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 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.
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.