Monthly Archives: July 2015

Market Insights 7/31/2015

Oil Pressure Drives Dow Lower

U.S. equities closed the trading session mostly lower amid a plethora of mixed global data. Additional duress was applied to the Dow in the wake of some disappointing earnings reports from Exxon Mobil and Chevron.

Treasuries and gold were higher, while crude oil prices were lower, joined by the U.S. dollar which came under some pressure following a surprisingly small increase in 2Q employment costs.

The Markets…

The Dow Jones Industrial Average declined 56 points (0.3%) to 17,690

The S&P 500 Index lost 5 points (0.2%) to 2,104

The Nasdaq Composite moved 1 point lower to 5,128

In moderately heavy volume, 972 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil declined $1.40 to $47.12 per barrel and wholesale gasoline was unchanged at $1.77 per gallon

The Bloomberg gold spot price decreased by $6.13 to $1,094.89 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 97.18

Markets were higher for the week, as the DJIA advanced 0.7%, the S&P 500 Index gained 1.2% and the Nasdaq Composite Index increased 0.8%

The U.S. equity markets rebounded this week, showing some resiliency in the face of the continued routs in the Chinese markets and commodity prices, along with some mixed domestic economic data. 2Q GDP rebounded by a slightly smaller-than-expected amount, while durable goods orders suggested stronger-than-forecasted business spending. The Federal Reserve held its monetary policy steady, as expected, and its statement did little to shift expectations of the timing of the first rate hike.

Global earnings reports poured in, with European results mostly upbeat and U.S. releases continuing the trend of stronger-than-expected bottomline results outpacing the amount of topline upside surprises. Per data compiled by FactSet, of the 354 companies in the S&P 500 that have reported to date, 73% have exceeded earnings estimates and 52% have posted revenues that topped projections.

We believe the bull market is intact but volatility is likely to increase. Concerns about the stronger dollar and still relatively tepid demand have been featured in much of the forward guidance; but overall the earnings picture appears relatively solid, with energy one notably weak sector, given the renewed fall in oil prices. However, lower oil and other commodity prices should help the American consumer, which may be showing their increasing confidence as the housing market has begun firing on most cylinders.

Consumer sentiment unexpectedly revised lower, while 2Q employment costs miss

The 2Q Employment Cost Index rose by 0.2% quarter-over-quarter—the smallest increase since records began in 1982—well below the forecast of a 0.6% increase, and on the heels of 1Q’s unrevised 0.7% gain.

The final July University of Michigan Consumer Sentiment Index was surprisingly revised lower to 93.1 from the preliminary level of 93.3, and compared to the Bloomberg forecast of a slight upward revision to 94.0. The index was also down from the 96.1 level in June. A modest upward revision to the component pertaining to current economic conditions was more than offset by a downward adjustment to the economic outlook, and both were down versus June. The 1-year inflation projection was unrevised at 2.8%, up from 2.7% in June, while the 5-10 year inflation outlook was revised to 2.8% from 2.7%, and up from 2.6% in the month prior.

The Chicago Purchasing Managers Index showed Midwest activity moved back into expansion territory (above 50), rebounding from two-straight months of contraction after rising to 54.7 in July—the highest since January—from 49.4 in June, and versus expectations of an improvement to 50.8.

Treasuries were higher, with the yield on the 2-year note declining 6 basis points to 0.67%, the yield on the 10-year note falling 7 bps to 2.19% and the 30-year bond rate dropping 3 bps 2.91%.

Europe and Asia mostly higher

The European equity markets finished mostly higher, with traders digesting a plethora of mostly upbeat earnings reports, which overshadowed some disappointing eurozone and German economic data. Also, stocks in the region shrugged off continued cautious global sentiment toward the recent tumbles for commodity prices and mainland Chinese stocks. Oil & gas companies saw some pressure in the wake of the disappointing earnings reports out of the sector in the U.S. In economic news, German retail sales unexpectedly declined in June, while the June eurozone unemployment rate remained at 11.1%, versus expectations of a dip to 11.0%. The eurozone consumer price inflation estimate matched expectations for July, though the core rate came in slightly hotter than expected. The euro rallied versus the U.S. dollar and bond yields in the region were mostly lower. Greek markets remained closed but are set to open Monday with some restrictions after being closed for five weeks.

Stocks in Asia finished mostly to the upside to cap off the week, but mainland Chinese equities extended their recent downside volatility amid uncertainty regarding whether the government’s flood of support measures are enough to stem the equity markets’ recent plunge. Equity gains in Japan were capped by mixed data and some strength in the yen. The island nation’s consumer price inflation came in slightly hotter than expected in June, while a separate report showed the country’s household spending unexpectedly dropped last month. Australian listings were led higher by healthcare and financial stocks, while South Korean equities advanced on the heels of a report showing the nation’s industrial production rose more than expected in June. Finally, Indian stocks rallied following an announcement that the government increased the size of its annual capital injection into state-owned lenders, per Bloomberg.

Earnings News

Amgen Inc. reported 2Q earnings-per-share (EPS) ex-items of $2.57, above the $2.43 FactSet estimate, as revenues increased 4.0% year-over-year (y/y) to $5.4 billion, versus the $5.3 billion that the Street had projected. AMGN raised its full-year guidance and shares rallied on the news.

Exxon Mobil Corp. achieved 2Q earnings of $1.00 per share, versus the $1.11 expectation, with revenues dropping 33.4% y/y to $74.1 billion, compared to the $63.0 billion that was anticipated. XOM said its quarterly results reflect the disparate impacts of the current commodity price environment. Exxon shares hares closed solidly lower.

Chevron Corp. reported 2Q EPS of $0.30, including impairments and other charges that make it unclear if the forecasted $1.15 is comparable, Revenues fell 30.3% y/y to $40.4 billion, which beat the estimated $35.7 billion. The company said its 2Q results “were weak,” reflecting the near 50% y/y decline in crude oil prices, which particularly hit its upstream businesses—exploration and production—triggering the impairments and other charges. Chevron shares traded lower.

LinkedIn Corp. posted 2Q EPS ex-items of $0.55, compared to the $0.30 expectation, with revenues jumping 33.0% y/y to $712 million, above the estimated $680 million. LNKD raised its full-year outlook. Shares finished sharply lower amid analyst uncertainty regarding the company’s growth in its main business as LNKD attributed its raised annual outlook to its acquisition of the education website Lynda.com, per Bloomberg.

Expedia Inc. announced 2Q profits ex-items of $1.02 per share, above the $0.88 estimate, as revenues rose 15.0% y/y to $1.7 billion, roughly in line with forecasts. The online travel booking company said gross bookings rose solidly y/y. EXPE was sharply higher on the day.

Market Insights 7/30/2015

Stocks Climb Back

U.S. equities displayed some resiliency as the major domestic indices closed the trading session mixed, but nearly unchanged by days end, on the heels of early morning pressure stemming from a softer-than-expected 2Q GDP report and some disappointing corporate earnings announcements. Treasuries were mixed and the U.S. dollar was higher, while gold and crude oil prices were lower.

The Markets…

The Dow Jones Industrial Average (DJIA) declined 5 points to 17,746

The S&P 500 Index was unchanged at 2,109, sectors leading the way higher included Utilities +.74%, Materials +.48% and Consumer Discretionary +.36%. The largest loser on the day was Energy, giving back -.70%

The Nasdaq Composite increased 17 points (0.3%) to 5,129

In moderate volume, 790 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil declined $0.27 to $48.52 per barrel and wholesale gasoline increased $0.01 to $1.77 per gallon

The Bloomberg gold spot price decreased by $8.62 to $1,088.23 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 97.49

Q2 GDP grows less than projected, while jobless claims gain ground

The first look (of three) at 2Q Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of expansion of 2.3%, from the upwardly revised 0.6% expansion in 1Q—from the previously-reported 0.2% contraction—and below the 2.5% growth forecasted by Bloomberg. Personal consumption came in north of forecasts, rising 2.9%, following the downwardly adjusted 1.8% increase recorded in 1Q, and versus the 2.7% gain that was projected. The acceleration in GDP growth came as the favorable personal consumption was accompanied by positive contributions from exports, state and local government spending, as well as residential investment. However, these were partly offset by negative contributions from federal government spending, private inventory investment, and nonresidential fixed investment, while imports—a subtraction from GDP—rose.

On inflation, the GDP Price Index came in hotter than expected at a 2.0% rise from an upwardly revised 0.1% gain seen in 1Q, and compared to the 1.5% increase that was anticipated, while the core PCE Index, which excludes food and energy, rose 1.8%, north of expectations calling for a 1.6% increase, and following the upwardly revised 1.0% growth in 1Q.

Weekly initial jobless claims rose by 12,000 to 267,000 last week, below the 270,000 estimate, as the prior week’s figure was unrevised at 255,000. The four-week moving average decreased by 3,750 to 274,750, while continuing claims rose by 46,000 to 2,262,000, north of the forecasted 2,205,000 level.

Treasuries were mixed, with the yield on the 2-year note rising 2 basis points to 0.72%, while the yield on the 10-year note declined 3 bps to 2.26% and the 30-year bond rate dropped 5 bps 2.95%.

Tomorrow, the U.S. economic calendar will deliver the Chicago Purchasing Managers Index, expected to move into expansion territory at 50.8 in July from the 49.4 posted the month prior, where 50.0 is the demarcation point between expansion and contraction activity. Also, the final University of Michigan Consumer Sentiment Index for July will be released, with economists forecasting a slight improvement to 94.0 from the preliminary level of 93.3.

Europe moves higher, Asia finishes mixed

The European equity markets finished higher on some upbeat earnings reports in the region. In economic news, German consumer price inflation rose month-over-month for July, in line with expectations. The euro lost ground on the U.S. dollar, which got a boost from yesterday’s Fed monetary policy decision that appeared to preserve rate hike expectations for this year. Bond yields in the region were lower and Greek equity markets remained closed.

Stocks in Asia finished mixed with volatility continuing for mainland Chinese markets, while traders digested the U.S. Fed’s monetary policy decision and a plethora of earnings reports in the region. Japan’s Nikkei 225 Index advanced amid mostly upbeat earnings reports and as the yen weakened, lending some support on the heels of yesterday’s Fed decision, which offered upbeat assessments of the labor and housing markets to keep rate hike expectations for this year intact, while a report showed Japan’s industrial production rose by a stronger amount than projected for June. However, a late-day drop in mainland Chinese markets led to the Shanghai Composite Index finishing lower as volatility continued to foster the recent rout for the index. Stocks in Hong Kong and South Korea traded lower, while Indian equities finished to the upside and Australian listings advanced with oil & gas and basic materials stocks moving nicely higher despite a much larger-than-expected drop in the country’s June building approvals.

Earnings News…

Procter & Gamble Co. reported fiscal 4Q core earnings-per-share of $1.00, including a $0.09 per share benefit primarily from minor brand divestiture gains, versus the $0.95 FactSet estimate. Revenues declined 9.0% year-over-year (y/y) to $17.8 billion, below the expected $17.9 billion. PG said it expects 2016 organic sales to be flat to up in the low-single digits and core EPS to be slightly below to up in the mid-single digits y/y. Shares closed solidly lower.

Facebook Inc. posted 2Q EPS ex-items of $0.50, three cents north of expectations, with revenues jumping 38.9% y/y to $4.0 billion, roughly in line with estimates. FB’s daily and monthly active users came in slightly above forecasts. Shares traded lower despite the results amid continued caution regarding the company’s large jump in costs which weighed on its 2Q operating margin, though it narrowed its cost guidance and lowered its capital expenditure forecast for the full year.

Whole Foods Market Inc. announced fiscal 3Q profits ex-items of $0.44 per share, one penny south of projections, as revenues increased 7.6% y/y to $3.6 billion, below the $3.7 billion forecast. 3Q same-store sales rose 1.3% y/y, missing the 2.9% gain that was anticipated. WFM issued 4Q EPS guidance that was below estimates as quarter-to-date same-store sales are tracking below expectations, while the company reaffirmed its full-year revenue outlook. Shares finished sharply lower.

U.S. GDP Report Puts Fed in Play

The U.S. economy firmed up in the spring after a soft start to the beginning of the year, putting the Federal Reserve on track to raise interest rates as soon as September for the first time in nearly a decade.

Gross domestic product—the value of everything a nation produces—rose at a 2.3% annual rate from April to June, the Commerce Department said Thursday. The economy grew at 0.6% clip in the first quarter instead of contracting 0.2%, revised government figures show.

The latest reading on GDP was propelled by higher consumer spending on big-ticket items such as new cars and trucks and the strongest housing market in years. The modest upturn in growth suggests the economy entered the second half of the year on a steady path, buoyed by an influx in hiring that shows little sign of fading. The Fed will be primed to act if next week’s employment report for July is strong. Earlier this week the central bank said the labor market and overall economy showed marked improvement after the first-quarter hiccup.

One big caveat: business investment was weak again.

The second-quarter report is the first to include new methodology meant to make GDP more accurate. Over the past several years GDP has slightly underestimated growth in the first quarter and sharply overestimated growth in the third quarter, leading to big swings that confused Wall Street and Washington. The problems stemmed mostly from difficulties in measuring spending on the military as well as consumer services such as health care.

Under the new approach, the government has found that the U.S. economy grew somewhat slower from 2012 to 2014: An average of 2% a year instead of 2.3%. That means the slowest recovery since the end of World War II is even weaker than previously believed.

In the second quarter, households contributed the most to the improvement in the U.S. economy. Consumer spending jumped 2.9% as Americans rushed to buy new autos at the fastest pace since the recession ended more than six years ago. Encouraged by rising demand, especially for townhouses, condos and apartment units, builders increased spending on new home construction at a 6.6% clip in the spring. That follows 10% gains in the prior two quarters.

U.S. exports, meanwhile, snapped back with a 5.3% increase after a 6% drop in the first quarter. Imports rose at a slower 3.5% pace. The improved trade figures also gave the economy a small boost.

The worst part of the second-quarter report was tepid business investment. Spending on structures such as oil platforms fell 1.6%, largely because of a broad retreat by energy firms in the face of sharply lower petroleum prices compared to a year earlier. Outlays on equipment declined 4.1% and the value of inventories fell slightly to $110 billion from $112.8 billion.

Businesses have been cautious spenders throughout the six-year-old recovery and sluggish investment continues to hold the economy back.Weak global growth and strong dollar that makes U.S. exports more expensive have particularly hurt manufacturers.

Still, many economists believe business investment will stabilize in the second half of 2015 now that the pullback in the energy sector has largely run its course.

Inflation as measured by the PCE price index increased at a 2.2% annual rate after falling by 1.9% in the first quarter, a decline tied mostly to plunging gasoline costs.

Excluding food and energy, core PCE rose to a 1.8% annual pace from 1% in the first three months of the year. That is well within the Fed’s comfort zone, though the central bank would like to see inflation rise a bit more.

Market Insights 7/29/2015

Stocks Gain as Fed Meeting Concludes

U.S. equities extended yesterday’s advance with the Federal Reserve holding its monetary policy steady and as a rebound in Chinese markets aided in easing the recently demoralized global sentiment.

Pending home sales snapped a string of five monthly gains, weekly mortgage applications rose and corporate earnings reports dominated the equity front.

Treasuries were lower, while the U.S. dollar, gold and crude oil prices were higher.

The Markets…

The Dow Jones Industrial Average advanced 121 points (0.7%) to 17,751

The S&P 500 Index gained 15 points (0.7%) to 2,109, sectors leading the way higher included Energy +1.36%, Industrials +1.23%, Consumer Discretionary +1.03% and Financials +1.0%.

The Nasdaq Composite increased 23 points (0.4%) to 5,112

In moderately heavy volume, 881 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil rose by $0.81 to $48.79 per barrel and wholesale gasoline increased $0.01 to $1.76 per gallon

The Bloomberg gold spot price increased by $1.47 to $1,096.95 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 97.18

Pending home sales surprisingly drop and mortgage apps rise ahead of Fed decision

Pending home sales fell 1.8% month-over-month in June, snapping a string of five monthly gains, versus the projected 0.9% rise, and following the downwardly revised 0.6% increase registered in May. Compared to last year, sales were 11.1% higher last month, matching forecasts. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which rose in June to the highest rate in over eight years.

The MBA Mortgage Application Index rose 0.8% last week, after ticking 0.1% higher in the previous week. The increase came as a 1.6% gain in the Refinance Index more than offset a 0.1% dip for the Purchase Index, while the average 30-year mortgage rate fell 6 basis points (bps) to 4.17%.

Treasuries are lower in afternoon action, with the yield on the 2-year note increasing 2 bps to 0.71%, the yield on the 10-year note gaining 4 bps to 2.29%, and the 30-year bond rate advancing 3 bps to 2.99%.

At 2:00 p.m. ET, the Federal Open Market Committee (FOMC) announced it will leave current monetary policy unchanged, holding the target for its benchmark interest rate near zero. Though the Committee did not update its economic projections or hold a press conference, it did judge “that economic activity has been expanding moderately in recent months,” and that “the labor market continued to improve, with solid job gains and declining unemployment.”

Treasuries finished lower, with the yield on the 2-year note increasing 1 bp to 0.70% and the yields on the 10-year note and the 30-year bond advancing 3 bps to 2.28% and 2.99%, respectively.

Tomorrow, the U.S. economic calendar will bring the first look (of three) at 2Q Gross Domestic Product (GDP), projected to show growth returned at an annualized 2.5% quarter-over-quarter pace, from the 0.2% contraction posted in Q1. Along with an acceleration of growth in personal consumption, the improved housing data we have seen as of late suggests real residential investment is likely to help drive a rebound in economic output. Is housing staging a turn for the better?, leading indicators for housing point to the possibility that y/y growth in residential spending could move into double-digit territory by Q4 of this year; but we should probably temper those expectations given the reluctance to borrow, still-high home prices, and the possibility of higher mortgage rates.

Additionally, the domestic docket for tomorrow will include the release of weekly initial jobless claims, expected to have increased to a level of 270,000 from 255,000.

Europe mostly higher amid plethora of earnings reports, Asia mixed

The European equity markets finished mostly to the upside in the wake of a flood of earnings reports in the region, while traders likely treaded cautiously ahead of today’s monetary policy from the U.S. Federal Reserve. In economic news, German consumer confidence remained unchanged for August, while U.K. mortgage approvals came in slightly higher than expected for June. The euro traded lower versus the U.S. dollar, while bond yields in the region were higher. The Greek equity markets remained closed.

Stocks in Asia finished mixed amid some caution ahead of today’s monetary policy decision out of the U.S. and as mainland Chinese stocks recovered from their recent plunge. Japanese equities dipped, while China’s Shanghai Composite Index rebounded to snap a three session losing streak, as the government continued to throw support at the markets amid the recently resurfaced downside volatility. A rebound in resource-related listings helped Australian stocks advance and Indian equities ended a four-day losing streak, while stocks in South Korea dipped on some weakness in the pharmaceutical sector.

Earnings News

Twitter Inc. reported 2Q earnings-per-share (EPS) ex-items of $0.07, three cents above the FactSet estimate, as revenues jumped 61.0% year-over-year (y/y) to $502 million, north of the $482 million estimate. The company issued 3Q revenue guidance with a midpoint below the Street’s forecasts, while raising the lower end of its full-year revenue guidance. TWTR said its 2Q results show good progress in monetization, but it is not satisfied with its growth in audience. Growth in monthly active users continued to slow and the company noted that it does not expect to see sustained, meaningful growth until it reaches the mass market, which it estimates to take a considerable period of time. Shares traded sharply lower.

Gilead Sciences Inc. posted 2Q EPS ex-items of $3.15, above the estimated $2.71, with revenues growing 26.2% y/y to $8.2 billion, compared to the forecasted $7.6 billion. The company raised its full-year net product sales outlook and shares were nicely higher.

Humana Inc. announced 2Q profits ex-items of $1.67 per share, below the $1.75 estimate, as revenues increased 12.4% y/y to $13.7 billion, versus the $13.8 billion forecast. HUM issued 3Q EPS guidance that missed expectations, while it reaffirmed its full-year earnings outlook. Shares closed nearly unchanged.

Express Scripts Holding Co. reported 2Q EPS ex-items of $1.44, above the forecasted $1.40, with revenues rising 1.0% y/y to $25.5 billion, below the $26.1 billion that was expected. The company raised its full-year profit outlook. ESRX finished to the downside.

Market Insights 7/28/2015

Stocks Reverse Recent Course, Surge Higher

U.S. equities finished solidly higher, seemingly shrugging off another decline in mainland Chinese markets which have been the impetus of anxiety as of late, and despite a mixed bag of news on the economic and equity fronts.

Consumer Confidence unexpectedly fell and Dow component DuPont missed quarterly forecasts, but service sector activity accelerated and UPS, Ford and Dow member Pfizer bested the Street’s expectations. Treasuries were lower, crude oil prices were mixed, while the U.S. dollar and gold prices gained ground.

The Markets…

The Dow Jones Industrial Average jumped 190 points (1.1%) to 17,630

The S&P 500 Index gained 26 points (1.2%) to 2,093, sectors leading the charge higher include Energy +2.92%, Materials +2.13%, Industrials +1.93% and HealthCare +1.75%.

The Nasdaq Composite advanced 49 points (1.0%) to 5,089

In heavy volume, 927 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil rose by $0.59 to $47.98 per barrel, wholesale gasoline fell $0.02 lower to $1.75 per gallon

The Bloomberg gold spot price rose by $1.68 to $1,095.66 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 96.69

Busy economic Day Mixed Results

The Consumer Confidence Index fell to 90.9 in July—the lowest since September 2014—from a downwardly revised 99.8 in June and compared to the Bloomberg estimate of 100.0. Components pertaining to expectations of business conditions and sentiment toward the present situation both worsened, with the former dropping sharply. Also, on employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—deteriorated to -6.0 from -4.8 last month.

The preliminary Markit U.S. Services PMI Index improved to 55.2 in July from 54.8 in June, and compared to the forecasted increase to 55.0, with a reading above 50 denoting expansion.

The 20-city composite S&P/Case-Shiller Home Price Index showed a gain in home prices of 4.9% y/y in May, below the estimate of a 5.6% increase. Month-over-month, home prices were lower by 0.2% on a seasonally adjusted basis for May, versus forecasts calling for a 0.3% gain.

The Richmond Fed Manufacturing Activity Index improved to 13 in July—the highest since October 2014—from the upwardly revised 7 in June, where economists had expected it to remain, with a reading above zero denoting expansion.

Today’s mixed economic reports come on the eve of tomorrow’s monetary policy decision from the Federal Open Market Committee (FOMC), which will not be followed by updated economic projections or a press conference from Fed Chairwoman Janet Yellen. As we have been touting, higher rates don’t typically kill bull markets; we don’t anticipate any fireworks—or even notable news—out of this meeting and our view remains that September is the most likely month for an initial rate hike, although we are starting to feel like that could be slipping into 2016 at this point. We feel it’s the path of interest rate hikes that is more important than the start date of the cycle and slow tightening cycles tend to be rewarded by much better equity returns than fast cycles.

Housing data will also come from tomorrow’s domestic docket, with pending home sales expected to show the pipeline for existing home sales to have risen by 0.9% m/m during June, matching that seen in May, as well as MBA Mortgage Applications.

Treasuries were mostly lower, as the yield on the 2-year note was flat at 0.65%, the yield on the 10-year note gained 4 basis points to 2.25%, and the 30-year bond rate increased 3 bps to 2.97%.

Europe rebounds on M&A chatter and strength in materials stocks

The European equity markets rebounded from their recent sell-off that has come in the wake of the tumble for mainland Chinese markets, aided by strength in basic materials stocks, which recovered from their drop as of late. Also, financials was one of the stronger sectors and M&A chatter buoyed sentiment in the region, while traders digested a plethora of earnings reports. Michelin finished solidly lower as Europe’s largest tiremaker posted softer-than-expected first-half profits. BP PLC. moved higher despite posting 2Q profits that missed forecasts, with analysts noting that the energy giant is making good progress on its cost cutting measures, per Bloomberg. U.K. 2Q GDP growth accelerated to a 0.7% quarter-over-quarter rate, matching expectations, from the 0.4% expansion posted in 1Q. In other economic news, Italian consumer and business confidence both declined more than expected for this month. The euro traded lower versus the U.S. dollar and bond yields in the region were mixed, while Greek equity markets remained closed as the nation begins talks on a third bailout.

The U.K. FTSE 100 Index was up 0.8%, France’s CAC-40 Index and Spain’s IBEX 35 Index gained 1.0%, Germany’s DAX Index advanced 1.1%, Italy’s FTSE MIB Index rallied 2.3%, and Switzerland’s Swiss Market Index rose 0.9%.

Stocks in Asia finished mostly lower with mainland Chinese markets extending yesterday’s plunge that has come from economic concerns in the wake of some disappointing economic data recently and skepticism regarding the government’s efforts to stem the downside pressure. In the wake of the rout in China, commodity prices have tumbled to pressure resource-related issues. China’s Shanghai Composite Index fell again in volatile trading as the index finished well off of the worst levels of the day with the government boosting its measures to support the equity markets. However, stocks in Hong Kong finished to the upside. Japanese equities dipped, with the yen weakening late in the session to foster some resiliency, while Australian stocks also moved lower as some modest gains for banks and oil & gas issues offset continued weakness in basic materials stocks.

Earnings News

United Parcel Service Inc. reported 2Q earnings-per-share of $1.35, exceeding the $1.27 FactSet estimate, with revenues declining 1.2% year-over-year to $14.1 billion, below the $14.5 billion that the Street had projected. UPS reaffirmed its full-year earnings outlook. Shares are solidly higher.

Ford Motor Co. posted 2Q EPS ex-items of $0.47, above the expected $0.37, as revenues declined 0.6% y/y to $35.1 billion, versus the estimated $35.5 billion. F confirmed its full-year pre-tax profit guidance and shares are moving to the upside.

Dow member DuPont announced 2Q profits ex-items of $1.18 per share, compared to the $1.21 estimate, with revenues dropping 12.2% y/y to $8.9 billion, south of the $9.0 billion expectation. DD lowered its full-year earnings outlook and shares are seeing some pressure.

Dow component Pfizer Inc. reported 2Q EPS ex-items of $0.56, above the $0.52 estimate, as revenues declined 7.0% y/y to $11.9 billion, versus the expected $11.4 billion. PFE is trading higher after raising its full-year profit guidance, while increasing the low end of its revenue outlook.

Dow member Merck & Co. Inc. posted 2Q earnings ex-items of $0.86 per share, topping the $0.81 forecast, with revenues decreasing 10.5% y/y to $9.8 billion, roughly in line with expectations. MRK raised its full-year EPS outlook, while increasing the low end of its revenue guidance. Shares are trading modestly lower

Market Insights 7/27/2015

China Sell-Off Reverberates

The U.S. equity markets followed their foreign counterparts lower amid downtrodden global sentiment in the wake of the largest daily tumble in mainland Chinese markets in over eight years.

M&A announcements dominated a light equity front, while the economic calendar offered up a positive durable goods orders report. Treasuries were higher, while gold, crude oil prices and the U.S. dollar were lower.

The Markets…

The Dow Jones Industrial Average (declined 128 points (0.7%) to 17,441

The S&P 500 Index slid 12 points (0.6%) to 2,068

The Nasdaq Composite tumbled 49 points (1.0%) to 5,040

In heavy volume, 908 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil declined $0.75 to $47.39 per barrel, wholesale gasoline was $0.01 lower at $1.77 per gallon

The Bloomberg gold spot price fell $5.32 to $1,093.79 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.8% lower at 96.54

Durable goods orders top expectations to kick off busy economic week

Durable goods orders rose 3.4% month-over-month in June, compared to the Bloomberg estimate of a 3.2% increase, though May’s 1.8% drop was revised to a 2.1% fall. Ex-transportation, orders rose 0.8% m/m, topping forecasts of a 0.5% gain, but May’s 0.5% increase was negatively revised to a 0.1% dip. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, gained 0.9%, compared to the projected 0.5% increase, and following the downwardly revised 0.4% decline in the month prior, from an initially reported gain of 0.4%. The historically volatile report showed transportation orders jumped, led by a surge in aircraft and parts, though computers, electrical equipment and appliances, and machinery showed solid demand.

The Dallas Fed Manufacturing Index rose to -4.6 for July from June’s unrevised -7.0 level, though economists had forecasted an improvement to -3.5 and a reading below zero denotes contraction.

Today’s data commences a heavy economic docket for the week, with Wednesday’s monetary policy decision from the Federal Open Market Committee (FOMC) and Thursday’s first look at 2Q GDP likely taking top billing. As noted previously, the U.S. economy has continued along its tepid growth path, while global turmoil—notably in Greece and China—will likely continue to influence investor sentiment as well as the Fed’s decision about when to raise interest rates. We still believe September is a probable jumping off point, but the odds have probably been reduced, and the “lower for longer” scenario we’ve been talking about seems firmly in place.

Tomorrow’s economic docket will offer the S&P Case-Shiller Home Price Index, forecasted to show housing prices in the 20-city composite rose by 5.6% year-over-year during May and 0.3% on a seasonally-adjusted month-over-month basis. Also on tap is Consumer Confidence, with economists expecting a slight down-tick to 100.0 for July from the 101.4 posted in June, as well as Markit’s preliminary Services PMI Index and the Richmond Fed Manufacturing Index.

Treasuries finished higher, as the yield on the 2-year note declined 2 basis points to 0.65%, the yield on the 10-year note decreased 5 bps to 2.22%, and the 30-year bond rate dipped 3 bp to 2.93%.

Europe and Asia see pressure following drop in China

The European equity markets finished broadly lower, with global sentiment being upended by the largest drop in mainland Chinese markets in over eight years. The euro traded higher versus the U.S. dollar and bond yields in the region were mostly to the upside.

The Greek equity markets remained closed but could open this week as the nation has recently approved reform measures demanded by its international creditors, paving the way for talks on a third bailout to begin. The concerns regarding China overshadowed an unexpected improvement in German business confidence. Germany’s Ifo Business Climate Index improved to 108.0 for this month, from an upwardly revised 107.5 in June and compared to the decline to 107.2 reading that economists had projected.

Stocks in Asia finished broadly lower, led by the plunge in Chinese stock markets amid concerns about the nation’s economic growth as a disappointing industrial profit report added to recent string of soft data for the country. China reported that its June industrial profits fell 0.3% year-over-year, after rising 0.6% in May. Also, uncertainty regarding the effectiveness of China’s flood of support measures aimed at combating the recent volatility stymied sentiment, along with the sell-off in the commodity markets and mixed earnings results out of the U.S. as of late.

China’s Shanghai Composite Index tumbled 8.5%, the largest daily drop since February 2007, and the Hong Kong Hang Seng Index fell 3.1%. Japanese equities also dropped sharply, with the yen’s strength amid the global uneasiness pressuring export-related stocks. The only bright spot came from Australia’s markets, which showed some late-day resiliency with resource-related issues rebounding from their recent sell-off.

Market Insights 7/24/2015

Markets End Week Lower

Despite a blow-out earnings report from internet kingpin Amazon.com and mostly better-than-expected results from some consumer stalwarts, as well as a massive merger in the healthcare space, an unexpected decline in U.S. new home sales and a disappointing read on Chinese manufacturing output sapped sentiment, sending U.S. equities into the red.

Adding to the negative mood, uncertainty surrounding commodities lingered. Treasuries, the U.S. dollar and gold were higher, while crude oil prices finished lower.

The Markets..

The Dow Jones Industrial Average declined 163 points (0.9%) to 17,569

The S&P 500 Index fell 23 points (1.1%) to 2,080

The Nasdaq Composite decreased 58 points (1.1%) to 5,089

In moderately-heavy volume, 890 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil declined $0.31 to $48.14 per barrel, wholesale gasoline was $0.03 lower at $1.78 per gallon

The Bloomberg gold spot price rose by $8.59 to $1,099.29 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 97.28

Markets were lower for the week, as the DJIA tumbled 2.9%, the S&P 500 Index shed 2.2% and the Nasdaq Composite Index fell 2.3%

Housing and manufacturing data mixed

New home sales fell 6.8% month-over-month in June, to an annual rate of 482,000 units from May’s downwardly revised 517,000 unit pace, and compared to the forecast of a 548,000 rate. The median home price declined 1.8% y/y to $281,800. The supply of new home inventory rose to 5.4 months at the current sales pace. Sales in the Northeast jumped m/m, but were overshadowed by declines in the Midwest, South and West. New home sales are considered a timely indicator of conditions in the housing market as they are based on contract signings instead of closings.

The preliminary Markit U.S. Manufacturing PMI Index for July improved to 53.8 from June’s 53.6 level, where economists had expected it to remain, with a reading above 50 denoting expansion.

Treasuries were modestly higher, with the yield on the 2-year note fell 2 basis points to 0.68%, while the 10-year note, along with the 30-year bond, dipped 1 bp to 2.26% and 2.96%, respectively.

Europe and Asia lower on continued commodity weakness, Chinese data

The European equity markets finished lower, with some upbeat earnings reports in the region being met with continued uneasiness toward the commodity sector and a larger-than-expected deceleration in growth in eurozone business activity. Basic materials and oil & gas stocks led to the downside, with the uneasiness toward the sector being exacerbated by a disappointing read on Chinese manufacturing output. Markit’s preliminary Eurozone Composite PMI Index—a gauge of activity in both the services and manufacturing sectors—declined to 53.7 in July, from 54.2 in June, and compared to the decline to 54.0 that was expected, though a reading above 50 denotes expansion. Growth in manufacturing and services sector activity in Germany both unexpectedly decelerated, while manufacturing output out of France fell into contraction territory. The euro dipped versus the U.S. dollar and bond yields in the region mostly lost ground, though Greek rates rose. Greece’s equity markets remained closed.

The U.K. FTSE 100 Index was down 1.1%, France’s CAC-40 Index declined 0.6%, Germany’s DAX Index dropped 1.4%, Spain’s IBEX 35 Index fell 1.2%, Italy’s FTSE MIB Index decreased 0.5%, and Switzerland’s Swiss Market Index traded 0.6% lower

Stocks in Asia finished broadly lower following the losses in the U.S. yesterday that came courtesy of some disappointing earnings reports, while global sentiment was dampened by a disappointing read on Chinese manufacturing activity. Also, the recent tumble in commodity prices continued to foster global economic growth concerns to stymie sentiment. The preliminary Caixin Markit China PMI Manufacturing Index declined to 48.2 for July—the lowest level since April 2014—from 49.4 in June, and below the 49.7 level that economists had projected. A reading below 50 denotes contraction. In other economic news in the region, a preliminary report showing growth in Japan’s manufacturing output for this month accelerated more than expected.

WEEKLY RECAP: Heavyweight quarterly disappointments drag stocks lower

U.S. stocks failed to follow through on last week’s rally even as Greek debt crisis concerns continued to fade and Chinese stocks rebounded, clearing the way for the earnings front to dominate the week’s spotlight. The equity markets came under pressure courtesy of some disappointing results from some tech sector heavyweights, with reports from Dow members Apple Inc., International Business Machines Corp. and Microsoft Corp. all offering some sustenance for the bears. Outside the tech sector, results from Dow components Caterpillar Inc. , 3M Co. and United Technologies Corp. soured the Street’s mood, overshadowing a light domestic economic calendar that yielded a more than eight year high in existing home sales and an over forty-year low in jobless claims.

Per data compiled by FactSet, of the 187 companies in the S&P 500 that have reported thus far, 76% have topped earnings expectations, while 54% have bested revenue projections.

Q2 earnings season is in high gear, with expectations for modest gains y/y, excluding energy, once the season is complete. This fits with the economic picture that continues to develop—slow but relatively steady. Also, the recent drop in commodity prices is creating somewhat mixed messages. Falling prices for commodities can mean lower costs for both businesses and consumers, but can also reflect economic concerns, in this case likely emanating from China.

THE WEEK AHEAD: Next week’s economic docket chock full of data

Next week’s economic calendar will bring a plethora of key reports to likely compete with what is expected to be the busiest week for the earnings front. The June durable goods orders report will get the ball rolling on Monday, while Wednesday’s monetary policy decision from the Federal Open Market Committee and Thursday’s first look at 2Q GDP will likely garner attention.

As noted previously, given the slow but relatively steady U.S. economic picture, combined with the international turmoil, the timing of the Fed’s first rate hike is a bit less clear. We still believe September is a probable jumping off point, but the odds have probably been reduced from 60% chance to 40% chance in our opinion, and the “lower for longer” scenario we’ve been talking about seems firmly in place. All good signs for equities.

Other key U.S. releases for next week include: the S&P Case-Shiller Home Price Index, Markit’s preliminary Services PMI Index, Consumer Confidence, the Chicago PMI Index, and the final University of Michigan Consumer Sentiment Index.

Earning News

Amazon.com Inc. reported 2Q earnings-per-share (EPS) of $0.19, compared to the FactSet estimate calling for a $0.15 per share loss, with revenues rising 20.0% year-over-year (y/y) to $23.2 billion, above the $22.4 billion that the Street had projected. AMZN issued 3Q revenue guidance that was mostly above expectations. Shares are trading sharply higher.

Biogen Inc. posted 2Q earnings ex-items of $4.22 per share, above the estimated $4.10, as revenues increased 7.0% y/y to $2.6 billion, below the forecasted $2.7 billion. Shares are tumbling after the company slashed its full-year guidance, based largely on revised expectations for the growth of its key multiple sclerosis drug.

Anthem Inc. announced an agreement to acquire Cigna Corp. (CI $148) for about $188.00 per share in cash and stock, valued at about $48.4 billion, excluding debt. Under the terms of the deal, Cigna shareholders will receive $103.40 in cash and 0.5152 Anthem stock for each share they own. Shares of both companies are lower as the deal has been widely speculated recently amid some major consolidation in the sector.

Dow member Visa Inc. posted fiscal 3Q EPS ex-items of $0.62, above the expected $0.58, as revenues grew 12.0% y/y to $3.5 billion, north of the $3.4 billion that was projected. The company maintained its revenue growth outlook, but raised its expectation for the negative impact of foreign currency fluctuations. V is trading noticeably higher.

Starbucks Corp. announced fiscal 3Q earnings ex-items of $0.42 per share, one penny above expectations, with revenues rising 18.0% y/y to $4.9 billion, roughly in line with forecasts. 3Q same-store sales rose 7.0% y/y, versus the 6.1% increase that was anticipated. SBUX reaffirmed its 4Q EPS outlook, while raising its full-year profit forecast. SBUX is moving decisively higher.

AT&T Inc. reported 2Q EPS ex-items of $0.69, above the $0.63 expectation, as revenues increased 1.4% y/y to $33.0 billion, versus the $33.1 billion that was projected. T is trading nicely higher.

An Uninspiring Earnings Picture

It is hard to characterize the ongoing Q2 earnings season as anything but weak. Growth is non-existent, companies are struggling to beat lowered estimates particularly for revenues, and guidance remains on the negative side.

These negatives notwithstanding, not everything is so bleak. The Finance sector has been able to show some earnings power despite the tough interest rate environment. Revenue beat ratios have started improving after starting off at a very low level and negative revisions to current quarter estimates aren’t as numerous as we have become accustomed to in the last few quarters.

All in all, the earnings picture emerging from the Q2 earnings season is fairly uninspiring. The overall level of total earnings is quite high, not that far from the all-time record levels achieved a few quarters back. But there is no growth and the growth pace appears unlikely to pick up in the second half of the year either.

Q2 Scorecard (as of July 22nd, 2015)

Including this morning’s earnings reports, we now have Q2 results from 103 S&P 500 members that combined account for 36% of the index’s total market capitalization. Total earnings for these 103 companies are up +3.0% on +1.2% higher revenues, with 70.2% beating EPS estimates and 47.1% coming ahead of top-line expectations.

Here are some of the key points about the results thus far:

Total earnings for the 49.6% of the Finance sector’s market cap in the S&P 500 that has reported results are up +11.6% on +0.3% lower revenues, with 65.4% beating EPS estimates and 69.2% coming ahead of revenue estimates. While the revenue picture is as bad now as it has been in other recent periods, the sector’s Q2 earnings growth pace compares favorably to other recent periods, particularly when adjusted for the outsized one-time benefit for Bank of America in the preceding period.

While a big part of the sector’s Q2 growth is due to lower litigation related expenses, there is some improvement, howsoever modest, in core profitability as well. Underlying loan demand is improving, as is the outlook for investment banking, with momentum on the advisory side of the business helping offset weakness on the fixed income trading side.

Total earnings for the 62.2% of the Tech sector’s market cap in the S&P 500 that has reported results are up +4.1% on +4.9% lower revenues, with 56.3% beating EPS estimates and 50% coming ahead of revenue estimates. The sector’s earnings and revenue surprises are about in-line with other historical periods, though the growth rates are notably on the weak side, despite Apple’s (AAPL – Analyst Report) strong contribution.

The Blended Q2 Picture

Combining the actual results from the 103 S&P 500 members with estimates for the still-to-come 397 companies, total Q2 earnings are expected to be down -3.9% on -4.7% lower revenues. Stronger results from the big banks has improved this growth picture, with the Q2 growth picture deteriorating to an earnings decline of -7.6% on -5.1% lower revenues on ex-Finance basis. The Energy sector has the opposite effect on the aggregate growth picture, with total earnings for the sector expected to be up +3% from the same period last year on +1.1% in revenues on an ex-Energy basis.

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But growth is expected to resume next year, with total earnings for the S&P 500 index expected to be up in the low double digits. But then again, expectations for outer periods always tend to be on the optimistic side.

Market Insights 7/23/2015

Earnings Woes Sink Stocks

U.S. equities finished lower, led by the Dow, after disappointing results from Caterpillar, 3M and American Express eclipsed a better-than-expected report from General Motors, as well as some upbeat economic news.

Adding some fuel to the negative sentiment, the weakness in commodities continued, with crude oil prices nearing a bear market, according to Bloomberg, even though the U.S. dollar was lower. Treasuries were higher, but gold reversed course to finish lower.

The Markets..

The Dow Jones Industrial Average fell 119 points (0.7%) to 17,732

The S&P 500 Index decreased 12 points (0.6%) to 2,102

The Nasdaq Composite lost 25 points (0.5%) to 5,146

In moderately heavy volume, 847 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil declined $0.74 to $48.45 per barrel, wholesale gasoline edged $0.02 lower to $1.85 per gallon

The Bloomberg gold spot price decreased $5.26 to $1,088.98 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% lower at 97.14

Jobless claims drop sharply, while Leading Indicators top forecasts

The Conference Board’s Index of Leading Economic Indicators (LEI) rose 0.6% month-over-month in June, above the projected 0.3% growth, and May’s gain was revised higher to 0.8%. Components pertaining to the yield curve and building permits led the stronger-than-expected report.

Weekly initial jobless claims fell by 26,000 to 255,000 last week—the lowest level since November 1973—and well below the 278,000 Bloomberg estimate, as the prior week’s figure was unrevised at 281,000. The four-week moving average dropped by 4,000 to 278,500, while continuing claims declined by 9,000 to 2,207,000, south of the forecasted 2,233,000 level.

The Kansas City Fed Manufacturing Activity Index rose to -7 for July from -9 in June, versus expectations of an improvement to -5, with a reading below zero denoting contraction.

Treasuries finished higher, as the yields on the 2-year and 10-year notes fell 5 basis points to 0.68% and 2.27%, respectively, while the 30-year bond rate declined 6 bps to 2.97%.

Tomorrow’s new home sales report will round out the week’s housing data, forecasted to show that new home construction rose by 0.7% m/m to an annual rate of 550,000 units.

Europe, Asia mixed amid weakness in oil stocks and earnings

The European equity markets finished mixed as traders digested a flurry of earnings reports in the region, though oil & gas issues hamstrung the markets amid the recent downside pressure on oil prices, which are near a bear market, per Bloomberg. Greece continued to be in focus, though its stock markets remained closed, as it passed a second package of reform measures demanded by its international creditors, keeping it on track to secure a third bailout. The euro traded higher versus the U.S. dollar and bond yields in the region were mostly lower. In economic news, U.K. June retail sales missed expectations.

Stocks in Asia finished mixed on the heels of the declines in the U.S. yesterday that came courtesy of some disappointing quarterly results from the tech sector, while Chinese stocks extended their winning streak. Japanese equities gained ground, aided by the nation’s June trade report which showed growth in exports accelerated sharply m/m in June, while imports declined by a smaller amount than anticipated. China’s Shanghai Composite Index rallied, extending its winning streak to six sessions, as concerns about the recent tumble in the country’s equity markets continued to ease amid the backdrop of a plethora of support measures deployed by the government, while the Hong Kong Hang Seng Index also rose. However, Australian equities declined on weakness in resource-related stocks as the sell-off in the commodity markets lingered, and as financials saw some pressure, while stocks in India declined following some disappointing earnings reports in the region. Finally, South Korean equities finished flat, as the won continued to weaken, while the nation reported a 0.3% quarter-over-quarter pace of expansion for 2Q GDP, just shy of the 0.4% gain that was expected, a deceleration from the 0.8% growth posted in 1Q.

Earnings News

Caterpillar Inc. reported 2Q earnings-per-share (EPS) ex-items of $1.27, roughly in line with the FactSet estimate, as revenues decreased 13.4% year-over-year (y/y) to $12.3 billion, below the $12.7 billion that the Street had projected. CAT reduced its full-year revenue outlook, noting that a challenging second half of the year is still expected with lower oil prices a major factor. Shares traded lower.

General Motors Co. posted 2Q EPS ex-items of $1.29, well above the estimated $1.08, as revenues declined 3.5% y/y to $38.2 billion, versus the forecasted $38.0 billion. The automaker said the first two quarters of the year were strong as it fully capitalized on a robust North American industry and maintained its strength in China, despite the challenging conditions in that market. GM was nicely higher.

Dow component 3M Co. announced 2Q profits of $2.02 per share, above the $2.00 that was estimated, with revenues declining 5.5% y/y to $7.7 billion, compared to the projected $7.8 billion. The company lowered the high end of its full-year earnings outlook. MMM was lower.

McDonald’s Corp. achieved 2Q EPS of $1.26, above the $1.23 expectation, as revenues fell 10.0% y/y to $6.5 billion, topping the estimated $6.4 billion. 2Q same-store sales decreased 0.7% y/y, larger than the 0.6% decline that was projected. MCD finished modestly lower in choppy trading.

American Express Co. reported 2Q earnings of $1.42 per share, above the $1.32 estimate, with revenues decreasing 4.0% y/y to $8.3 billion, versus the forecasted $8.4 billion. AXP was decisively lower.

Comcast Corp. announced 2Q earnings ex-items of $0.84 per share, matching expectations, with revenues increasing 11.3% y/y to $18.7 billion, beating the expected $18.1 billion. However, the company’s net subscriber additions came in mostly below forecasts, though the decline in its video subscribers came in smaller than anticipated. CMCSA finished lower.

SanDisk Corp. rallied nearly 18% after the flash memory chip maker posted 2Q EPS ex-items of $0.66, well above estimates of $0.34, despite a 24.0% y/y drop in revenues to $1.2 billion, roughly in line with forecasts.

Market Insights 7/22/2015

Tech Sector Earnings Pull Stocks Down

U.S. equities finished the trading session lower amid some disappointing earnings reports from the tech sector and as commodity prices continued to see downward pressure.

Crude oil prices slid lower and gold logged its longest losing streak in nearly two decades, while the U.S. dollar was higher and Treasuries finished mixed.

In economic news, existing home prices increased month-over-month in June and the median existing home price hit an all-time high.

The Markets….

The Dow Jones Industrial Average declined 68 points (0.4%) to 17,851

The S&P 500 Index decreased 5 points (0.2%) to 2,114, sectors leading the way higher included Financials, Utilities and Consumer Staples

The Nasdaq Composite fell 36 points (0.7%) to 5,172

In moderately heavy volume, 834 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil declined $1.67 to $49.19 per barrel, wholesale gasoline lost $0.05 to $1.87 per gallon

The Bloomberg gold spot price decreased $6.86 to $1,094.39 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 97.54

Earnings News

Apple Inc. reported fiscal 3Q earnings-per-share (EPS) of $1.85, above the $1.81 FactSet estimate, with revenues growing 32.5% year-over-year (y/y) to $49.6 billion, compared to the $49.3 billion that the Street had projected. However, iPhone sales during the quarter, which rose about 35.0% y/y to 47.5 million units, missed some analysts’ estimates, and the company issued 4Q revenue guidance that was mostly below expectations. Shares closed decisively lower.

Microsoft Corp. announced a $7.5 billion non-cash impairment charge related to the assets associated with the acquisition of the Nokia devices and services business, which led to the company posting the largest quarterly loss in its history. However, excluding the Nokia charge, 4Q EPS were $0.62, versus the estimated $0.56, as revenues declined 5.0% y/y to $22.2 billion, compared to the expected $22.1 billion. The company issued 1Q revenue guidance that was mostly below forecasts. MSFT traded solidly lower.

Boeing Co. announced 2Q profits ex-items of $1.62 per share, north of the expected $1.37, with revenues rising 11.0% y/y to $24.5 billion, above the $24.3 billion estimate. BA lowered its full-year EPS outlook, reflecting the impact of the KC-46 tanker 2Q charge announced last week. Shares gained ground.

Yahoo Inc. achieved 2Q EPS ex-items of $0.16, two cents below expectations, as revenues excluding traffic acquisition costs (TAC) were roughly flat y/y at $1.0 billion, mostly in line with forecasts. The search engine issued softer-than-expected 3Q guidance. YHOO finished lower.

Coca-Cola Co. reported 2Q EPS ex-items of $0.63, three pennies north of estimates, as revenues declined 3.0% y/y to $12.2 billion, versus the $12.1 billion that was anticipated. KO traded modestly lower.

Chipotle Mexican Grill Inc. posted 2Q earnings of $4.45 per share, two cents above expectations, with revenues growing 14.1% y/y to $1.2 billion, roughly in line with projections. 2Q same-store sales rose 4.3% y/y, compared to the 5.7% gain that was anticipated. Shares closed solidly higher.

Existing home sales top forecasts, while mortgage applications little changed

Existing-home sales in June rose to the highest level in over eight years, gaining 3.2% month-over-month to a 5.49 million annual rate, 9.6% above the pace a year ago and compared to the Bloomberg forecast of a rise to a 5.40 million pace. May’s figure was adjusted downward to a 5.32 million unit rate. The median existing-home price hit an all-time high, up 6.5% from a year ago at $236,400. Single-and multi-family sales both were higher m/m and y/y. The National Association of Realtors (NAR) noted, “Buyers have come back in force,” fueled by a year-plus of steady job growth and an improving economy. However, the NAR added that limited inventory amid strong demand continues to push home prices higher, leading to declining affordability for prospective buyers, and more needs to be done on the housing construction front.

Despite the headwinds of tight inventory and ensuing jump in home prices, today’s housing data adds credence to residential investment is setting up to be a more important driver of U.S. GDP. This view is bolstered by household formations and job growth among the 25-34 age bracket both surging.

The MBA Mortgage Application Index ticked 0.1% higher last week, after dropping 1.9% in the previous week. The modest increase came as a 0.5% decline in the Refinance Index was offset by a 1.0% rise for the Purchase Index, while the average 30-year mortgage rate remained at 4.23%.

Treasuries were mixed, with the yield on the 2-year note rising 3 basis points to 0.71%, while the yield on the 10-year note was flat at 2.33% and the 30-year bond rate declined 2 bps to 3.05%.

Tomorrow, the U.S. economic calendar will commence with a look at weekly initial jobless claims, expected to move to a level of 278,000 from the 281,000 registered in the week prior, followed by the Index of Leading Economic Indicators, which is anticipated to show a 0.3% m/m rise for June after gaining 0.7% in May. Rounding out the day, the Kansas City Fed Manufacturing Activity Index is forecasted to have improved to a level of -5 for July from the -9 registered in June, with a reading below zero denoting contraction.

Europe and Asia mostly lower

The European equity markets finished mostly lower, with technology stocks seeing some pressure following the disappointing earnings reports out of the U.S. technology sector, while the continued pressure on commodity prices weighed on basic materials and oil & gas issues. Greek debt crisis concerns continued to ease, though the nation’s equity markets remained closed.

The euro was lower versus the U.S. dollar, and bond yields in the region mostly declined, though Greek rates rose. Meanwhile, the Bank of England minutes from its policy meeting earlier this month showed that although policymakers voted unanimously to keep its benchmark interest rate unchanged at a record low of 0.50%, the report showed more were concerned about inflation.

Stocks in Asia finished mostly to the downside as traders digested some disappointing earnings reports out of the U.S., headlined by Apple’s softer-than-expected revenue guidance. Japanese equities snapped a six-session streak of gains, with some strength in the yen applying some pressure on export-related stocks. Australia reported the nation’s 2Q consumer price inflation came in slightly cooler than expected. The recent rout in commodity prices weighed on the country’s basic materials sector, while financials also saw some pressure. South Korean equities moved lower, exacerbated by a rebound in the won versus the U.S. dollar. Chinese stocks finished mixed as traders continue to assess the recent jump in volatility that prompted a flood of support measures from the government. Bucking the regional trend, stocks in India rose amid eased inflation concerns on the sell-off in commodity prices.