U.S. equities finished mixed in choppy trading amid a host of data, events and cautious Fedspeak driving sentiment. Geopolitical tensions continue to run high, as Speaker Nancy Pelosi touched down in Taiwan despite warnings from the Chinese government that doing so would undermine relations with the U.S. Meanwhile, earnings continued in earnest, as Dow member Caterpillar fell despite beating earnings expectations in part due to supply chain issues and unfavorable currency movements. Shares of Uber jumped despite posting a large loss, as its revenues rose a whopping 105% from the year prior. In light economic news, job openings declined for the third-straight month, and the hiring rate dipped slightly. Treasuries finished noticeably lower as yields rose, and the U.S. dollar gained solid ground, while crude oil prices were also higher, but gold declined. Europe finished predominantly to the downside ahead of Thursday's Bank of England meeting, while markets in Asia were also mostly lower amid the U.S.-China frictions.
The Dow Jones Industrial Average declined 402 points (1.2%) to 32,396, the S&P 500 Index fell 27 points (0.7%) to 4,091, and the Nasdaq Composite decreased 20 points (0.2%) to 12,349. In moderate volume, 4.7 billion shares of NYSE-listed stocks were traded, and 4.6 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.53 to $94.42 per barrel. Elsewhere, the gold spot price decreased $8.90 to $1,778.80 per ounce, while the Dollar Index increased 0.8% to 106.20.
Dow member Caterpillar Inc (CAT $184) reported adjusted Q2 earnings-per-share (EPS) of $3.18, topping the $3.01 FactSet estimate, as revenues rose 10.5% year-over-year (y/y) to $14.3 billion, roughly in line with the Street's forecast. The company noted favorable price realization and higher sales volume as drivers of the revenue growth, while unfavorable currency impacts partially offset those impacts. The company's operating margin dipped slightly to 13.6% from 13.9% a year ago. The Caterpillar CEO said, "Our team delivered another good quarter with double-digit top line and adjusted profit per share growth despite ongoing supply chain challenges. Our second-quarter results reflect healthy demand across most of our end markets." Shares fell.
Uber TechnologiesInc (UBER $29) reported a quarterly loss of $1.33 per share in Q2, but it was unclear if it was comparable to the FactSet estimate of a $0.27 loss. Revenues rose 105.5% y/y to $8.1 billion, north of the Street's forecast of $7.4 billion. The loss included a $1.7 billion headwind due primarily to revaluation of investments including Uber's Aurora, Grab, and Zomato stakes. The loss also includes $470 million in stock-based compensation expense. Gross bookings grew 33% y/y, trips grew 24%, and monthly active platform consumers grew 21%. Uber CFO Nelson Chai noted, "We became a free cash flow generator in Q2, as we continued to scale our asset-light platform, and we will continue to build on that momentum. This marks a new phase for Uber, self-funding future growth with disciplined capital allocation, while maximizing long-term returns for shareholders." Uber was solidly higher.
The markets are in the midst of another heavy week of earnings reports and ahead of Friday's key labor report. Q2 earnings season has shifted into high gear this week, and of the 319 S&P 500 companies that have reported thus far, roughly 61% have topped revenue forecasts and approximately 74% have bested profit projections, per data compiled by Bloomberg. Compared to last year, revenue growth is tracking to be up 14.8% and earnings are 8.4% higher thus far.
Schwab's Chief Investment Strategist, Liz Ann Sonders discusses the economy in her latest article, The Thrill Is Gone: Earnings Season Kicks Off, how Q2 earnings growth will mark an expected deceleration in profits, but focus will likely continue to shift to the pace at which outlooks are downgraded.
Job openings continue recent downtrend
The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, showed a decrease to 10.7 million jobs available to be filled in June, from May's upwardly-revised level of 11.3 million. The estimate called for an 11.0 million figure. The report showed the hiring rate dipped slightly to 4.2% from May's 4.3% level, and separations held at May's 3.9% rate. The quit rate also remained at May's 2.8% pace.
Treasuries were lower as yields rose, and the inversion of the 2-year and 10-year notes remained intact. The markets continued to grapple with last week's Fed monetary policy decision, where it raised its benchmark interest rate by 75 basis points (bps) for the second-straight meeting, and the markets appeared to take comments from Chairman Jerome Powell as less hawkish.
Schwab's Chief Fixed Income Strategist Kathy Jones discusses the decision in her latest article, Fed Hikes Rates Another 0.75%, Citing Inflation, noting that as inflation is running far above 2%, the Fed is indicating it will likely keep hiking rates despite widespread signs of slowing economic growth. Kathy adds that the Fed is also continuing its "quantitative tightening" (QT) program—reducing the size of its balance sheet by letting bonds it holds mature without reinvestment. She points out how the pace of QT will begin to pick up in September as the Fed allows more bonds to "roll off" its balance sheet.
The yield on the 2-year Treasury note was up 15 bps to 3.06%, the yield on the 10-year note increased 14 bps to 2.76%, and the 30-year bond was 10 bps higher at 3.03%.
Tomorrow's economic calendar will hold a look at the services side of the economy, courtesy of the ISM Services Index, forecasted to have declined to 53.5 in July from June's 55.3 level, as well as the final read on S&P Global's U.S. Services PMI, which is expected to remain at the preliminary figure of 47.0. A reading of 50 is the demarcation point between expansion and contraction for both indexes. Factory orders for June are also on tap, anticipated to have advanced 1.2% month-over-month following May's 1.6% increase, and the MBA Mortgage Applications Index for the week ended July 29 will round out the docket.
Europe mostly lower amid busy week of earnings
European equities finished mostly lower, as August has gotten off to a bumpy start following solid gains last month. The markets continued to digest the recent Fed rate hike and await the Bank of England's monetary policy decision later this week. Earnings continue to be a big driver of movement this quarter, and U.K.-based oil giant BP PLC (BP $29) rose after posting its largest quarterly profit in 14 years and raising its dividend following the recent surge in global commodity prices. The Russia and Ukraine war also remained in focus as a Ukraine grain shipment is being sent for the first time since Russia's invasion due to a safe passage deal. In light economic news, Spain's unemployment rose slightly in July, and Switzerland's manufacturing PMI dipped to 58.0 from June's 59.1 reading but was above the forecasted 56.2 reading. A reading above 50 denotes expansion. The euro and British pound were both lower versus the U.S. dollar, and bond yields in the U.K. increased, while yields across Europe were mixed.
Eurozone GDP growth came in stronger than expected last Friday even as inflation has been a main driver of tighter monetary policies and dampened consumer and business sentiment. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, notes in his article, Shortages Have Led to Gluts, noting 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. You can follow Jeff on Twitter: @JeffreyKleintop.
The U.K. FTSE 100 Index ticked 0.1% lower, France's CAC-40 Index and Italy's FTSE MIB Index fell 0.4%, Germany's DAX Index decreased 0.2%, and Switzerland's Swiss Market Index was down 0.3%. while Spain's IBEX 35 Index was up 0.2%.
Asia mostly lower as Pelosi set to visit Taiwan
Stocks in Asia finished mostly lower as geopolitical tensions were the main focus following news that Speaker of the House Nancy Pelosi is set to visit Taiwan, a democratic self-ruled island that China sees as part of its own territory. The visit was previously up in the air due to China warning it could undermine the relationship between the two countries. In addition to the geopolitical tensions, China has also been hampered by 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. Monetary policy was also once again in focus as markets continue to digest last week's Fed decision of a 75 bp rate hike. In addition, the Reserve Bank of Australia raised its cash rate by 50 bps, and central banks from India and England are set to make decisions of their own later this week. In other economic news, South Korean CPI rose 6.3% y/y in July which was in line with expectations but above the previous month's reading. In addition, retail sales in Hong Kong fell more than expected in June.
Japan's Nikkei 225 Index fell 1.4%, with the yen continuing last week's upward momentum. The yen has trimmed some of a recent drop versus the greenback to multi-decade lows since March that came as the Fed and Bank of Japan diverge with their monetary policies. China's Shanghai Composite Index decreased 2.3%, the Hong Kong Hang Seng Index dropped 2.4%, and South Korea's Kospi Index finished 0.5% lower, while Australia's S&P/ASX 200 Index was up 0.1%, and India's S&P BSE Sensex 30 Index was little changed.
A host of services PMIs from across the globe will dominate tomorrow's international economic calendar, while other reports of note include trade data from Germany and retail sales from Italy.
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