A look at the day ahead in U.S. and global markets from Mike Dolan
An overdue cold shower?
July 20 : The first of the supercharged Big Tech firms to report in this earnings season – Tesla and Netflix – seemed to underwhelm markets overnight, cutting across the enthusiastic reception for big banks and knocking back bulled-up Wall St from 2023 highs.
The price bar for the mega-cap indices that have near doubled this year may be sky high and a perhaps some rotation is overdue.
But an impressive run for the S&P500 and Dow Jones benchmarks – where the latter clocked eight straight days of gains on Wednesday – looked set for a breather as futures stepped back 0.2 per cent ahead of Thursday’s open.
Although electric car giant Tesla comfortably beat second quarter profit forecasts, markets seized on plans for continued price discounting and squeezed margins as a reason to drag its shares down almost 4 per cent in overnight trading.
Similarly, Netflix’s bottom line also beat the Street and it added almost 6 million new subscribers as restrictions on account sharing kicked in – but its stock recoiled 9 per cent ahead of the bell after quarterly revenue disappointed.
Overseas, Taiwan’s chipmaker giant TSMC forecast a 10 per cent drop in 2023 sales after reporting a 23 per cent fall in second-quarter earnings as global demand stuttered.
The stock price pullbacks seemed more of a recalibration of an overcooked sector, however, with bank shares by contrast advancing 1.70 per cent on Thursday and gaining for a third straight session. Citizens Financial and US Bancorp both jumped more than 6 per cent on impressive earnings updates.
With 10 per cent of the S&P500 now having reported, 80 per cent of those have beaten forecasts, according to Refinitiv data. But the ‘blended’ reported and estimated overall readout from the second quarter is now indicating an annual drop of 8.2 per cent for the 500 firms compared to -5.7 per cent earlier this month. Energy, Healthcare and Materials sectors are the biggest drag.
Pharma and financials dominate Thursday’s reports.
There was also some cooling in the macro world – with U.S. housing starts falling back in June after the prior month’s surge, even though building permits continued to advance smartly.
In the fixed income world, Treasury yields crept back higher ahead of next week’s Federal Reserve meeting.
Rising wheat prices aggravated the food price picture after Russia attacked Ukraine’s grain exporting ports following Moscow’s withdrawal from the Black Sea export deal this week. Wheat rose another 2 per cent to three-week highs, having gained 16 per cent over the past 5 days, but remains down almost 10 per cent on a year ago.
Elsewhere, European shares advanced again – encouraged by disinflation signals in Britain and around the region.
Chinese stocks continued their remarkable underperformance – with no interest rate cuts forthcoming yet to offset the spluttering recovery there, property sector worries mounting and geopolitical concerns high.
The dollar backed off Thursday’s highs.
Events to watch for on Thursday:
* U.S. corporate earnings: Abbott Laboratories, Johnson & Johnson, Blackstone, Capital One, Travelers, Truist Financial, Fifth Third, Marketaxess, American Airlines, Marsh & McLennan, Philip Morris, Newmont, Freeport-McMoRan, WR Berkley, CSX, DR Horton, Intuitive Surgical, PPG, Pool, KeyCorp, Snap-On
* U.S. July Philadelphia Federal Reserve business survey, weekly jobless claims, June existing home sales. Euro zone July consumer confidence
* Turkey, South Africa central bank policy decisions
* U.S. Secretary of Treasury Janet Yellen visits Vietnam
* U.S. Treasury auctions 10-year inflation-protected securities, 4-week bills
(By Mike Dolan, editing by John Stonestreetmike.dolan [at] thomsonreuters.com. Twitter: @reutersMikeD)
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