Stocks Mixed Amid Persistent Uncertainty
U.S. equities finished out the week mixed in a choppy session, as a morning relief rally succumbed to the recent persistent uncertainty. Early gains came as political concerns seemed to have eased somewhat, with President Trump's top economic advisor Gary Cohn suggesting he will not leave his post. However, the highly-anticipated speeches from Fed Chair Janet Yellen and ECB President Mario Draghi didn’t offer anything new to remedy swirling anxiety surrounding global monetary policy. The US dollar fell following Yellen’s and Draghi’s remarks, but bounced off the lows of the day, and Treasury yields ticked lower, while gold was higher and crude oil prices were mixed.
The Dow Jones Industrial Average (DJIA) rose 30 points (0.1%) to 21,814, the S&P 500 Index added 4 points (0.2%) to 2,443, and the NASDAQ Composite shed 6 points (0.1%) to 6,266. In light-to-moderate volume, 663 million shares were traded on the NYSE and 1.4 billion shares changed hands on the NASDAQ. WTI crude oil rose $0.44 to $47.87 per barrel and wholesale gasoline lost $0.01 at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price gained $4.42 to $1,290.82 per ounce, and the dollar index, a comparison of the U.S. dollar to six major world currencies, was 0.3% lower at 92.50. Markets were higher for the week, as the DJIA increased 0.6%, the S&P 500 Index rose 0.7% and the NASDAQ Composite gained 0.8%.
Ulta Beauty Inc (NASDAQ:ULTA $212) reported Q2 earnings-per-share (EPS) of $1.83, above the $1.78 FactSet estimate, as revenues grew 20.6% year-over-year (y/y) to $1.3 billion, roughly matching expectations. Q2 same-store sales rose 11.7% y/y, just shy of the 12.0% increase that the Street had projected. ULTA issued Q3 EPS guidance that had a midpoint below estimates, while its revenue and same-store sales outlooks were roughly in line with projections. For the full-year, the company raised its guidance. Shares finished solidly lower.
Broadcom Ltd. (NASDAQ:AVGO $246) posted fiscal Q3 EPS of $1.14, or $4.10 ex-items, compared to the expected $4.03, as revenues rose 18.0% y/y to $4.5 billion, roughly in line with estimates. BRCM issued Q4 revenue guidance that was mostly in line with forecasts. Shares were lower as the company suggested some areas of weakness in its hard disk drive and data center segments that are fostering some concerns on the Street.
GameStop Corp. (NYSE:GME $19) announced Q2 earnings of $0.22 per share, or $0.15 ex-items, compared to the $0.18 estimate, as revenues rose 3.4% y/y to $1.7 billion, above the projected $1.6 billion. Q2 same-store sales rose 1.9%, versus the expected 2.2% decline, but its gross margin declined y/y and missed the Street's forecasts. GME reaffirmed its full-year EPS outlook and said it expects same-store sales to be at the high end of its previous guidance. Shares fell sharply on analyst concerns about the lighter-than-expected gross margin.
Early look at July manufacturing demand show core orders grew
July preliminary durable goods orders fell 6.8% month-over-month (m/m), compared to the Bloomberg estimate of a 6.0% drop, and June's 6.4% jump was unrevised. Ex-transportation, orders were 0.5% higher m/m, compared to forecasts of a 0.4% gain and versus June's unrevised 0.1% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, grew 0.4%, in line with projections, and following the unrevised flat reading posted in the month prior.
The headline figure was driven by the volatile component of transportation equipment as nondefense aircraft and parts orders fell nearly 71% m/m, more than offsetting a 48% rise in defense aircraft and parts, and following the prior month's 129% surge. Demand for computers and related products, along with electrical equipment, appliances and components led the rise in core durable goods orders, partially offset by declines in orders for communications and machinery goods.
Treasuries were mostly higher, as the yield on the 2-Year note was little changed at 1.33%, while the yield on the 10-Year note decreased 3 basis points (bps) to 2.17% and the 30-Year bond rate declined 2 bps to 2.75%.
Treasury yields came under pressure in the wake of Fed Chairwoman Janet Yellen's speech at the Fed's symposium in Jackson Hole, Wyoming. Amid the backdrop of festering global monetary policy uncertainty on signs of steady economic growth but low inflation, Yellen offered little in terms of economic and monetary policy commentary, focusing on financial regulation. She pointed out progress in putting in place a regulatory and supervisory structure to lower risks to financial stability and achieving a stronger financial system.
Yellen added that any changes to post-crisis financial reforms should be "modest." She did note that "substantial progress has been made" toward the Fed's economic objectives of maximum employment and price stability. The markets were looking for any clues to the possibility of another rate hike this year and if the Central Bank will begin the process of shrinking its behemoth $4.5 trillion balance sheet next month as most are expecting.
Similar to Yellen, European Central Bank President (ECB) Mario Draghi steered clear from commenting on future monetary policy in his afternoon speech at the Fed symposium, instead focusing on trade and tax regulations. The euro jumped following Draghi’s remarks, adding pressure to the U.S dollar, as the lack of commentary toward future policy only added to the recent uncertainty.
Europe gives up gains, Asia mostly higher as monetary policy eyed
European stocks relinquished early gains and finished mostly lower, with the euro and British pound gaining noticeable ground on the greenback after Fed Chair Janet Yellen offered few new clues to monetary policy at the highly-anticipated Fed symposium in Jackson Hole, Wyoming.
Caution appeared evident ahead of today's speech by ECB President Draghi at the Fed's symposium. Bond yields in the region finished mixed. Germany reported Q2 GDP growth of 2.1% y/y, in line with forecasts, and versus the 1.9% expansion posted in Q1. In other economic news, the expectations component of the August German business confidence report unexpectedly improved, while French consumer confidence dipped as expected for this month.
Stocks in Asia finished mostly higher to close out the week even as potential volatility-boosting speeches from the Fed and ECB loomed on the horizon, while U.S. political and global trade uncertainty festered. Japanese equities rose, with the yen extending yesterday's decline, and as the Asian country reported that national consumer price inflation rose in line with expectations in July, while Tokyo consumer price inflation for August came in hotter than expected.
Mainland Chinese stocks and those listed in Hong Kong rallied, with earnings results in the region boosting sentiment, while securities in South Korea overcame early weakness and ticked slightly higher.
Stocks avoid third straight weekly decline
U.S. stocks rebounded from back-to-back weekly declines in typical late-August subdued volume. Earnings season wrapped up with mixed results from the consumer discretionary and staples sectors, but Q2 remained on track to post profit growth breaching 9.0% and revenue expansion topping 5.0%. Even as U.S. political uncertainty festered, sentiment appeared soothed by reports of progress on tax reform and as President Donald Trump's top economic advisor Gary Cohn suggested he will not leave his post.
Signs of continued global growth likely buoyed the markets, with eurozone and U.S. business activity reports from Markit showing expansion persisted in August, helping overshadow disappointing U.S. existing and new home sales reports. Stocks showed some resiliency in the face of lingering global monetary policy as highly-anticipated speeches by Fed Chair Yellen and ECB President Draghi came into focus ahead their September monetary policy meetings. The U.S. dollar index fell back to lows not seen since May 2016 and crude oil prices continued to drop, while the Treasury yield curve flattened a bit.
Next week, low volume, politics and the geopolitical front will likely remain sources of volatility, but a robust back-end loaded U.S. economic calendar is poised to garner attention, headlined by Friday's August nonfarm payroll report. Consumer Confidence and the second (of three) read on Q2 GDP will get the ball rolling, followed by July personal income and spending data, while August releases of the ISM Manufacturing Index, final University of Michigan Consumer Sentiment Index and auto sales will join the labor report to close out the week.
The latest bout of volatility illustrates why investors should stay focused on the longer-term. Risks for a more substantial pullback in the near-term still exist, as valuations remain elevated. After a weak first quarter, U.S. economic growth has rebounded, with an improving employment picture, tightening labor market, rising median wage growth, and a relatively healthy consumer. Even though past performance is no indication of future results, a prolonged bear market has never occurred outside the context of a recessionary environment. Looking at the Index of Leading Economic Indicators (LEI) from the Conference Board, there are no signs of a coming recession and the U.S. economy is getting some support from the rest of the world.
International reports due out next week that deserve a mention include: Australia—building approvals. China—industrial profits, Manufacturing and non-Manufacturing PMIs. India—Q2 GDP. Japan—household spending, retail sales, and industrial production. Eurozone—economic confidence, unemployment rate, consumer price inflation and Markit's Manufacturing PMI, along with German retail sales and unemployment change. UK—mortgage approvals and Markit's Manufacturing PMI.