Wall Street’s main indexes fell at the open Wednesday as concerns around slowing economic growth and renewed COVID-19 fears hit economically-sensitive sectors, including banks and industrials.
The Dow Jones Industrial Average fell 68.96 points, or 0.20%, at the open to 35,047.44. The S&P 500 opened lower by 7.20 points, or 0.16%, at 4,415.95, while the Nasdaq Composite dropped 14.08 points, or 0.10%, to 14,747.21 at the opening bell.
Robinhood Markets was drawing considerable attention among investors, skyrocketing 64% at the open, setting up for a fourth straight session of gains after its underwhelming IPO last week, as star investor Cathie Wood’s ARK Innovation ETF bought more shares of the online brokerage. The stock was halted for volatility in the opening minutes of trade.
The TSX was virtually unchanged at the open.
In economic news, a private payroll survey by ADP showed a gain of 330,000 jobs for July, well short of the consensus estimate of 653,000. The report comes ahead of the U.S. Labor Department’s official jobs report, which will be released on Friday.
Meanwhile, the U.S. Institute for Supply Management said on Wednesday its non-manufacturing activity index hit 64.1 last month from 60.1 in June, the highest reading in its history and beating expectations.
The TSX and S&P 500 rallied Tuesday afternoon to record closes by the end of the day despite a tepid start. The rise was broadly based across sectors, which is a healthy sign for market bulls, even as U.S. and Canadian benchmark treasury yields held near their lowest levels since February.
The bond market continues to show concerns about the trajectory of the economic recovery, but Citi this morning thinks it’s time for investors to start positioning for higher rates. It believes the 10-year, currently near 1.1%, is heading to 2% by early next year.
City strategists think technical factors have driven bond yields lower, but that’s going to unwind shortly.
While higher rates will have the effect of dampening the earnings outlook for equities, the impact this time around “will not be fatal” because the bank believes earnings per share forecasts are still 5 to 10 per cent too low for 2022.
But given that growth stocks are especially sensitive to real yields, Citi believes the outperformance of the growth-stock-heavy U.S. market may fad as real yields rise. Financials, on the other hand, have the most to gain.
As such, Citi analysts cut its recommendation on U.S. stocks to “neutral” today, and is recommending a switch into Japanese stocks instead, which are more cyclical and less rate sensitive. The bank cut the tech sector to “neutral” and replaced it with health care as its favourite defensive sector.
In corporate news this morning, Kraft Heinz Co beat market estimates for quarterly net sales, but its shares edged down about 0.5%.
General Motors Co swung to a second-quarter profit from a loss last year when the COVID-19 pandemic shut operations and raised its full-year forecast despite an $800 million hit from the recalls of the Chevrolet Bolt electric vehicle. But its shares were down 3% in the premarket.
On the TSX, Sleep Country Canada Holdings shares were up 12% after reporting late Tuesday a 67% revenue bump in its second quarter.
Although second-quarter earnings from S&P 500 firms have so far been much better than expected, their shares have retreated as investors booked profits on lofty valuations.
Equities
Commodities
Oil prices slipped on Wednesday as the spread of the coronavirus Delta variant in top consuming countries outweighed Mideast geopolitical tensions and a fall in U.S. inventories.
Brent crude oil futures were down 26 cents, or 0.4%, to $72.15 a barrel by 1031 GMT. U.S. West Texas Intermediate (WTI) crude fell 42 cents, or 0.6%, to $70.14 a barrel.
“Worries continue to grow over the spread of the Delta variant in China, which has weighed heavily on oil prices in recent days,” analysts at bank ING said.
The United States and China, the world’s two biggest oil consumers, are grappling with rapidly spreading outbreaks of the highly contagious Delta variant that analysts fear will limit fuel demand at a time when it traditionally rises in both countries.
In China, the spread of the variant from the coast to inland cities has prompted authorities to impose strict measures to bring the outbreak under control.
An expected fall in U.S. inventories, however, capped some losses, and both contracts traded slightly higher earlier in the session.
“Bulls have drawn support from U.S. inventory dynamics, with commercial stocks falling to their lowest since January 2020 and indications that the tightening is set to continue,” oil brokerage PVM said.
U.S. crude inventories fell by 879,000 barrels for the week ended July 30, according to two market sources, citing figures from industry group American Petroleum Institute (API).
Gasoline inventories fell by 5.8 million barrels and distillate stocks fell by 717,000 barrels, the data showed, according to the sources, who spoke on condition of anonymity.
Official Energy Information Administration numbers are due later on Wednesday.
Gold prices ticked higher on Wednesday on a flat dollar, although gains were kept in check ahead of the U.S. jobs data which is seen as pivotal to the Federal Reserve’s monetary policy strategy.
Spot gold rose 0.2% to $1,812.66 per ounce by 0834 GMT, while U.S. gold futures were up 0.2% to $1,817.50.
Currencies and bonds
The Canadian dollar is little changed in quiet trade this morning and the greenback is firming slightly against major currencies.
Forex traders are watching developments on the political front in Canada, but have yet to take on much fresh positioning because of it.
“Snap election speculation continues to simmer, which is no great surprise as minority governments rarely run to a full term in Canada, but we note that the CAD has generally taken elections in its stride in the past,” Scotiabank forex analysts said this morning.
Other corporate news
Canaccord Genuity generated more than half-a-billion dollars in revenue last quarter – an increase of almost 40 per cent from the same quarter a year ago – driven mostly by a surge in fee revenue from its advisory business. The Toronto-based investment bank raked in a profit of $81-million on revenue of $523-million for the fiscal first quarter ending June 30, 2021, compared to a profit of $29-million on $377-million in revenue a year prior. The results were issued after the bell on Tuesday.
Cruise operator Royal Caribbean Group said on Wednesday that weekly bookings in June jumped about 90% compared to the previous quarter as the travel and tourism industry claws back from the impact of the pandemic. However, the Delta variant of the coronavirus has had a modest impact on the bookings in the near-term, it said.
Great-West Lifeco Inc. says its net profit decreased 9.2 per cent in its latest quarter compared with a year earlier when it benefited from a bounce back from COVID-19 pandemic related shocks in the prior quarter. The Winnipeg-based insurer says its net income attributable to shareholders was $784 million or 84 cents per diluted share, down from $863 million or 93 cents per share a year earlier. Excluding one-time items, “base” earnings were $826 million or 89 cents per share, up 17 per cent from $706 million or 76 cents per share in the second quarter of 2020.
Other earnings include: Artis REIT; B2 Gold Corp.; Brookfield Property REIT; Centerra Gold Inc.; Ceridian HCM Holding Inc.; Colliers International Group Inc.; Crombie REIT; CVS Health Corp.; Endeavour Mining Corp.; Ero Copper Corp.; First Capital Realty Inc.; Granite REIT; Iamgold Corp.; IGM Financial Inc.; Killam Properties Inc.; Kraft Heinz Co.; Manulife Financial Corp.; MetLife Inc.; NFI Group Inc.; Roku Inc.; Sandstorm Gold Ltd.; SilverCrest Metals Inc.; Spin Master Corp.; SSR Mining Inc.; Stantec Inc.; Sun Life Financial Inc.; TMX Group Ltd.; Uber Technologies Inc.; Waste Connections Inc.
Economic news
A private payroll survey by ADP showed a gain of 330,000 jobs for July, well short of the consensus estimate of 653,000. The report comes ahead of the U.S. Labor Department’s official jobs report, which will be released on Friday.
Canadian building permits rose in June following a sharp decline in May, led by strength in construction plans in the residential sector. The total value of building permits in June rose 6.9% on a month-over-month basis to a seasonally adjusted $10.29 billion, Statistics Canada said Wednesday. The previous month’s figures were revised and now say permits issued declined 12.9% versus an earlier estimate of a 14.8% drop.
(9:45 a.m. ET) U.S. Markit services and composite PMI for June.
(10 a.m. ET) U.S. ISM services PMI for July.
With files from Reuters
Darcy Keith