Stocks Mixed, Tech Still Weak
U.S. stocks finished mixed, as investors weighed relatively upbeat global economic data and continued uncertainty surrounding the tech sector.
Treasury yields and the U.S. dollar were little changed, while crude oil moved above $50/barrel and gold was slightly higher.
The Dow Jones Industrial Average advanced 61 points (0.3%) to 21,891
The S&P 500 Index was 2 points (0.1%) lower at 2,470
The Nasdaq Composite declined 27 points (0.4%) to 6,348
In heavy volume, 1.0 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq
WTI crude oil gained $0.46 to $50.17 per barrel and wholesale gasoline was $0.03 higher at $1.68 per gallon
The Bloomberg gold spot price inched $0.57 higher to $1,270.21 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 92.85
Pending home sales jump, regional manufacturing activity continues to show growth
Pending home sales rose 1.5% month-over-month in June, versus the Bloomberg projection of a 1.0% increase, and following the upwardly revised 0.7% drop registered in May. Compared to last year, sales were 0.7% higher. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which dipped slightly more than expected in June.
The Chicago Purchasing Managers Index declined more than expected but remained at a level depicting expansion (above 50), after falling to 58.9 in July from 65.7 in June, which was the highest since May 2014. Expectations called for a decrease to 60.0.
The Dallas Fed Manufacturing Activity Index surprisingly rose further into a level depicting expansion (a reading above zero). The index improved to 16.8 in July, from 15.0 in June, and compared to the expected decline to 13.0.
Today’s reports begin a week that will see earnings continue to pour in and the economic calendar likely garnering attention given the recent action in bonds and currencies, while the markets appear a little less certain that another Fed rate hike this year is in the offing. Tomorrow, we will get a look at national manufacturing activity in July with the releases of the ISM Manufacturing Index, projected to dip to 56.5 from 57.8 in June, and the final Markit Manufacturing PMI Index, expected to be unrevised at 53.2 and up from June’s 52.0 level. Readings above 50 for both depict expansion. We will also get a look at the health of the consumer and inflation, with the release of June personal income and spending, forecasted to match May’s m/m gains of 0.4% and 0.1%, respectively, while the core PCE Index—a Fed favored gauge of inflation—is projected to remain at a 1.4% year-over-year rate and below the Fed’s 2.0% target. Tomorrow’s monthly U.S. auto sales and construction spending reports are also likely to be in focus.
A solid earnings season should contribute to a continuation of the bull market in stocks, along with economic data that is showing a robust labor market, but few signs of inflation building. Dangers are lurking, however, and the possibility of a decent-sized pullback has grown over the past couple of months, in light of monetary policy and geopolitical uncertainties. While we would likely view such a move as healthy, it can be disconcerting. Stay diversified and be prepared to guard against overreacting to any such move.
Treasuries were little changed, as the yields on the 2-year and 10-year notes, along with the 30-year bond, were all flat at 1.35%, 2.29% and 2.90%, respectively. Bond yields have shown some relative signs of life after recent pressure though the U.S. dollar remains hampered. The markets continue to grapple with geopolitical and global monetary policy uncertainties, exacerbated by last week’s unchanged Fed monetary policy decision that the decision was unanimous, and the addition of the words “relatively soon” point to a September start point to balance sheet shrinkage, or quantitative tightening (QT). Next up is the Jackson Hole annual conference, at which Yellen will speak, which could provide an opportunity to further steer the consensus around QT’s timing. There is a September timing risk however, given that we could be in the midst of a debt ceiling stand-off, so stay tuned.
Europe mixed, Asia mostly higher following data and amid geopolitical uncertainty
European equities finished mixed in late-day action, with basic materials and oil & gas issues finding some support from upbeat economic data in the region, which followed relatively favorable reports out of Asia. However, the rally in technology issues continued to pause as analysts grapple with valuation concerns as earnings season rolls on. Also, consumer goods stocks were pressured by tobacco companies in the wake of late Friday’s FDA announcement that it plans to crackdown on nicotine levels in cigarettes.
The euro and British pound both moved higher in late-day action versus the U.S. dollar to apply some pressure on the markets, ahead of this week’s monetary policy decision from the Bank of England, while core Eurozone consumer price inflation estimate came in slightly hotter than expected.
Bond yields in the region finished mixed. German retail sales rose more than expected in June, while the Eurozone unemployment rate unexpectedly dipped. Stocks appeared to shrug off flared-up geopolitical concerns in the wake of another missile test by North Korea late last week.
The U.K. FTSE 100 Index ticked 0.1% higher, France’s CAC-40 Index dropped 0.7%, Germany’s DAX Index declined 0.4%, and Spain’s IBEX 35 Index decreased 0.3%, while Italy’s FTSE MIB Index gained 0.3% and Switzerland’s Swiss Market Index advanced 0.4%.
Stocks in Asia finished mostly to the upside, with the markets digesting some economic data, along with the continued global earnings season. Japanese equities declined, with the yen gaining ground to overshadow an upbeat read on the nation’s industrial production, which rebounded more than expected in June. However, stocks traded in mainland China and Hong Kong rallied following upbeat earnings from some key companies in the nation, and as manufacturing and non-manufacturing reports continued to suggest expansion in July, with the latter showing growth in activity out of the key services sector accelerated. Australian securities advanced those traded in India also rose ahead of this week’s monetary policy decisions from the two countries. Meanwhile, South Korean stocks ticked only slightly higher, showing some late-day resiliency in the face of late last week’s missile test from North Korea. South Korean and Indian markets remain near all-time highs.