U.S. and Global Markets In Holding Pattern Amid a Flood of Earnings

Alexander Garcia
23 Jul, 2024
Miami

Benchmark indexes on Wall Street stayed close to a flatline, and investors reviewed a fresh batch of earnings and awaited key tech earnings after the close. 

The S&P 500 index and the Nasdaq Composite hugged the flatline, and the dollar edged slightly higher against the euro and Asian currencies. 

Investors review the latest batch of quarterly results, including updates from General Motors, UPS, Crown Holdings, NXP Semiconductor, and Cadence. 

General Motors reported strong gains in second quarter sales and earnings, and the vehicle maker said it plans to restructure its struggling China unit. 

UPS plunged more than 10% after the company revised its annual outlook and its second quarter performance fell far short of market expectations. 

In the latest earnings season, companies have generally met or exceeded investor expectations, supporting the move in market indexes and helping the rally to broaden beyond mega-cap stocks. 

Investors are still rotating out of mega-cap stocks into smaller-cap companies and cyclical stocks in the hopes that the Federal Reserve is likely to cut rates starting as early as September. 

The lower interest rates stimulate demand and benefit smaller and cyclical companies because of higher demand for their products and services. 

 

Existing Home Sales Slipped In June, Median Price Jumps to Record High

Existing home sales in June declined for the fourth month in a row, but median home prices rose to a record high for the second consecutive month. 

Existing home sales declined 5.4% from the previous month and from a year ago to 3.89 million, the National Association of Realtors reported Tuesday. 

“We're seeing a slow shift from a seller's market to a buyer's market,” said NAR Chief Economist Lawrence Yun. 

“Homes are sitting on the market a bit longer, and sellers are receiving fewer offers. More buyers are insisting on home inspections and appraisals, and inventory is definitively rising on a national basis.”

Median sales price for all housing types increased 4.1% to a record high of $426,900, and total housing inventory at the end of June increased 23.4% from a year ago to 1.32 million. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index decreased 0.1% to 5,564.32, the Nasdaq Composite rose 0.09% to 18,024.72, and the Russell 200 advanced 0.8% to 2,238.53.

The yield on 2-year Treasury notes edged lower to 4.52%, 10-year Treasury notes increased to 4.24%, and 30-year Treasury bonds edged higher to 4.47%.

WTI crude oil decreased $0.91 to $77.49 a barrel, and natural gas prices edged down 3 cents to $2.21 a thermal unit.

Gold increased by $8.60 to $2,403.89 an ounce, and silver decreased 5 cents to $29.01. 

The dollar index, which weighs the U.S. currency against a basket of foreign currencies, edged lower to 104.50.

 

U.S. Stock Movers 

Cadence Design Systems increased 1% to $289.12, and the advanced chip design software trimmed its current quarter earnings outlook to between $1.39 and $1.49 per share. 

NXP Semiconductor plunged 8.3% to $260.60 after the advanced semiconductor company reported weaker than expected adjusted earnings. 

Adjusted earnings in the second quarter were $3.20 per share, lower than market expectations between $3.22 and $3.27 per share. 

Crown Holdings soared 9.8% to $85.06 after the packaging company lifted its annual earnings outlook. 

Revenue in the second quarter edged lower to $3.04 billion from $3.1 billion, net income increased to $174 million from $157 million, and diluted earnings per share rose to $1.45 from $1.31 a year ago. 

The company estimated full-year diluted earnings per share in the range of $6.00 to $6.25 compared to previous guidance of $5.80 to $6.20 and free cash flow to be at least $750 million.

Third quarter adjusted earnings per share are expected to be in the range of $1.75 to $1.85.

General Motors declined 5.8% to $46.67, despite the automaker reporting better-than-expected second quarter results. 

Revenue increased 7% to $47.9 billion from $44.7 billion, net income rose to 14.3% to $2.9 billion from $2.6 billion, and diluted earnings per share advanced to $2.55 from $1.83 a year ago. 

The vehicle maker also revised its full-year earnings per share outlook to between $8.93 and $9.93 from the previous estimate between $8.94 and $9.94. 

The company also declared a quarterly cash dividend of 12 cents payable on September 19 to shareholders on record on September 9. 

United Parcel Service dropped 13.1% to $126.01 after the package delivery company reported lower than expected results in the second quarter. 

Consolidated revenue in the second quarter declined 1.1% to $21.8 billion from $22.1 billion, net income dropped 32.2% to $1.4 billion from $2.1 billion, and diluted earnings per share fell to $1.65 from $2.42 a year ago. 

The company also estimated full-year consolidated revenue of $93 billion and capital expenditure of $4.0 billion, lower than $4.5 billion in the previous estimate. 

 

European Market Indexes Flatlined In Cautious Trading 

European market indexes traded mixed, and tech stock gains were overshadowed by a weakness in resource stocks. 

Benchmark indexes in Paris, London, and Frankfurt flatlined, and the euro and the pound held firm. 

Tech stocks advanced after SAP and Logitech reported better-than-expected quarterly results, but mining stocks edged lower on demand growth worries in China. 

The price of copper fell to a three-month low following China's lack of major economic reform announced at the end of the Third Plenum last week. 

Moreover, luxury stocks in Paris also faced a sharp fall for the second week due to persistent demand growth worries in mainland China and Hong Kong. 

However, market sentiment recovered slightly after U.S. President Joe Biden announced his plan to exit the presidential race and endorsed the nomination of Vice President Kamala Harris as a Democratic Party candidate. 

Harris is more likely to continue the current policy of supporting NATO spending targets and support the efforts in defending the Ukraine war, unlike Republican Party candidate Donald Trump's plan to end financial support. 

 

Europe Indexes and Yields

The DAX index increased by 0.8% to 18,557.70; the CAC-40 index fell by 0.3% to 7,598.63; and the FTSE 100 index fell by 0.3% to 8,167.37.

The yield on 10-year German bonds edged lower to 2.45%, French bonds inched lower to 3.10%, the UK gilts inched higher to 4.14%, and Italian bonds decreased to 3.75%.

The euro edged lower to $1.09; the British pound inched higher to $1.29; and the U.S. dollar weakened to 89.19 Swiss cents.

Brent crude decreased $1.20 to $81.19 a barrel, and the Dutch TTF natural gas fell by €0.51 to €31.37 per MWh.

 

Europe Stock Movers

SAP SE jumped 6.5% to €195.20 after the German software company reported better-than-expected second-quarter results. 

Logitech SA increased 1.3% to CHF 83.14 after the Swiss computer accessories maker lifted its annual sales and earnings outlook. 

Porsche Automobil declined 2.9% to €41.44 after the luxury vehicle maker cut its annual sales outlook and warned of possible impairment charges linked to supply chain disruptions. 

Thales SA declined 5.4% to €145.95, despite the France-based largest European defense electronics company reporting slightly better-than-expected operating profit in the first half. 

Alfa Laval rose 0.2% to SEK 467.80 after the Swedish thermal equipment and plant maker reported an increase in sales and earnings in the second quarter. 

Compass Group jumped 4.7% after the airline catering company revised its full-year revenue and earnings outlook. 

 

 

Japan Stocks Rebounded, Nippon Yusen and Yokohama Rubber In Focus 

Japan stocks rebounded and halted a 4-day decline following a rise in tech stocks. 

The Nikkei 225 gained 0.1% and the Topix index rose 0.3% after the tech stocks mirrored the gain in overnight trading in New York. 

The yen drifted higher to 156.65 against the U.S. dollar as investors suspected that the central bank continued its effort to shore up the weak yen. 

Toshimitsu Motegi, the general secretary of the ruling Liberal Democratic Party, urged the Bank of Japan to clearly communicate its plan for ending massive stimulus and avoiding an excessive decline in the yen. 

The comments of the senior ruling party leader come ahead of the Bank of Japan's policy meeting at the end of the month, and investors are hoping that the central bank will cut down sharply on its monthly 6 trillion yen bond purchase program. 

 

Japan Stock Movers 

The Nikkei 225 stock average increased 0.1% to 39,643.39, and the Topix index advanced 0.3% to 2,834.79. 

Ocean Transportation Company stocks were focused on the tight container shipment market and rising rates for trans-Pacific routes. 

Kawasaki Kisen jumped 6.4% to ¥2,395.50, Nippon Yusen gained 8.2% to ¥4,825.0, and Mitsui OSK gained 5.4% to ¥4,810.0. 

Nippon Yusen upwardly revised its financial outlook for the fiscal first half and 2025, citing higher ocean freight rates, positive trends in its air cargo and bulk shipment business, and a weaker yen. 

The company revised its first-half revenue to 1.295 trillion yen from 1.165 trillion yen in the previous estimate, net profit attributable to shareholders to 250 billion yen from 135 billion yen, and earnings per share to 547.80 yen from 294.03 yen.

The company revised its annual revenue outlook to 2.57 trillion yen from 2.25 trillion yen, its net income to 390 billion yen from 245 billion yen, and its earnings per share outlook to 855.9 yen from 533.6 yen. 

The company said it has completed the purchase of 4.32 million of its own shares and reiterated its commitment to complete its 100 billion yen or as many as 35 million share repurchase plan. 

Yokohama Rubber soared 7.5% to ¥3,539.0 after Goodyear announced its plans to sell its off-the-road tire business to the company for $905 million in cash. 

Goodyear will retain its business providing OTR tires for U.S. military and defense applications and Goodyear will manufacture certain OTR tires for Yokohama at some of its manufacturing locations for an initial period of up to five years after the closing of the transaction.

 

China Stocks Lack Direction Amid Worries of Escalating Government Debt and Weak Earnings Growth 

Stocks in Shanghai and Hong Kong retained a downward bias for the second day in a row amid a lack of catalysts. 

The Hang Seng index declined 0.2%, and the CSI 300 index, tracking the largest mainland stocks, fell 1% after the lack of major economic reform announcements following the Communist Party's Third Plenum last week. 

China's Politburo is set to meet later in the month, and investors are hoping for more concrete market-supportive measures after the high-level meeting of ministers. 

During the Third Plenum, where dissent or debate on policies is rarely entertained, most participants voiced strong support for meeting the annual economic growth target of 5% and also supported additional measures. 

China's government is likely to meet its growth target by surpassing its budget deficit of 5.8% in 2023 and reaching as high as 7%. 

China's fiscal deficit has averaged 6.4% since 2020, and the annual deficit is likely to grow at a faster pace in 2024 and 2025. 

On Monday, the People's Bank of China unexpectedly lowered its key short-term lending rates, and investors are hoping that the central bank is likely to lower its reserve ratio requirement for banks to increase financial liquidity. 

Despite the recent slowdown in spending, China's debt-to-GDP ratio rose close to 300%. 

China's total outstanding non-financial debt as a percentage of gross domestic product increased 13.5 percentage points from a year ago to 287.8% at the end of 2023, according to the National Institution for Finance and Development. 

In the first half of 2024, the government's debt increased at least by another six percentage points, according to an estimate by Ticker.com. 

 

China Stock Movers 

The Hang Seng index decreased 0.2% to 17,609.06, and the CSI 300 index dropped 1% to 3,478.06. 

BYD declined 3.5% to HK $237.40 after a Hong Kong Stock Exchange filing showed that the U.S.-based Berkshire Hathaway sold 1.4 million shares, lowering its stake to 4.95%. 

BYD Electronic International decreased 3.6% to HK $32.50. 

Bank stocks were in focus amid expectations that the People's Bank of China is likely to lower the reserve ratio requirement to facilitate more lending to the industrial economy. 

ICBC increased 2.2% to HK $4.37, Orient Overseas gained 0.7% to $108.60, and Bank of China advanced 1.1% to HK $3.46.