U.S. stocks traded lower midday Thursday after a series of mostly disappointment earnings reports and management commentary, despite the prospect of further interest rates cuts after the European Central Bank policy meeting and ahead of the Federal Reserve decision next week.
The Dow Jones Industrial Average was weighed down in particular by shares of Boeing Co. BA, -3.39% after it reported a larger than expected loss Wednesday and after news that it’s 737 Max production could be suspended.
Technology-related stocks were also under pressure after electric-car maker Tesla TSLA, -13.86% failed to meet earnings expectations, while Wall Street digesting a deluge of earnings reports on one of the busiest days of earnings releases this season.
How are the major benchmarks faring?
The Dow Jones Industrial Average fell 80 points, or 0.3%, at 27,190, the S&P 500 index lost 8 points, or 0.3%, to 3,011, while the Nasdaq Composite index NQU19, -0.95% fell 50 points, or 0.6%, to reach 8,271.
On Wednesday, The Dow DJIA, -0.48% fell 79.22 points or 0.3% to 27,269.97, but the S&P 500 index SPX, -0.47% gained 14.09 points or 0.5% to an all-time closing high at 3,019.56, while the benchmark also set an intraday peak at 3,019.56. The Nasdaq Composite Index COMP, -0.69% closed up 70.10 points or 0.9% to a fresh high of 8,321.50, with that tech-heavy gauge setting an intraday record, also at 8,321.50.
What’s driving the market?
Three Dow index components and more than 50 S&P 500 index companies are reporting earnings Thursday on one of the busiest days of the earnings season.
About a third of S&P 500 index companies have reported second-quarter earnings and 75% have posted a better-than-forecast profit, according to FactSet.
Alphabet, Amazon, Intel, Starbucks and Mattel are all scheduled to report after the close Thursday.
“Earnings have been quite good. Its no surprise that they have beaten estimates, as they have for all but a handful of the 100 plus earnings season I’ve analyzed,” wrote Ed Keon, chief investment strategist at QMA, a quantitative equity arm of PGIM. “But the beats so far have been about 5%, and it looks like growth will be about 2%, much better than the losses forecast before the season started. It’s clearly been a tail wind for stock prices,”
But Keon said valuations may become a concern, given that earnings haven’t commensurately matched the rally in stocks for most companies. “P/E expansion is responsible for almost all the price appreciation this year, and stocks are starting to look a little pricey. Not yet to scary levels, but something to watch,” he wrote, referring to price-to-earnings ratios, a popular method for valuing stocks.
Before the market opened, the European Central Bank laid the groundwork for further cuts to interest rates, announcing Thursday morning that it intends to leave official rates at “present or lower levels,” at least through the first half of 2020. The announcement was in line with market expectations, with most economists expecting the bank to cut its deposit rate from 10 basis points, to -0.5% at its next meeting in September.
The move comes ahead of the Fed’s July 30-31 policy gathering where the U.S. central bank also is widely anticipated to cut benchmark rates by at least 25 basis points to combat headwinds from a China-U.S. trade dispute and signs of slowing economic growth outside of the U.S.
Some analysts were concerned that ECB President Mario Draghi didn’t provide enough detail as to the exact nature of its stimulus plans, in terms of which benchmark rates it may lower and if it would include the relaunching of a program of government bond purchases.
“No meat on the bone on what the package/stimuli might entail,” wrote Piet Christiansen Senior ECB / Euro area analyst at Danske Bank in a tweet. As Draghi spoke, European and U.S. stocks turned lower, while the Euro appreciated against the dollar EURUSD, +0.1257% .
On the data front, orders for long-lasting manufactured goods rose in 2% in June, above the 0.7% increase expected by economists polled by MarketWatch and the 2.3% decline in May. Core capital orders, a key measure of business investment, also rebounded to 1.9% growth in June, the best reading in almost a year and a half, though such investment rose just 1% year-over-year.
New applications for jobless benefits fell to 206,000 during the week ended July 20, below the 218,000 expected by economists, per a MarketWatch poll of economists and near historic lows.
Which stocks are worth watching?
Tesla shares TSLA, -13.86% fell 14% Thursday, after the Silicon Valley car maker late Wednesday reported second-quarter results that missed Wall Street expectations. Tesla said it lost $408 million, or $2.31 a share, compared with a loss of $718 million, or $4.22 a share, in the year-ago quarter. Sales rose to $6.3 billion, compared with $4 billion a year ago.
Ford TSLA, -13.86% F, -7.16% shares fell sharply after its earnings fell short of estimates and its 2019 guidance disappointed investors.
Dow component Dow Inc. DOW, -2.96% stock fell 4% Thursday, after the materials company reported second-quarter earnings that matched estimates, but revenues that fell more than expected.
Shares of fellow Dow constituent 3M Co. MMM, -0.81% rose 0.3% Thursday, after the consumer, health care and industrial products company reported second-quarter profit and sales that fell less than expected.
Facebook FB, -2.10% produced better-than-expected results late Wednesday, but announced fresh probes into its privacy-practices after a $5 billion settlement with federal regulators was announced early Wednesday. Shares fell 2.6%.
Ford Motor Co.’s shares fell 6.8% after the car marker failed to meet analysts’ consensus estimates for earnings.
PayPal Holdings PYPL, -3.39% delivered hotter-than-expected results but offered weak guidance after the bell on Wednesday. Shares fell 4.7% Thursday.
Looking ahead, tech giants Google-parent Alphabet Inc. GOOG, -1.03% GOOGL, -0.97% and Amazon.com Inc. AMZN, -0.65% are expected to report after the closing bell Thursday, along with Dow component Intel Corp. INTC, -1.25%
How are other markets trading?
The 10-year Treasury note TMUBMUSD10Y, +1.87% yield rose about 3 basis points to 2.076%
In commodities markets, the price of crude oil CLU19, +0.72% rose 1.1% to $56 per barrel, while gold prices GCQ19, -0.49% fell 0.3% to $1,419. The U.S. dollar DXY, +0.06% fell about 0.1% against a basket of its major trading partners.
In Asia overnight, the China CSI 000300, +0.82% ended the day up 0.8%, the Nikkei 225 NIK, +0.22% rose 0.2% and Hong Kong’s Hang Seng Index HSI, +0.25% rose 0.3%. European stocks SXXP, -0.56% fell 0.3%.