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Technology Stocks : Semi Equipment Analysis
SOXX 260.12+0.8%Jan 17 4:00 PM EST

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From: Return to Sender7/16/2019 5:02:33 PM
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Wall Street closes lower despite positive bank earnings
16-Jul-19 16:20 ET
Dow -23.53 at 27335.63, Nasdaq -35.39 at 8222.79, S&P -10.26 at 3004.04

[BRIEFING.COM] The S&P 500 lost 0.3% on Tuesday, led lower by shares of energy and technology companies while bank earnings failed to generate much excitement. The Dow Jones Industrial Average lost 0.1%, and the Nasdaq Composite lost 0.4%. The Russell 2000 finished flat.

The session began with very little price action, although the Dow did set a new all-time high in the early going amid positive reactions to earnings reports from JPMorgan Chase (JPM 115.12, +1.22, +1.1%) and Goldman Sachs (GS 215.52, +3.94, +1.9%). Like JPM and GS, Wells Fargo (WFC 45.30, -1.41, -3.0%) and Johnson & Johnson (JNJ 132.50, -2.21, -1.6%) beat earnings estimates, but shares finished noticeably lower.

Despite the mostly positive results, the broader market was seemingly uninterested as the good news may have already been priced in. An understanding that earnings from big tech companies are just around the corner may have also kept some buyers sidelined.

Price action picked up after President Trump said that there is still a "long way to go" with China on trade. This helped drive stocks to session lows, although losses were only modest. At its low, the S&P 500 was only down 0.4% and was able to hold above the 3000 level.

Losses in the S&P 500 energy (-1.1%) and information technology (-0.9%) sectors contributed to the downside bias, but gains in the industrials (+0.7%) and materials (+0.2%) sectors helped provide offsetting support.

Energy stocks were pressured by lower oil prices ($57.61/bbl, -$1.90, -3.2%) after Secretary of State Mike Pompeo said that Iran was ready to negotiate on its missile program. The industrials sector benefited from gains in the transport stocks after JB Hunt Transport Services (JBHT 97.73, +5.15, +5.6%) provided positive earnings results and an upbeat outlook for the second half of the year. The Dow Jones Transportation Average advanced 1.8%.

Separately, dovish comments from Fed Chair Powell and Chicago Fed President Evans (FOMC voter) affirmed expectations for at least a 25-basis points rate cut at the July 30-31 FOMC meeting. A 50-basis points rate cut or further rate cuts beyond this month, however, remains less clear. On Tuesday, better-than-expected retail sales for June and Dallas Fed President Kaplan (non-FOMC voter) advocating against aggressive rate cuts kept hopes subdued.

Retail sales for June increased 0.4% ( consensus 0.2%), which contributed to the declining interest in U.S. Treasuries. The 2-yr yield and the 10-yr yield increased three basis points each to 1.86% and 2.12%, respectively. The U.S. Dollar Index advanced 0.5% to 97.38.

Reviewing Tuesday's batch of economic data, which featured Retail Sales for June:

  • Total retail sales were up 0.4% m/m in June ( consensus +0.2%) following a downwardly revised 0.4% increase (from +0.5%) in May. Retail sales, excluding autos, were also up 0.4% ( consensus +0.2%) following a downwardly revised 0.4% increase (from +0.5%) in May. Core retail sales, which exclude motor vehicle, gasoline station, building materials, and food services and drinking places sales, jumped 0.7% m/m.
    • The key takeaway from the report is that it was a solid report overall and will diminish the prospect of a 50-basis points cut at the July 30-31 FOMC meeting.
  • Import prices declined 0.9% m/m following an upwardly revised unchanged reading (from -0.3%) for May. Excluding fuel, import prices were down 0.3% for the second straight month. Export prices declined 0.7% m/m and were down 1.1% excluding agricultural exports.
    • The key takeaway from the report is the lack of inflation pressure seen in it. Nonfuel import prices were down 1.4% yr/yr, versus up 1.5% for the 12-month period ending June 2018. Nonagricultural export prices were down 1.6% yr/yr after being up 5.3% for the 12-month period ending June 2018.
  • Industrial production was unchanged in June ( consensus +0.2%) after increasing an unrevised 0.4% in May. The total industry capacity utilization rate fell to 77.9% ( consensus 78.2%) from an unrevised 78.1% in May.
    • The key takeaway from the report is that factory production declined at an annual rate of 2.2% in the second quarter, which was roughly the same pace as in the first quarter.
  • Business inventories increased 0.3% in May ( consensus 0.4%) following an unrevised 0.5% increase in April. Business sales increased 0.2% after declining an unrevised 0.2% in April.
    • The key takeaway from the report is that the gap between inventory growth on a yr/yr basis (+5.3%) and sales growth (+1.5%) has widened, which should keep prices in check.
  • The NAHB Housing Market Index for July came in at 65 ( consensus 62), up from 64 from June.
Looking ahead, investors will receive Housing Starts and Building Permits for June, the weekly MBA Mortgage Applications Index, and the Fed's Beige Book for July on Wednesday.

  • Nasdaq Composite +23.9% YTD
  • S&P 500 +19.8% YTD
  • Dow Jones Industrial Average +17.2% YTD
  • Russell 2000 +15.8% YTD
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