US stocks finished last week's trading session mixed with the Dow outperforming its peers after the Senate failed another attempt at healthcare reform and Amazon.com posted disappointing profit figures. A plethora of Dow components reported earnings today, while tobacco stocks were under pressure on the heels of the FDA announcing new plans for cutting the level of nicotine in cigarettes. Treasuries were higher after an advance read on Q2 GDP narrowly missed forecasts, gold and crude oil prices also advanced and the US dollar traded to the downside.
The Dow Jones Industrial Average (DJIA) advanced 34 points (0.2%) to 21,830, the S&P 500 Index was 3 points (0.1%) lower at 2,472, and the NASDAQ Composite declined 8 points (0.1%) to 6,375. In moderate volume, 772 million shares were traded on the NYSE and 1.9 billion shares changed hands on the NASDAQ. WTI crude oil gained $0.67 to $49.71 per barrel and wholesale gasoline was $0.03 higher at $1.65 per gallon. Elsewhere, the Bloomberg gold spot price inched $0.61 lower to $1,259.83 per ounce, and the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.6% lower at 93.29. Markets were mixed for the week, as the DJIA increased 1.2%, the S&P 500 Index was nearly unchanged and the NASDAQ Composite ticked 0.2% lower.
Amazon.com Inc (NASDAQ:AMZN). (AMZN $1,020) reported Q2 earnings-per-share (EPS) of $0.40, below the $1.41 FactSet estimate, as revenues grew 25.0% year-over-year (y/y) to $38.0 billion, above the projected $37.2 billion. AMZN issued Q3 revenue guidance that had a midpoint above the Street's expectations. Shares were solidly lower.
Starbucks Corp. (NASDAQ:SBUX $54) posted fiscal Q3 earnings of $0.47 per share, or $0.55 ex-items, versus the expected $0.55, as revenues rose 8.0% to $5.7 billion, below the projected $5.8 billion. Q3 same-store sales increased 4.0% y/y, versus the estimated 4.2% gain, as sales grew 5.0% in the US SBUX issued Q4 EPS guidance that missed forecasts, while it lowered its full-year profit outlook. Shares fell.
Dow member Merck (NYSE:MRK) & Co. Inc. (MRK $64) announced Q2 EPS of $0.71, or $1.01 ex-items, versus the estimated $0.87, as revenues increased 1.0% y/y to $9.9 billion, north of the $9.8 billion expectation. MRK reaffirmed its full-year EPS outlook, while raising its revenue guidance. Shares ticked higher.
Dow component Exxon Mobil Corp. (NYSE:XOM $80) reported Q2 EPS of $0.78, compared to the expected $0.84, as revenues rose 9.0% y/y to $62.9 billion, versus the projected $61.3 billion. Shares closed lower.
Dow member Chevron Corp. (NYSE:CVX $108) posted Q2 profits of $0.77 per share, below the estimated $0.86, as revenues rose 17.8% y/y to $34.5 billion, above the forecasted $33.0 billion. CVX traded higher.
Dow component Intel Corp. (NASDAQ:INTC $35) announced Q2 EPS of $0.58, or $0.72 ex-items, compared to the forecasted $0.68, as revenues grew 14.0% y/y to $14.8 billion, north of the expected $14.4 billion. INTC issued Q3 guidance that topped projections and raised its full-year outlook. INTC traded higher.
Tobacco stocks fell to pressure the consumer staples sector as the US Food and Drug Administration (FDA) announced new plans for tobacco and nicotine regulation, including the pursuit of cutting nicotine in cigarettes to non-addictive levels.
First look at Q2 shows growth accelerated less than expected
The first look (of three) at Q2 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 2.6%, from the downwardly revised 1.2% expansion in Q1, and below the 2.7% growth forecasted by Bloomberg. Personal consumption gained 2.8%, matching forecasts and following the upwardly adjusted 1.9% increase recorded in Q1.
On inflation, the GDP Price Index came in at a 1.0% rise, below expectations of a 1.3% gain and the upwardly revised 2.0% increase seen in Q1, while the core PCE Index, which excludes food and energy, moved 0.9% higher, above expectations of a 0.7% gain, and following the downwardly adjusted 1.8% advance in Q1.
Along with personal consumption, the accelerated Q2 growth came as the decline in private inventory investment eased and federal government spending turned higher. Also, although nonresidential fixed investment decelerated, investment in equipment jumped, suggesting improved business sentiment may have bolstered capital spending. Residential spending dropped after a strong Q1, reflecting the growing headwinds facing the housing sector. State and local government spending turned lower and Imports—a subtraction to GDP—increased, while growth in exports downshifted.
The Q2 Employment Cost Index rose by 0.5% q/q, south of forecasts of a 0.6% rise, and compared to the 0.8% gain seen in Q1.
The final July University of Michigan Consumer Sentiment Index was revised higher to 93.4 from the preliminary level of 93.1, versus forecasts of 93.2. But the index is down versus June's level of 95.1. Compared to last month, the expectations component dipped, while the current conditions component improved. The 1-year inflation outlook remained at June's 2.6% rate, while the 5-10 year forecast ticked higher to 2.6% from 2.5%.
Treasuries traded modestly higher, with the yields on the 2-Year and 10-Year notes decreasing 2 basis points (bps) to 1.35% and 2.29% respectively, while the yield on the 30-Year bond dipped 3 bp to 2.89%.
Europe and Asia mostly lower as sentiment hits headwinds
European equities finished mostly lower, with the euro and British pound rising versus the US dollar. Uneasiness seemed to flare up, with the tech sector leading to the downside on the heels of yesterday's late-day rollover in the US Also, another failed attempt at US healthcare reform exacerbated political uncertainty. The stock markets shrugged off a ten-year high read on eurozone economic confidence, accelerating Spanish GDP growth and stronger-than-expected German inflation figures. Bond yields in the region rose following the economic data.
Stocks in Asia finished mostly lower amid an apparent flare-up in risk aversion following yesterday's tech rollover in the US and another failed attempt at healthcare reform late last night in the US The yen gained ground to weigh on Japanese equities. Japan also released national consumer inflation figures for June, which rose in line with forecasts, while its July read on core consumer inflation in Tokyo came in slightly above estimates. Chinese stocks ticked higher, but shares in Hong Kong declined as the aforementioned headwinds were met with some earnings uneasiness as a plethora of key results loom. Australian securities dropped amid broad-based weakness, led by healthcare. South Korean equities fell and Indian stocks decreased, with both indexes pulling back from recent all-time highs.
Stocks mixed as earnings meet uncertainties
Stocks finished mixed with the busiest week of earnings season lifting the Dow, courtesy of rallies in Boeing (NYSE:BA), Caterpillar Inc. (NYSE:CAT) and McDonald's Corp. (NYSE:MCD) following their results. Verizon (NYSE:VZ) also jumped to aid the Dow and telecommunications issues, which led to the upside. However, technology stocks dipped amid some late week volatility as the Street appeared to grapple with valuations following the sector's sharp rally the past year, while Google's parent Alphabet (NASDAQ:GOOGL) higher-than-expected traffic acquisition costs fostered margin concerns. However, Facebook (NASDAQ:FB) managed to rally on its earnings results. Earnings season has been mostly better than expected, as about 73% have topped revenue forecasts and nearly 78% bested earnings expectations of the 287 S&P 500 companies posting results.
Healthcare issues led to the downside amid mixed earnings results, disappointing news from Eli Lilly and Company (NYSE:LLY) and Astrazeneca (NYSE:AZN) regarding potential new drugs, and another failed attempt at healthcare reform. Energy issues were standout gainers this week as crude oil prices extended a recent run on signs of global economic growth and aided by more bullish oil inventory data. Bond rates and the US dollar were in focus, with the Treasury yield curve steepening and the US Dollar Index hitting a low not seen since mid-2016. The moves came on relatively upbeat economic data and after the Fed's unchanged monetary policy stance.
Next week, earnings will continue to pour in, but the economic calendar will likely garner attention given the recent action in bonds and currencies and as the markets appear a little less certain that another Fed rate hike this year is in the offing. Personal income and spending, the ISM Manufacturing and non-Manufacturing Indexes, trade balance, Markit's business activity reports and monthly auto sales are notable releases. However, the headliner will likely be Friday's July nonfarm payroll report.
International reports due out next week that deserve a mention include: Australia—Reserve Bank of Australia monetary policy decision, retail sales building approvals and trade balance. China—Manufacturing and non-Manufacturing PMIs. India—Manufacturing and Services PMIs and the Reserve Bank of India's monetary policy decision. Japan—industrial production and wage figures. Eurozone—unemployment rate, consumer price inflation, Q2 GDP, Markit's business activity reports and retail sales, along with German factory orders. U.K.—Bank of England monetary policy decision and Markit's business activity reports.