After the Close
The major U.S. indexes were mixed on Monday, with the broad-based S&P 500 toggling between both sides of the breakeven line through most of the day’s trading. The Dow Jones Industrial Average continues to react favorably to the ongoing earnings season, while the tech-centric NASDAQ shed value on the day as investors await a big week of earnings from a number of leading companies in the sector. Though market breadth favored the bears for the majority of the session, advancing stocks finished the day in about equal number to declining shares.
Generally speaking, second-quarter earnings season has been a success, thus far. Nearly three-quarters of all reporting corporations have surpassed quarterly top- and bottom-line estimates. The technology sector will likely move in tandem with Apple (AAPL – Free Apple Stock Report) when the Silicon Valley behemoth reports its earnings after tomorrow’s market close, a release that may be coupled with an announcement for its next-generation iPhone. Also on tap for performance updates are Mondelez International (MDLZ) and electric carmaker Tesla Motors (TSLA), among many others.
Meanwhile, U.S. crude oil continued the upward trajectory of last week. The per-barrel value of domestic crude rose above $50, capping a roughly 9% rally in the month of July. This was the best monthly gain in over a year, and suggests that some of the pressures weighing on the commodity market may finally be easing. For one, U.S. stockpiles appear to be falling. Next week’s OPEC summit, which comprises of a large share of the world’s drillers, is doing its part, as well. Saudi Arabia intends to attempt to lead by example with its August production limit, in hopes that some of the cartel’s varied member nations follow suit. Accordingly, the energy sector was among the best-performing equity groupings today.
At the close, the Dow boasted a 61-point gain on the day, while the S&P 500 finished the day with a slight decline. The NASDAQ was unable to shake off the selling pressures by the end of the day, though, and the tech sector showed the widest aggregate losses of all market sectors (down nearly 27 points). Looking ahead, we believe earnings will continue to hold the most influence over the week, though Friday morning’s jobs report and developments from the political realm may also factor into trading. – Robert Harrington
As of this article’s writing, the author did not hold positions in any of the companies mentioned.
Mid-Day Update - 11:45 AM EDT
The major U.S. equity indexes fittingly started the final trading session of July, a month that has been productive for those long equities, to the upside. The primary catalyst was hopes that the upcoming earnings and economic data later this week will again prove positive, including the latest quarterly results from technology titan Apple (AAPL - Free Apple Stock Report) and the jobs data from the Department of Labor on Friday. As of last Friday, of the nearly 290 S&P 500 companies that reported results, 73% of them beat analyst expectations. However, unlike the blue-chip Dow Jones Industrials, the NASDAQ, and the broader S&P 500 Index were unable to hold the initial modest gains and are now trading in the red, with about a half-percentage-point loss for the NASDAQ at its intra-day nadir.
Influencing trading this morning has been the latest bunch of earnings reports. In general, the tone of trading is mixed, with maybe a slightly bearish undertone. Within the last hour, the spread between advancing and declining issues has turned in favor of the bears on both the Big Board and the NASDAQ. The main damage is being done by poor showings from the technology and consumer (both staples and discretionary) sectors. It also is the reason for the relative outsized setback for the technology heavy NASDAQ this morning.
Meantime, we did get some news on the U.S. economy this morning, though not of the major variety. Specifically, the National Association of Realtors reported that its Pending Home Sales Index, based on contracts signed last month, jumped 1.5%, to a reading of 110.2, rebounding after three straight monthly declines.
There was also some merger and acquisition news this morning. Specifically, Scripps Network (SN) agreed to be acquired by Discovery Communications (DISCA) for $14.6 billion. The stock of Scripps, which was up sharply on the rumors, is up modestly this morning. Likewise, Charter Communications stock was up after the U.S. cable operator said yesterday that it was not interested in buying wireless carrier Sprint Corp (S).
Looking ahead to the second half of the trading day, it is shaping up to be a battle between the bulls and the bears to the closing bell. Our sense is that the latter may hold a slight advantage, as there is, as noted, more losing than winning issues on the NYSE and the NASDAQ. Too, the broader small-cap sector, which tends to lead the market in one direction, is sporting the biggest losses among the major equity averages, with the Russell 2000 down more than 0.5% as the noon hour approaches. 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.
Before the Bell
The most recent week of trading, despite some unevenness during the final two sessions, was another very positive one for the bulls. There was a confluence of factors last week that pushed stocks higher, and the Dow Jones Industrial Average to another all-time closing high on Friday. A positive second-quarter earnings season thus far— about three-fourths of the S&P 500 companies have exceeded profit expectations—highlighted by strong results from a number of the Dow-30 components; the Fed’s decision to leave interest rates unchanged at last week’s FOMC meeting and the central bank’s more dovish than expected posture on near-term monetary tightening; and a strong second-quarter GDP figure gave a boost to equities last week. That said…
Trading was uneven on Friday. Even with some strong earnings results from a few blue-chip companies, the equity market was held back by a surprisingly disappointing profit report from technology/retailing behemoth Amazon.com (AMZN). The company’s June-period bottom-line tally fell well short of the Wall Street consensus, and the resultant weakness in Amazon.com shares weighed on the technology and consumer sectors, and the tech-heavy NASDAQ Composite. Overall, none of the major equity averages finished too far removed from the neutral line. The Dow 30 managed to finish the choppy session in positive territory and at a record high. Meantime, the oil and gas stocks had their best week in some time, with oil prices rising sharply on news that Saudi Arabia promises to significantly cut back on its oil production in the coming months. Still, much like the main indexes, the major equity groups finished mixed, and not too far removed from the breakeven mark. The aforementioned Amazon.com report took measure of the consumer stocks, which were the biggest laggards on Friday.
Looking ahead to the final trading session of July, a month that has been good for equities, the major averages stand at or near record levels. This week, trading will most likely be driven by news from Corporate America, with earnings news still pouring in. We will get reports from three more Dow-30 companies, including the latest results from Apple (AAPL) after tomorrow’s closing bell. The investment community will also be focused on the labor market, with the latest figures on employment and unemployment due this Friday. Prior to that, we will get data on manufacturing (Tuesday) and nonmanufacturing (Thursday) activity. Moreover, investors will be looking to see if the Trump Administration will now move toward infrastructure spending and tax reform, with the latest attempt to repeal the Affordable Care Act falling short of the necessary votes in the Senate. The dysfunctional scene in Washington D.C. always has the potential to influence trading on Wall Street. President Trump noted last week that some plan on infrastructure spending will be unveiled shortly, possibly as early as this week. We recommend that investors keep an eye on some of the industrial and economically sensitive sectors in the coming weeks, which would most likely get a boost from any plan to boost spending on construction.
With less than an hour to go before the commencement of trading on Wall Street, the equity futures are presaging some buying when the U.S. stock market opens. Our sense is that with market valuations stretched right now, traders will need some more positive earnings news from Corporate America and the business beat to push the indexes further ahead. Overseas, the trading has been mostly bullish today, with Japan’s Nikkei finishing nicely higher overnight, while the European bourses are in positive territory 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.
