Stocks Close Mildly Lower Ahead of Tech Earnings

The S&P 500 Index ($SPX) (SPY) on Tuesday fell by -0.16%, the Dow Jones Industrials Index ($DOWI) (DIA) fell by -0.14%, and the Nasdaq 100 Index ($IUXX) (QQQ) fell by -0.35%.

US stocks on Tuesday traded on a cautious note ahead of tech earnings.  Tesla (TSLA) and Alphabet (GOOG) were due to report after Tuesday’s close in the first batch of earnings reports from the Magnificent Seven.  Mag 7 reports next week include Microsoft (MSFT) on Tuesday, Meta (META) on Wednesday, and Apple (AAPL) and Amazon (AMZN) on Thursday.  Nvidia (NVDA) is expected to report earnings on August 28. 

Stocks on Tuesday saw support from a mild decline in the 10-year T-note yield, which was fueled by weaker-than-expected US economic reports. 

Tuesday’s June US existing home sales report of -5.4% to 3.89 million was weaker than market expectations for a -3.2% drop to 3.98 million. Home sales continue to be undercut by high mortgage rates and high home prices.

Tuesday’s July Richmond Fed manufacturing index fell by -7 points to -17, weaker than expectations for a +3 point rise to -7.  The July Richmond Fed business conditions index fell by -1 point to -8, although June was revised higher by 3 points to -8 from -11.

Tuesday’s July Philadelphia Fed non-manufacturing activity index fell sharply to -19.1 from 2.9 in June.

Vice President Harris has already locked up enough delegates in virtual voting to win the nomination as the Democratic presidential candidate at the Democratic convention in Chicago on August 19-22.  The so-called Trump trade so far remains largely intact following President Biden’s decision on Sunday to drop out of the race. The Trump trade favors sectors benefiting from tax cuts, looser fiscal policy, higher trade tariffs, and weaker regulations. 

The market consensus is that Q2 earnings for the S&P 500 companies will rise +9% y/y.  Of the 16% of companies in the S&P 500 that have reported thus far, the majority have beaten their earnings forecasts, according to Bloomberg.

The markets are looking ahead to Friday’s PCE deflator report for an update on when inflation may have fallen by enough to allow the Fed to proceed with a rate cut.  The PCE deflator is the Fed’s preferred inflation measure.  The consensus is that Friday’s June PCE deflator will ease to +2.4% y/y from May’s +2.6%, and the June core PCE deflator will ease to +2.5% y/y from May’s +2.6%.  The expected PCE deflator reports of +2.4% y/y (headline) and +2.5% y/y (core) would represent new 3-1/4 year lows for both measures, which would give the Fed more confidence that inflation will continue to move lower towards its +2% inflation target.

The markets are discounting the chances for a -25 bp rate cut at 3% for the next week’s FOMC meeting on July 30-31 and 100% for the following meeting on September 17-18.

Overseas stock markets Tuesday were mixed.  The Euro Stoxx 50 on Tuesday closed +0.40%, adding to Monday’s gain of +1.45%.  China's Shanghai Composite closed down -1.65%.  Japan's Nikkei Stock 225 Index closed down -0.01%.

Interest Rates

September 10-year T-notes (ZNU24) on Tuesday closed up +5 ticks.  The 10-year T-note yield fell by -0.6 bp 4.247%.  T-note prices saw support from weaker-than-expected US economic reports and a decline in the 10-year breakeven inflation expectations rate today by -1.5 bp to 2.277%.  T-note prices also saw carry-over support from lower government bond yields in Germany and the UK.

T-note prices continue to see supply pressures amidst this week’s Treasury auctions, although the markets took Tuesday’s 2-year T-note auction in stride.  The Treasury will auction $30 billion of 2-year floating rate notes and $70 billion of 5-year T-notes on Wednesday, and $44 billion of 7-year T-notes on Thursday.

European government bond yields on Tuesday ended lower.  The 10-year German bund yield fell -5.7 bp to 2.439%.  The 10-year UK gilt yield fell -3.6 bp to 4.124%.

The preliminary-July Eurozone consumer confidence index rose by +1.0 point to -13.0, which was slightly stronger than expectations for a +0.5 point increase to -13.5.

ECB Vice President Luis de Guindos said today that the ECB, at its September meeting, will be in a much better place to make a monetary policy decision from an information standpoint than in July.  The ECB left rates unchanged at its meeting last week, but ECB President Lagarde said the next ECB meeting on Sep 11-12 is “wide open.”

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 77% for the September 12 meeting.

US Stock Movers

NXP Semiconductors (NXPI) fell -7.46% after weaker-than-expected management guidance for Q3 revenue.  The report undercut the chip sector, which rallied sharply on Monday but was featured on the Nasdaq loser board today.  ON Semiconductor (ON) fell -5.10% on Tuesday, and Analog Devices (ADI) fell -4.05%.  Meanwhile, Texas Instruments (TXN) and Microchip Technology (MCHP) fell by more than -3%.

Mega-cap tech stocks supported the stock market Tuesday, with Amazon (AMZN) closing up +2.11%, Apple (AAPL) closing up +0.47%, and Microsoft (MSFT) closing up +0.43%.  Meta (META) closed +0.26%.  Tesla (TSLA) fell -2.04% ahead of its after-close earnings report.

UPS (UPS) plunged -11.94% after a Q2 adjusted earnings miss ($1.79 per share versus expectations of $1.98) stemming from wage pressure and soft demand. 

Spotify (SPOT) rallied +12.11% after reporting stronger-than-expected subscriber growth and better-than-expected gross margins.

HCA Healthcare (HCA) rallied +4.68% on better-than-expected earnings, a Q2 revenue gain of +10% y/y, and an increase in management guidance for 2024 earnings and revenue.  The report provided underlying support for hospital peers such as Universal Health Services (UHS), which rallied +1.85%, and Community Health Systems (CYH), which rallied +2.67%.

Comcast (CMCSA) fell -2.45% after a Q2 revenue miss, although earnings and Ebitda were favorable.

Delta Airlines (DAL) fell -0.37% after the US Department of Transportation opened a probe into why the airline was hit much harder than other airlines by the Crowdstrike/Microsoft outage. Delta has extended flight cancelations into this week.  Delta on Monday fell by -3.42%, more than giving back last Friday’s +1.45% rise.

Earnings Reports (7/24/2024)

AT&T Inc (T), Amphenol Corp (APH), CME Group Inc (CME), Old Dominion Freight Line Inc (ODFL), International Paper Co (IP), Westinghouse Air Brake Technol (WAB), Roper Technologies Inc (ROP), Fortive Corp (FTV), General Dynamics Corp (GD), GE Vernova Inc (GEV), Interpublic Group of Cos Inc/T (IPG), Boston Scientific Corp (BSX), Thermo Fisher Scientific Inc (TMO), Fiserv Inc (FI), Allegion plc (ALLE), NextEra Energy Inc (NEE), Otis Worldwide Corp (OTIS), TE Connectivity Ltd (TEL), Teledyne Technologies Inc (TDY), Lamb Weston Holdings Inc (LW), Ford Motor Co (F), Chipotle Mexican Grill Inc (CMG), O'Reilly Automotive Inc (ORLY), Molina Healthcare Inc (MOH), Waste Management Inc (WM), Republic Services Inc (RSG), International Business Machine (IBM), Align Technology Inc (ALGN), KLA Corp (KLAC), ServiceNow Inc (NOW), Newmont Corp (NEM), United Rentals Inc (URI), Globe Life Inc (GL), Tyler Technologies Inc (TYL), Teradyne Inc (TER), Invitation Homes Inc (INVH), Rollins Inc (ROL), Ameriprise Financial Inc (AMP), Universal Health Services Inc (UHS), Edwards Lifesciences Corp (EW), Las Vegas Sands Corp (LVS), Raymond James Financial Inc (RJF).

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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.