After The Close
On a Monday that featured an even distribution of advancing and declining issues, the major large-cap indexes slipped lower. Concerns emanating from the technology sector, where weak results from a slew of bellwethers and unsavory news items is contributing to an ever-uncertain industry backdrop. In fact, the FANG stocks – Facebook (FB), Apple (AAPL – Free Apple Stock Report), Netflix (NFLX), and Google-parent Alphabet(GOOG) – neared correction territory, having shed almost 10% of their aggregate value since hitting all-time highs in early June. The NASDAQ accordingly registered the steepest decline, while the Dow and S&P 500 spent the majority of the session modestly in the red.
In addition to the tech-centric selloff, investors were also worried by a report that Canada, the European Union, Japan, South Korea, and Mexico were mulling a summit to discuss a coordinated response to potential imported-car tariffs issued by the United States. This is in stark contrast to a more collaborative tone struck by the White House in recent periods, which seemed to indicate that the worst of these trade-related quarrels had reached their peak. Some mixed earnings reports from the multinational corporations (Caterpillar (CAT – Free Caterpillar Stock Report) delivered solid results, but cautioned about to possibly negative impact posed by tariffs); it appears the market may be in the midst of a broader challenge to equity prices.
As for the business beat, traders are likely more focused on this week’s Federal Reserve meeting than they are on last Friday’s positive second-quarter GDP release. Still, it is highly unlikely the central bank enacts a rate hike this go-round, as it has guided towards two more augmentations in 2018, which are expected in September and December.
Meanwhile, U.S. crude oil bounced back more-than 2% today. Signs that global supplies may be threatened by unrest in the Middle East and Venezuela remains a positive tailwind for domestic product, as well as a lower-than-expected rise in OPEC output, were the main drivers for today’s strength. As has been the case for several weeks, however, hot-and-cold developments as it relates to trade may provide an offsetting influence as the week progresses.
Looking ahead, a busy week of earnings will demand most of investors’ attention. Updates on trade and the Fed’s view of the economy will also play a role, but time will tell whether or not the lower valuations in the tech sector will open up some room for opportunistic buying in the days ahead. Stay tuned.
– Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell
The major U.S. equity averages delivered a mixed performance last week, with trading driven by earnings data from Corporate America and news on the international trade front. On the positive side were respective weekly gains of 1.6% and 0.6% for the Dow Jones Industrial Average and the broader S&P 500 Index. Conversely, it was a down week for the technology heavy NASDAQ Composite, which ended the five-day stretch with a loss of 1.1%.
On Friday, there was no question as to who held the upper hand; the bears were front and center from the get-go of trading, fueled by some disappointing reports from the corporate world. In particular, the investment community frowned on the latest quarterly results from oil giants Exxon Mobil (XOM – Free Exxon Stock Report) and Chevron (CVX – Free Chevron Stock Report). Likewise, the latest data from semiconductor giant Intel (INTC – Free Intel Stock Report) failed to ignite investors. Those earnings reports, along with some difficult showings from a few technology names cut into the gains recorded earlier in the week.
It was a tough week for the technology space, which was the big factor in the weak performance of the NASDAQ Composite. Earlier in the week, the investment community punished shares of social media giant Facebook (FB) after the company’s latest earnings report showed slowing growth in the number of active users. Clearly, the tough time the social media company has had with regulators from around the globe weighed on the number of users. A similar story was spun by Twitter (TWTR) on Friday, when the social media company showed a one million drop in the number of monthly active users, as the company has taken actions to eliminate the number of fake accounts. That said, save for Friday’s batch of earnings, the second-quarter earnings season has thus far been rather supportive for equities.
Another big story for Wall Street last week was the news that the European Union, under the pressure of the tariffs imposed by the Trump Administration, was coming to the bargaining table with a number of trade concessions that were likely to ease the tensions between the U.S. and Europe. The news was greeted very positively last week and led to outsized gains for the major averages during the middle session of the five-day stretch. The report also helped the Dow Jones Industrial Average, which is composed of a number of multinational companies that rely heavily on international trade. That said, the United States’ ongoing icy trade relations with a number of Asian countries, particularly China, remains fluid and, thus, may have a major impact on trading going forward,
But the storyline for Wall Street in the near term remains the ongoing earnings season, which remains in high gear this week. As noted above, the results thus far have been constructive for stocks, with the vast majority of S&P 500 companies posting significant bottom-line growth in the June quarter. This week will include some more reports from Dow-30 companies, including the latest figures from technology behemoth Apple (AAPL – Free Apple Stock Report) tomorrow afternoon. We expect the earnings data, along with the latest news on the international trade front to remain the main catalysts for Wall Street, especially over the early part of the five-day stretch, Later in the week, the investment community will turn some of its attention to the business beat, with the latest figures on employment and unemployment due before the market opens for business on Friday morning. The news on the economy, which included an initial estimate of 4.1% GDP growth in the second quarter on Friday, has been mostly supportive for stocks in recent months.
With less than an hour to go before the commencement of the new trading week stateside, the equity futures are pointing to a positive, but relatively flat, opening for the U.S. market. Perhaps, investors are catching their breath a bit ahead of the pickup in earnings reports tomorrow morning. Overseas, the main indexes in Asia finished lower overnight, while the major European bourses are trading modestly in the red as trading moves into the second half of the session on the Continent. Stay tuned.
- William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
