Market Update
The S&P 500 Index dipped by 0.08% today, while the Dow Jones fell by 0.44%, and the Nasdaq 100 dropped 0.15%. E-Mini S&P Futures for September also experienced a slight decline of 0.14%, with the September E-Mini Nasdaq futures down 0.17%.
Early gains in the stock market faded as Netflix’s shares dropped by 5%, which, in turn, pressured technology stocks after the company projected an operating profit margin lower than anticipated. Furthermore, health insurers faced setbacks, notably with Humana’s unsuccessful lawsuit regarding Medicare bonuses and a downgrade for Elevance Health, adding to market pressures.
Initially, stock indexes were optimistic, with the S&P 500 and Nasdaq 100 reaching new highs. Positive factors included strong reports on housing starts, which exceeded expectations, along with generally robust revenue figures. Additionally, the University of Michigan’s Consumer Sentiment Index climbed to its highest point in five months.
A drop in bond yields might benefit stocks, following dovish remarks from Federal Reserve Governor Christopher Waller on Thursday night. This aligns with easing inflation expectations noted in today’s report from the University of Michigan, which was favorable for T-bills and equities. The yield on 10-year T-notes was at 4.42%, down 3 basis points.
June housing starts in the U.S. totaled 1.321 million, marking a surprising 4.6% month-over-month increase. Building permits also showed an unexpected uptick, moving from a 0.2% month-over-month rise to 1.397 million, though it adjusted downward slightly compared to forecasts.
The University of Michigan’s Consumer Sentiment Index for July rose to 61.8, surpassing the expected 61.5. Meanwhile, the inflation forecast for July dropped to a five-month low of 4.4%, with a subsequent forecast indicator for July 5-10 easing to 3.6%, lower than the expected 3.9%.
On Thursday, Waller suggested that it would be wise to cut policy rates before any labor market deterioration occurs, pointing out that inflation is near target levels and the risk of rising inflation is limited. He proposed a 25 basis point cut at the next Federal Open Market Committee meeting.
Recent trade developments added downward pressure on stocks, with President Trump announcing plans to inform over 150 countries of potential tariff rates ranging from 10% to 15%. He also indicated plans to impose a 30% tariff on imports from the EU and Mexico starting August 1, along with hikes on certain Canadian goods.
Futures pricing now reflects a 5% chance of a 25 basis point rate reduction at the upcoming FOMC meeting on July 29-30, increasing to 58% for the September meeting.
This week marks a significant start to earnings season, with major bank results coming in stronger than anticipated. According to Bloomberg Intelligence, second-quarter revenues for the S&P 500 are projected to grow by 2.8% year-over-year. A survey indicates only six out of eleven sectors are forecasting lower revenue growth since early 2023.
Global stock markets are showing mixed results today. The Euro Stoxx 50 declined by 0.42%, while China’s Shanghai Composite saw a minor gain of 0.50%. Japan’s Nikkei 225 fell by 0.21% after a two-and-a-half-week rise.
Interest Rate Insights
September T-Notes are rising today, with yields on 10-year T-notes at 4.432%, down 2 basis points. Comments from Waller, along with lower inflation expectations, are favoring T-notes. However, the stronger-than-expected U.S. housing launch report and rising consumer sentiment are somewhat bearish for T-notes.
European government bond yields are on the rise, with German yields increasing to 2.696%, up 2.1 basis points. In the UK, yields have reached a 1.5-month high at 4.680%, also up 2.1 basis points. Meanwhile, the eurozone reported its largest construction output decline in nearly 2.5 years, sinking by 1.7% month-over-month.
Germany’s June Producer Price Index (PPI) decreased by 1.3% year-over-year, marking the steepest decline in nine months, as expected. The market is currently factoring in a 1% chance of a 25 basis point rate cut by the European Central Bank at its upcoming meeting.
Stock Highlights
Healthcare stocks, particularly managed care providers, faced significant declines in the wider market. Elevance Health lost over 5% following a downgrade from Leerink Partners, while Humana dropped by more than 2% after an unsuccessful legal effort regarding Medicare cuts. Molina Healthcare, Centene, and CVS Health also saw losses.
On the tech front, Netflix led the Nasdaq declines, falling over 5% after projecting a potentially disappointing annual operating margin. Additionally, American Express dropped more than 3% after reporting second-quarter expenses exceeding expectations.
3M Co saw a decline of over 3% after revising its full-year organic sales estimates downward. Sarepta Therapeutics dropped more than 18% following a negative development with its experimental gene therapy. Autoliv and Builders FirstSource also reported losses.
On a positive note, Talen Energy rose over 22% after acquiring gas-fired power plants, while Invesco Ltd gained over 11% following legal maneuverings aimed at changing its fund structure. Interactive Brokers and Regional Finance also saw gains, bolstered by positive revenue reports.
Abbott Laboratories gained over 3% after an upgrade from Jefferies, while Norfolk Southern rose over 3% amid news of potential acquisitions and Charles Schwab saw a boost with gained revenues exceeding expectations.
As earnings reports continue to roll in, the market is looking closely at upcoming financial results from various companies.
