S&P 500, Nasdaq decline due to mixed pharma earnings and economic data.
S&P 500, Nasdaq decline due to mixed pharma earnings and economic data.
Strong Earnings Momentum Gives a Boost to U.S. Equities
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The S&P 500 and Nasdaq experienced a slight dip on Tuesday as investors digested mixed earnings reports from pharmaceutical heavyweights, alongside data showing a slowdown in manufacturing activity in July. Despite this, U.S. equities have remained strong. Second-quarter earnings are now projected to fall 6.4% from a year earlier, an improvement from the previous estimate of a 7.9% decline.
Adding to this positive momentum is Pfizer, which gained 1.3% after announcing a cost-cutting program in response to a potential decrease in demand for its COVID-19 products. Merck, on the other hand, saw its shares remain flat despite raising its full-year profit forecast and reporting a smaller-than-expected second-quarter loss.
In another development, despite warning of a sequential decline in current-quarter sales and margins, Caterpillar, a global economic bellwether, reported a rise in second-quarter profit. This positive news has helped keep the Dow afloat, with its shares rising by 6.7%.
However, not all companies saw growth in their stock prices. Uber experienced a 4.6% drop after missing second-quarter revenue expectations. Similarly, Tesla and Microsoft saw their shares decline due to rising borrowing costs, which put pressure on their valuations. The yield on the benchmark 10-year treasury note climbed over 4%, further affecting these megacap growth firms.
Although manufacturing activity in the U.S. appeared to weaken in July, with factory employment reaching a three-year low, new orders have shown a gradual improvement. This mixed bag of economic data signals a stabilization of manufacturing levels at weaker positions, but also indicates that layoffs may be accelerating.
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Despite these challenges, U.S. equities closed July on a strong note buoyed by better-than-expected earnings. The optimism surrounding the stock market is also due to hopes of a soft landing for the economy, which has remained robust in the face of tighter credit conditions and lower inflation.
The S&P 500, at a more than 15-month high, is just 4.6% away from reaching its record high closing level achieved on January 3, 2022. The Dow Jones Industrial Average rose by 35.72 points, or 0.10%, to reach 35,595.25, while the S&P 500 fell by 17.37 points, or 0.38%, to reach 4,571.59. The Nasdaq Composite experienced a decline of 114.54 points, or 0.80%, landing at 14,231.49.
Looking at sector performance, nine out of the 11 major S&P 500 sectors experienced declines. Mining stocks, in particular, saw a 0.3% decrease, tracking weak metal prices after a survey revealed that factory activity in China, the top consumer, contracted in July.
Within individual companies, Norwegian Cruise Line saw a significant dip of 14.0% after forecasting third-quarter profit below estimates due to higher costs. JetBlue Airways also tumbled by 7.6% after reducing its annual profit forecast, citing the termination of its revenue-sharing deal with American Airlines. Conversely, Arista Networks reported better-than-expected results, leading to a jump of 15.4% in the company’s shares. The network gear maker also provided a positive outlook for quarterly revenue, surpassing estimates.
Despite the overall positive sentiment in the market, long/short hedge funds, which bet on stock price movements, were forced to unwind bearish positions that had been dragging down their performance in July, according to a report from Goldman Sachs.
In the midst of all these ups and downs, the stock market reflects a mix of declining issues outnumbering advancers by a ratio of 2.78-to-1 on the NYSE and 2.42-to-1 on the Nasdaq. The S&P index recorded 20 new 52-week highs and two new lows, while the Nasdaq recorded 48 new highs and 35 new lows.
As economic data continues to unfold and earnings reports come in, market participants eagerly await further developments and potential catalysts for continued growth in the U.S. equities market.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing in the stock market involves risk, and individuals should consult with a financial advisor before making any investment decisions.
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