decline, the Dow firmed into the close, with that index, once in jeopardy of closing in the red, pushing up as the final bell sounded, gaining 85 points on the day. Losses, were sustained by the S&P 400 and 500, the Russell 2000, and the NASDAQ, which closed off 41 points, however. Then, after the close, chipmaker Intel (INTC – Free Intel Stock Report), a Dow stock, posted strong second-quarter net giving that issue a likely modest lift this morning. Looking at the new day, now, the markets were lower in Asia overnight; they are down, as well, in Europe this morning; and our futures are softer, too.
Finally, in a pivotal government release just made, the nation's gross domestic product advanced by a modestly reassuring 2.6% in the second quarter. That was materially better than the downwardly revised 1.2% gain logged in the opening period (initially posted at 1.4%), and in line with estimates issued before the latest GDP release. This was a big improvement over the first quarter, as noted, and suggested that the economy remained on track, with growth likely to hold in the current range going forward. The nice second-quarter pickup reflected positive contributions from personal spending, nonresidential fixed investment, and exports.
The performance in the quarter was hindered, however, by weakness in residential fixed investment and inventory accumulation, which still decreased less than in the prior period. All in all, this was a decent report, but hardly a game changer. In fact, as noted above, the U.S. equity futures already down on concerns about earnings across parts of the technology sector, eased just nominally more when the 8:30 AM (EDT) release hit the wires. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
