U.S. stocks are modestly higher following a stronger-than-expected Q2 GDP report, along with upbeat earnings from Dow member McDonald's, along with Google parent Alphabet and Starbucks. However, the gains are being kept in check with uncertainty surrounding how the data may be read by the Fed, while Amazon is seeing pressure on its mixed results. Treasury yields are nearly unchanged and the U.S. dollar is higher, while crude oil prices are mixed and gold is gaining ground. Europe finished mixed on earnings in the region and the GDP report out of the U.S.
At 12:54 p.m. ET, the Dow Jones Industrial Average is up 0.1%, the S&P 500 Index is gaining 0.6% and the Nasdaq Composite is rising 1.0%. WTI crude oil is declining $0.07 to $55.99 per barrel, Brent crude oil is increasing $0.26 at $63.52 per barrel, and wholesale gasoline is off $0.01 at $1.82 per gallon. The Bloomberg gold spot price is increasing $4.25 to $1,418.33 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is ticking 0.2% higher to 98.05.
Dow member McDonald's Corporation (MCD $215) reported Q2 earnings-per-share (EPS) of $1.97, or $2.05 ex-items, compared to the $2.05 FactSet estimate, as revenues were flat year-over-year (y/y) at $5.3 billion, roughly in line with expectations. The fast-food chain's U.S. and global same-store sales grew solidly y/y and were both easily north of the Street's expectations. Shares are gaining ground.
Google parent Alphabet Inc. (GOOGL $1,250) posted Q2 EPS of $14.21, versus the forecasted $11.10, with revenues rising 19.0% y/y to $38.9 billion, compared to the expected $38.2 billion. Analysts highlighted the company's strong cloud computing growth, while its operating margin was above estimates, its traffic acquisition costs (TAC) were slightly smaller than anticipated and it announced a $25 billion share buyback. Shares are rallying.
Amazon.com Inc. (AMZN $1,942) announced Q2 EPS of $5.22, below the projected $5.56, as revenues rose 20.0% y/y to $63.4 billion, north of the forecasted $62.5 billion. AMZN issued Q3 revenue guidance with a midpoint that was above estimates but its operating income outlook came in shy of expectations. Shares are trading lower.
Dow component Intel Corporation (INTC $52) reported Q2 earnings of $0.92 per share, or $1.06 ex-items, versus the anticipated $0.89, with revenues declining 3.0% y/y to $16.5 billion, above the expected $15.7 billion. INTC raised its full-year guidance and announced that it agreed to sell the majority of its smartphone modem business to Dow member Apple Inc. (AAPL $208) for roughly $1.0 billion. INTC is trading modestly lower.
Starbucks Corporation (SBUX $98) posted fiscal Q3 EPS of $1.12, or $0.78 ex-items, compared to the projected $0.72, as revenues rose 8.1% y/y to $6.8 billion, above the expected $6.7 billion. Same-store sales grew 6.0% y/y, topping the forecasted 4.0% gain. SBUX raised its full-year profit and sales guidance. Shares are nicely higher.
The Department of Justice (DoJ) announced an agreement on the $26 billion merger between Sprint Corp. (S $8) and T-Mobile US (TMUS $84). As part of the agreement, S will divest its Boost Mobile, Virgin Mobile and prepaid units, and both firms will divest some wireless spectrum businesses to DISH Network Corporation (DISH $40). The state attorneys general from six states have signed off on the deal, but there remains another 13 states and the District of Columbia that remain in a lawsuit looking to block the transaction, of which must be settled before the merger can be finalized. Shares of S, TMUS and DISH are higher.
First look at Q2 GDP tops forecasts
The first look (of three) at Q2 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of expansion of 2.1%, after the unrevised 3.1% expansion in Q1, and above the 1.8% growth forecasted by Bloomberg. Personal consumption gained 4.3%, north of forecasts of a 4.0% rise, and following the upwardly-adjusted 1.1% increase recorded in Q1. Along with the strong personal consumption, government spending also was a notable positive contribution in Q2, partially offset by negative contributions from private inventory investment, exports, nonresidential fixed investment and residential fixed investment.
On inflation, the GDP Price Index came in at a 2.4% rise, above expectations of a 2.0% gain and the upwardly-revised 1.1% increase seen in Q1, while the core PCE Index, which excludes food and energy, moved 1.8% higher, south of expectations of a 2.0% increase, and following the downwardly-adjusted 1.1% advance in Q1.
Treasuries are nearly unchanged, with the yield on the 2-year note ticking 1 basis point (bp) higher to 1.87%, while the yields on the 10-year note and the 30-year bond are flat at 2.07% and 2.60%, respectively. Bond yields are choppy after yesterday's gains and the U.S. dollar is adding to Thursday's rise that followed the unchanged monetary policy decision and dovish commentary from the European Central Bank (ECB). The ECB's decision came ahead of next week's highly-expected rate cut from the Fed. Schwab's Chief Fixed Income Strategist Kathy Jones discusses the Fed and the implications for interest rates in her article, If the Fed Cuts Interest Rates, Will Longer-Term Bond Yields Fall?.
Europe mixed on earnings, U.S. data and following yesterday's ECB decision
European equities finished mixed, with the markets digesting the stronger-than-expected Q2 GDP report in the U.S., which comes ahead of next week's monetary policy decision from the Fed with expectations running high that a rate cut will be announced. The decision will follow yesterday's unchanged monetary policy decision from the European Central Bank and dovish commentary from President Mario Draghi. The euro and British pound came under some pressure versus the U.S. dollar, with earnings reports in the region mixed and a read on French consumer confidence ticking higher for this month. Bond yields in the region were mixed. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his latest article, What Race Horses Are Telling Us About Rate Cuts, discussing four alternative indicators for the main driver of the global economy, the consumer, in the form of race horses, cars, plastic, and remittances. Jeff adds that it's a mixed picture, but overall global consumer demand remains solid, for now. Jeff concludes that central bank rate cuts may help lower financing costs for cars, but do little to address the manufacturing recession that threatens to weaken the labor market and undermine consumer spending.
The U.K. FTSE 100 Index was up 0.8%, Germany's DAX Index rose 0.5%, France's CAC-40 Index gained 0.6%, and Switzerland's Swiss Market Index jumped 0.9%, while Italy's FTSE MIB Index was down 0.3% and Spain's IBEX 35 Index decreased 0.7%.
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