Stocks Close Out the Week Lower Amid a Host of Equity News
U.S. stocks end the week in negative territory, causing the S&P 500 to snap its four-week winning streak. The halt in the market’s rally came amid the release of the minutes from July’s FOMC meeting earlier this week, in which comments indicated that the central bank would likely continue to hike rates in the short term. The U.S. dollar resumed a rally and is near multi-decade highs, while Treasuries fell to boost yields and the inversions on the curve remain intact. Crude oil gained ground, while gold prices traded lower. Deere & Co. missed earnings estimates and lowered some of its full-year guidance, though Foot Locker rallied after announcing a new CEO and easily topping profit projections. Applied Materials beat earnings estimates and issued guidance that was slightly above forecasts. In other equity news, General Motors announced it would reinstate its quarterly cash dividend. Shares of Wayfair fell sharply after the company cut 5% of its global workforce. The economic calendar was void of any major releases today, but will pick back up next week. Asia finished the week in lackluster fashion, and Europe ended the day mostly lower following some divergent economic data.
The Dow Jones Industrial Average decreased 292 points (0.9%) to 33,707, the S&P 500 Index shed 55 points (1.3%) to 4,228, and the Nasdaq Composite declined 260 points (2.0%) to 12,705. In moderate volume, 3.7 billion shares of NYSE-listed stocks were traded, and 4.5 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.33 to $90.44 per barrel. Elsewhere, the gold spot price lost $10.40 to $1,760.80 per ounce, and the Dollar Index jumped 0.6% to 108.12. Markets ended lower for the week, as the DJIA decreased 0.2%, the S&P 500 went down 1.2%, and the Nasdaq Composite fell 2.6%.
Deere & Co. (DE $370) reported fiscal Q3 earnings-per-share (EPS) of $6.16, below the $6.65 FactSet estimate, with revenues rising 22.0% year-over-year (y/y) to $14.1 billion, above the Street's forecast of $13.8 billion. The company said its results reflected higher costs and production inefficiencies driven by the difficult supply-chain situation. DE lowered the high end of its full-year net income guidance but said looking ahead it believes favorable conditions will continue into 2023 based on the strong response it has experienced to early-order programs. The company added that it is closely working with its factories and suppliers to meet higher levels of customer demand next year. DE traded lower.
Foot Locker Inc. (FL $38) posted adjusted Q2 EPS of $1.10, well above the expected $0.80, with revenues declining 9.2% y/y to $2.1 billion, roughly in line with forecasts. Q2 same-store sales fell 10.3% y/y, versus the estimated 14.6% drop. FL lowered its full-year revenue guidance and reduced the higher end of its earnings outlook. Separately, the company announced that Richard Johnson will retire as President and Chief Executive Officer (CEO) effective September 1, and Mary Dillion, former Executive Chair and CEO of Ulta Beauty Inc.(ULTA $403) has been appointed President and CEO. Share of FL rose sharply.
Applied Materials Inc. (AMAT $105) announced adjusted fiscal Q3 EPS of $1.94, north of the $1.78 forecast, as revenues rose 5% y/y to $6.5 billion, beating estimates of $6.3 billion. The semiconductor company’s President and CEO Gary Dickerson stated, “Applied Materials delivered record quarterly revenue, yet ongoing supply chain challenges constrained our ability to meet demand, and our top priority remains increasing shipments to our customers.” AMAT issued guidance that was slightly above estimates and went on to say, “We feel confident in our ability to navigate macroeconomic headwinds and remain very positive about the long-term strength of the semiconductor market and our outsized growth opportunities.” Share traded lower.
Q2 earnings season is mostly in the books and of the 473 S&P 500 companies that have reported thus far, roughly 63% have topped revenue forecasts and approximately 76% have bested profit projections, per data compiled by Bloomberg. Compared to last year, revenue growth is tracking to be up 14.1% and earnings are 8.2% higher.
Schwab's Chief Investment Strategist, Liz Ann Sonders points out in our latest Schwab Market Perspective: Mixed Signals, how the unexpectedly strong July jobs report belied considerable nuance in the broader economic picture. But she notes that leading economic indicators and an inverted U.S. Treasury yield curve—historically harbingers of recession—are showing pockets of weakness in the economy. You can follow Liz Ann on Twitter: @LizAnnSonders.
In other equity news, General Motors Company (GM $40) announced that will reinstate its quarterly cash dividend at a rate of $0.09 per share. GM also said it will resume opportunistic share repurchases after this week increasing its share buy back authorization to $5.0 billion from $3.3 billion. Shares of GM were higher.
Shares of Wayfair Inc. (W $57) fell sharply after the online furniture retailer cut approximately 5% of its global workforce, and around 10% of its corporate team. In the Q2 earnings call earlier this month, the company’s Chief Executive Officer Niraj Shah noted how consumer behavior is being impacted by inflationary pressures, along with economic and geopolitical concerns. Shah stated, “Our team is too large for the environment we are now in, and unfortunately we need to adjust.”
Treasury prices were lower, yields were higher, and the U.S. dollar continued to rally
Treasuries have been choppy as of late with yields rebounding from yesterday's drop and the yield curve remaining decisively inverted. The markets digested some cooler-than-expected July inflation data and last month's stronger-than-expected labor report, grappling with the economic and monetary policy implications. The U.S. dollar had also resumed a rally and is nearing new multi-decade highs.
Schwab's Chief Fixed Income Strategist Kathy Jones discusses in our Schwab Market Perspective, how the Fed has embarked on one of the most rapid tightening cycles in over 40 years, and with inflation continuing to outpace wage growth, more rate hikes are likely on the horizon. Kathy also offers analysis of the greenback in her commentary, The Strong Dollar: Can It Continue? You can follow Kathy on Twitter: @KathyJones, and check out our latest edition of our Financial Decoder podcast, When Interest Rates Rise, What Should You Do with Bonds?, featuring Kathy.
Treasury prices were lower, as the yield on the 2-year Treasury note was up 2 basis points (bps) to 3.23%, the yield on the 10-year note rose 10 bps to 2.97%, and the 30-year bond rate increased 8 bps to 3.22%.
The U.S. economic calendar was void of any major releases today.
Europe ended the day mostly lower following data
European equities finished mostly lower as the markets digested economic data in the region that showed German producer price inflation jumped by a record amount in July, though U.K. retail sales for last month were mostly stronger than expected. The retail sales figures came despite persisting inflation pressures and a drop in U.K. consumer confidence to a record low. Hot inflation data as of late has forced the Bank of England to join the Fed in aggressively tightening monetary policy and has pushed the European Central Bank down the tightening path.
However, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Shortages Have Led to Gluts, how inventory gluts have been bad news for the stocks of companies experiencing them, but could also be indicating an inflation peak, which tends to be an ingredient for market bottoms. Also, Jeff discusses in his latest article, The End of Rate Hikes?, how the signals from central banks that rate hikes, which began last year, may be coming to an end could be welcome news for investors looking ahead to the next 12 months. You can follow Jeff on Twitter: @JeffreyKleintop. The euro and British pound declined versus the U.S. dollar. Bond yields in the U.K. traded upward, while Eurozone yields were mostly higher, with Switzerland’s yields being the exception.
The U.K. FTSE 100 Index was up 0.1%, while Switzerland's Swiss Market Index traded 0.1% lower, Italy's FTSE MIB Index lost 2.0%, France's CAC-40 Index was down 0.9%, and Germany's DAX Index and Spain's IBEX 35 Index declined 1.1%.
Asia posts a lackluster session to close out the week
Stocks in Asia finished the week out in subdued fashion with the markets remaining focused on the economic outlook for China after it reported a host of disappointing data this week, which prompted its central bank to cut some key interest rates. Also, some lackluster Chinese earnings reports appeared to weigh on sentiment, amid the impact of regulatory scrutiny and COVID-related lockdowns. China's rate cuts diverged from key central banks in North America, Europe and the U.K.—led by the Fed—which are aggressively tightening monetary policy to fight persisting inflation pressures. China's economy has slowed noticeably in the face of the COVID-induced lockdowns and Schwab's Jeffrey Kleintop notes in his article, China's Yo-Yo Economy, that although an economic rebound in China is underway according to government and private sector data, its economy and stock market may remain volatile. Economic data was light, with Japan reporting an acceleration in national consumer price inflation for July. Meanwhile, geopolitical tensions between the U.S. and China remained elevated, mostly due to the evolving situation in Taiwan, with the U.S. set to begin trade negotiations in September, of which China has expressed opposition.
Japan's Nikkei 225 Index finished little changed, with the yen slipping versus the U.S. dollar. The yen had trimmed some of a sharp drop to multi-decade lows versus the greenback that began in March as the Bank of Japan also lags other key global central banks in monetary policy. China's Shanghai Composite Index declined 0.6%, and Australia's S&P/ASX 200 Index traded near the flatline. South Korea's Kospi Index decreased 0.6%, and India's S&P BSE Sensex 30 Index fell 1.1% to snap a recent winning streak. However, the Hong Kong Hang Seng Index bucked the trend, ticking 0.1% higher after leading the week's drop for the markets on the impacts regarding regulatory actions, U.S. delisting uncertainty, real estate concerns, and the COVID-related lockdowns.
Markets snap weekly winning streak
The S&P 500 snapped a four-week winning streak as the markets came off a sharp rally from the June 16 lows and digested a host of earnings and economic data. Moreover, grappling with Fed expectations, rising bond yields and a resumption of the rally in the U.S. dollar added to the dampened conviction to carry on the rally. The retail sector put the finishing touches on Q2 earnings season with results mixed but mostly better than feared, and retail sales were mostly stronger than anticipated. However, New York manufacturing fell sharply, unexpectedly dropping into contraction territory, housing sales and construction activity came in softer than expected, and leading indicators fell for a fifth-straight month. The data appeared to more than offset a moderation in jobless claims, a surprising jump back into expansion territory for Philadelphia manufacturing output, and the minutes from the Fed's July meeting that came in less hawkish than anticipated.
Next week, with earnings season concluding, the economic calendar and the Fed will likely be in hyper focus. The headlining event could be the Fed's annual Jackson Hole, Wyoming symposium which will feature a key-note speech from Fed Chairman Jerome Powell on Friday. Meanwhile, the economic docket will be fully loaded, offering more housing data in the form of new home and pending home sales, and a key read on consumers' appetite for big ticket item, courtesy of the preliminary durable goods orders report. We will also get timely August Manufacturing and Services PMIs from S&P Global, the first revision of Q2 GDP, personal income and spending, and the final read on August consumer sentiment from the University of Michigan.
Next week's international economic calendar will feature a host of preliminary Manufacturing and Services PMIs out of Australia, Japan, the Eurozone and the U.K. Other reports due out next week overseas that deserve a mention include: China—1-year and 5-year loan prime rate decisions, and industrial profits. Japan—Tokyo consumer price inflation figures, and department store sales. Eurozone—consumer confidence, and German business sentiment. Get Schwab's view on markets and economy.
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