After a 13-Day Winning Streak, the Dow Jones Moves Lower

Rich Asplund - Barchart - Thu Jul 27, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.51%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.59%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.46%.

Stocks have given back their morning gains and are trending lower this afternoon. If the Dow Jones Industrial Average closes negative today, it will put an end to it's 13 consecutive day winning streak.

Meta Platforms is up more than +4% after reporting better-than-expected Q2 revenue. Chip stocks are rallying after Samsung Electronics said artificial intelligence will boost memory demand before the year’s end.

U.S. Q2 GDP expanded more than expected, boosted by stronger-than-expected consumer spending. Also, the Q2 core PCE price index advanced at a slower-than-expected pace.

Q2 corporate earnings season is off to a strong start, as nearly 80% of U.S. companies that have reported results have beaten profit estimates.

As expected, the ECB raised its main refinancing rate today by 25 bp to 4.25% and said, "The Governing Council's future decisions will ensure that the key ECB interest rates will be set at sufficiently restrictive levels for as long as necessary to achieve a timely return of inflation to the 2% medium-term target."

U.S. weekly initial unemployment claims unexpectedly fell -7,000 to a 5-month low of 221,000, showing a stronger labor market than expectations of an increase to 235,000.

U.S. Q2 GDP rose +2.4% (q/q annualized), stronger than expectations of +1.8%, as Q2 personal consumption rose +1.6%, stronger than expectations of +1.2%. The Q2 core PCE price index eased to +3.8% q/q from +4.9% q/q in Q1, better than expectations of +4.0% q/q and the slowest pace of increase since Q1 2021.

U.S. Jun capital goods new orders nondefense ex-aircraft and parts unexpectedly rose +0.2% m/m, stronger than expectations of a decline of -0.1% m/m.

U.S. Jun pending home sales unexpectedly rose +0.3% m/m, stronger than expectations of a -0.5% m/m decline.

The markets are discounting the odds at 24% for a +25 bp rate hike at the September 20 FOMC meeting.

Global bond yields are mixed. The 10-year T-note yield jumped to a 2-week high of 3.958% and is up +8.4 bp to 3.950%. The 10-year German bund yield is down -0.3 bp at 2.482%. The 10-year UK Gilt yield rose to a 1-week high of 4.323% and is up +4.1 at 4.322%.

Overseas stock markets are mixed. The Euro Stoxx 50 is up +2.30%. China’s Shanghai Composite Index today closed down -0.20%. Japan’s Nikkei Stock Index closed up +0.68%.

Today’s stock movers…

Align Technology (ALGN) is up more than +17% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q2 net revenue f $1.00 billion, stronger than the consensus of $990.4 million.

Textron (TXT) is up more than +10% after reporting Q2 revenue of $3.42 billion, stronger than the consensus of $3.40 billion.

Lam Research (LRCX) is up more than +8% after reporting Q4 adjusted EPS of $5,98, well above the consensus of $5.01.

Meta Platforms (META) is up more than +6% after reporting Q2 revenue of $32.00 billion, better than the consensus of $31.06 billion, and cut its full-year capex estimate to $27 billion-$30 billion from a prior estimate of $30 billion-$33 billion, below the consensus of $31.71 billion.

Semiconductor stocks are climbing today after Samsung Electronics, South Korea’s largest company, reported better-than-expected Q2 net income and said artificial intelligence will boost memory demand before the year’s end. As a result, Applied Materials (AMAT) and KLA Corp (KLAC) are up more than +5%. Also, Micron Technology (MU), ASML Holding NV (ASML), and Globalfoundries (GFS) are up more than +3%. In addition, Microchip Technology (MCHP), Marvell Technology (MRVL), NXP Semiconductor NV (NXPI), Nvidia (NVDA), Analog Devices (ADI), and ON Semiconductor (ON) are up more than +2%.

AbbVie (ABBV) is up more than +6% after reporting Q2 adjusted EPS of $2.91, better than the consensus of $2.79, and raised its full-year adjusted EPS estimate to $10.90-$11.10 from a prior view of $10.57-$10.97.

Comcast Corp (CMCSA) is up more than +5% after reporting Q2 revenue of $30.51 billion, stronger than the consensus of $30.09 billion.

McDonald’s Corp (MCD) is up more than +2% to lead gainers in the Dow Jones Industrials after reporting Q2 comparable same-store sales rose +11.7%, stronger than the consensus of +9.36%.

Chipotle Mexican Grill (CMG) is down more than -8% after reporting Q2 comparable same-store sales rose +7.4%, weaker than the consensus of +7.67%.

Willis Towers Watson Plc (WTW) is down more than -8% to lead lowers in the S&P 500 after reporting Q2 adjusted EPS of $2.05, weaker than the consensus of $2.32, and cut its 2024 adjusted EPS forecast to $15.40-$17.00 from a previous estimate of $17.50-$20.50.

Airline stocks are falling today after Southwest Airlines raised its full-year non-fuel expenses to fly each seat a mile, an industry gauge of efficiency, to a decline of -1% to -2% from a previous estimate of as much as a -4% drop. As a result, Southwest Airlines (LUV) is down more than -9% to lead losers in the S&P 500. Also, American Airlines Group (AAL), United Airlines Holdings (UAL), Alaska Air Group (ALK), and Delta Air Lines (DAL) are down more than -1%.

Ebay (EBAY) is down more than -8% to lead losers in the Nasdaq 100 after forecasting Q3 adjusted EPS from continuing operations of 96 cents-$1.01, weaker than the consensus of $1.02.

Edwards Lifesciences (EW) is down more than -7% after forecasting Q3 adjusted EPS of 55 cents-61 cents, below the consensus of 63 cents.

S&P Global (SPGI) is down more than -6% after reporting Q2 adjusted EPS of $3.12, weaker than the consensus of $3.14.

Honeywell International (HON) is down more than -4% to lead losers in the Dow Jones Industrials after reporting Q2 sales of $9.15 billion, weaker than the consensus of $9.16 billion, and forecasting Q3 sales of $9.1 billion-$9.3 billion, the midpoint below the consensus $9.27 billion.

Across the markets…

September 10-year T-notes (ZNU23) today are down -25 ticks, and the 10-year T-note yield is up +8.4 bp to 3.950%. Sep T-notes today fell to a 2-week low, and the 10-year T-note yield climbed to a 2-week high of 3.956%. T-notes are selling off today from stronger-than-expected U.S. economic reports on Q2 GDP, weekly jobless claims, Jun pending home sales, and Jun capital goods new orders, which are hawkish for Fed policy. Also, supply pressures are weighing on T-notes as the Treasury will auction $35 billion of 7-year T-notes later today.

The dollar index (DXY00) today recovered from early losses and is up by +0.76% at a 2-week high. Stronger-than-expected U.S. economic news today on Q2 GDP and weekly jobless claims boosted T-note yields and supported the dollar. Also, weakness in the euro supports the dollar as EUR/USD fell to a 2-week low on dovish comments from ECB President Lagarde.

EUR/USD (^EURUSD) today is down by -0.69%. The euro relinquished early gains today and tumbled to a 2-week low, even after the ECB raised its main refinancing rate by 25 bp as expected. EUR/USD retreated after ECB President Lagarde said, "The near-term economic outlook for the Eurozone has deteriorated,” and ECB officials "have an open mind as to what decisions will be in September,” signaling the ECB may pause its rate hike cycle.

ECB President Lagarde said, "The near-term economic outlook for the Eurozone has deteriorated owing largely to weaker domestic demand." She added that ECB officials "have an open mind as to what decisions will be in September and in subsequent meetings, so we might hike, and we might hold" interest rates.

USD/JPY (^USDJPY) is up by +0.37%. The yen today gave up overnight gains and turned lower after stronger-than-expected U.S. economic reports pushed T-note yields higher. Also, central bank divergence is weighing on the yen after the Fed and ECB raised interest rates this week, while the BOJ on Friday is expected to maintain its ultra-easy monetary policies.

August gold (GCQ3) today is down -26.7 (-1.36%), and Sep silver (SIU23) is down -0.705 (-2.82%). Precious metals prices this morning are sharply lower, with gold and silver falling to 2-week lows. A rally in the dollar index today to a 2-week high is bearish for metals. Precious metals are also under pressure from today’s stronger-than-expected U.S. economic news on Q2 GDP, weekly initial unemployment claims, and Jun pending home sales that signal strength in the economy, which may prompt the Fed to keep raising interest rates. In addition, fund liquidation of long gold holdings is weighing on gold prices after long gold holdings in ETFs fell to a new 3-year low Wednesday.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.