Mega-cap Dow Jones Extended Rally to 11 Days Ahead of Key Tech Earnings

Barry Adams
24 Jul, 2023
New York City

Stocks traded higher in trading as investors prepare to review earnings reports and the Federal Reserve's policy decision later in the week. 

Market averages edged higher as investors await earnings from several companies including Meta, Amazon, Microsoft, and Alphabet. 

About 740 companies are scheduled to release their quarterly results this week, including about 40% of the companies in the S&P 500 index. 

Nine-month long market rally is powered by large gains in a narrow list of stocks, after companies have reported better-than-expected earnings in the last three quarters. 

Investors are looking for clues how far companies can improve earnings and operating margin in the face of a 500 basis points increase in interest rates in the last fifteen months. 

Moreover, according to the Fed's previous announcements the worst of the rate increases are expected to be felt in the current quarter, and investors are awaiting forecasts of revenue and margins for the third quarter of 2023. 

Moreover, the Federal Reserve is scheduled to announce its rate decision on Wednesday, and market participants are factoring at least 25 basis points increase. 

Economists are also looking to understand how high rates are likely to go by the end of this year, in the face of tight labor market conditions.  

Despite the persistent drumbeat of a looming recession, the economy has been chugging along at a slower pace and investors are postponing the arrival of a recession every quarter to the next quarter for the last three quarters. 

The Federal Reserve has raised rates ten times over the last fifteen months and the economy has still not dipped into a recession and core inflation has stayed near 5%, significantly above the Fed's target rate of 2%. 

Generally, market indexes peak about six to nine months ahead of the arrival of a recession, but there is no sign that the markets are near a peak. 

The S&P Global US Composite PMI eased to 52.0 in July 2023, down from 53.2 in June, according to a preliminary estimate. 

The latest reading showed the weakest pace of expansion in private sector business activity since February, after service sector activity slowed to a five-month low, and manufacturing output was relatively unchanged.

The European Central Bank is expected to announce its rate decision on Thursday and the Bank of Japan is also set to announce its policy directive on the yield curve management on Friday. 

 

U.S. Indexes & Yields 

The S&P 500 index traded higher 0.4% to 4,554.99 and the Nasdaq Composite futures edged up 0.1% to 14,049.76. 

The yield on 2-year Treasury notes decreased to 4.83%, 10-year Treasury notes inched lower to 3.80% and 30-year Treasury bonds edged down to 3.89%. 

Crude oil increased $0.55 to $77.62 a barrel and natural gas prices increased a fraction to $2.71 a thermal unit. 

 

Stock Movers 

Domino's Pizza Inc increased 1.8% to $391.20 after the company reported revenue of $1.0 billion and $3.08 a share. 

AMC Entertainment Holding Inc soared 35.7% to $5.95 after a judge disallowed the company's plan to convert its preferred share to common share. 

Preferred units declined 2.2% to $1.90.  

The company said it has proposed a revised conversion plan. 

Ryanair Holdings plc declined 4% to $102.30 after the deep discount airline reported a surge in traffic, revenue and earnings. 

Revenue in the fiscal year 2024 first quarter ending in June increased 40% to Є3.65 billion after passenger count rose 11% to 50.4 million and load factor rose to 95% from 92% from a year ago. 

Profit after-tax soared 290% to Є663 million from Є170 million and earnings per share rose to 58.22 cents from 16.53 cents a year ago. 

 

European Indexes Lacked Direction, Spain's Post Election Turmoil 

European markets traded down after an inconclusive election in Spain and weak business condition surveys in the Euro Area kept market sentiment down. 

The IBEX index in Madrid fell as much as 0.8% after the right-wing block failed to achieve an absolute majority in Sunday's election in Spain. 

Right-wing block won 169 seats and the left-block secured 153, leaving no clear winner and leaving the country in a gridlock.  

Spain’s conservative Partido Popular party won 136 parliamentary seats, followed by the incumbent socialist party PSOE with 122 seats. 

Far-right party Vox lost its total seat count from the previous election to 33 seats, while the leftish Sumar party winning 31.

All parties failed to win the needed majority of 176 to form a government. The governing PSOE and Vox were considered as a possible coalition partner before the election, but their combined tally fell short of required majority to 169. 

The right leaning Popular Party led by Nunez Feijoo is hoping to become Spain's next prime minister but he will need support from several smaller parties. 

Spain]s political turmoil is likely to last several weeks while Feijoo attempts to build a coalition with the help of several smaller parties with different political philosophies. 

The HCOB Flash Eurozone Composite PMI Output Index, which measures manufacturing and services sector activities, declined to an eight-month low of 48.9 in July from 49.9 in June.

German economic activities contracted the most since November of last year and French output also shrank for the second month in a row. 

The S&P Global/CIPS composite Purchasing Managers' Index for the UK showed a preliminary reading of 50.7 in July,  a decline from 52.8 in June.

The UK's economic activities were anticipated to decline on the worries of restrained consumer spending in the face of elevated inflation and the ongoing supply chain disruption after Brexit. 

 

Europe Indexes & Yields

The DAX index increased 0.08% to 16,190.95, the CAC-40 index fell 0.07% to 7,427.31 and the FTSE 100 index increased 0.2% to 7,678.29. 

The yield on 10-year German bonds decreased higher to 2.37%, French bonds traded lower to 2.97%, the UK gilts edged down to 4.20% and Italian bonds increased to 4.02%.

The euro edged higher to $1.11, the British pound to $1.28 and the U.S. dollar fetched 86.49 Swiss cents

Brent crude increased $1.55 to $78.62 a barrel and the Dutch TTF natural gas increased €2.39 to €30.56 per MWh.

 

Europe Stock Movers

Stocks in Madrid declined after neither party achieved a clear majority to form a stable government. 

Banks led the decliners in Madrid and Bankinter, Unicaja, Caizabank and Banco Sabadell fell between 2% and 3%. 

Endesa dropped 3.2% to €19.22 and Indra Sistemas SA declined 3.1% to €12.30. 

Julius Baer Gruppe AG rose 7.0% to CHF 60.26 after the Swiss financial services firm reported strong quarterly results. 

Ocado Group Plc soared 11% to 764.0 pence after the company settled its long running intellectual property dispute with Norwegian robotics company AutoStore Holdings.   

Vodafone Group Plc increased 4% to 76.55 pence after the company reported better-than-expected revenue growth in its latest quarter and named a new CFO. 

Alstom SA rose 1% to €27.66 after the French power equipment company signed a contract worth up to €260 million with Germany-based RAILPOOL

S4 Capital PLC plunged 19.7% to 160.75 pence after the digital advertising and marketing company lowered its annual revenue growth core profit margin estimated citing the challenging macroeconomic environment.