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Closing Market Summary: Dow Snaps Winning Streak as Indices Pull Back

The major averages ended the Thursday affair under moderate selling pressure, pulling back from their recent rally to new all-time highs. The heavyweight industrial group (-1.0%) paced the retreat as weaker-than-expected quarterly reports and guidance weighed on the sector. Additionally, a leg lower in oil futures and the weakness in the financial (-0.5%) and technology (-0.5%) groups added to the negative tone. The Dow Jones Industrial Average (-0.4%) finished in-line with the S&P 500 (-0.4%) and behind the Nasdaq Composite (-0.3%).

The major averages began the day on a flat note as investors weighed a plethora of earnings reports and recently-released economic data. The European Central Bank released its latest policy statement this morning, deciding to maintain its assets purchase program and its interest rate corridor. The decision was largely expected after the Bank of England stated earlier in the month that it was too early to assess the economic impact of the United Kingdom's exit from the European Union. However, ECB President Mario Draghi stated that the central bank is ready to act should the need arise.

Equity indices teetered near their flat lines into the late morning as leadership from heavily-weighted technology (-0.5%) and health care (+0.4%) kept the market afloat. However, the benchmark index ebbed lower through the afternoon as a persistent downturn in crude oil weighed on equities. The S&P 500 (-0.4%) violated technical support near the 2166 price level in the early afternoon, drifting to the 2160 area. The major averages inched off that level in the final hour as eight sectors finished in the red. Materials (-0.6%), energy (-0.9%), and industrials (-1.0%) underperformed while the remaining decliners finished with losses between 0.3% (consumer staples) and 0.5% (technology). Conversely, health care (+0.4%) and utilities (+0.6%) finished above their flat lines.

The Dow Jones Transportation Average (-1.3%) finished well behind the benchmark index as airlines lagged. The U.S. Global Jets ETF (JETS 22.25, -0.79) fell 3.4% as disappointing results and guidance from Southwest Air (LUV 37.32, -4.71) weighed. The company stated that third-quarter revenue per available seat mile is expected to decline between 3.0% and 4.0% year-over year. Separately, Union Pacific (UNP 90.93, -3.19) underperformed among rail names after lowering its full-year volume estimates.

Defense names underperformed in the broader industrial sector (-1.0%) as Lockheed Martin (LMT 254.14, -2.53) and Raytheon (RTN 134.90, -3.28) fell by 1.0% and 2.4%, respectively. Today's loss extended Lockheed's post-earnings retreat to 0.8%. Elsewhere, General Electric (GE 32.59, -0.19) ticked lower by 0.6% ahead of tomorrow morning's earnings report. The broader sector has declined 0.9% this week, compared to a 0.2% gain in the benchmark index.

The high-beta chipmakers displayed relative weakness, evidenced by the 1.3% decline in the PHLX Semiconductor Index. In the group, Intel (INTC 34.27, -1.42) fell by 4.0% after disappointing investors with its top-line results. Conversely, iPhone supplier Qualcomm (QCOM 59.98, +4.16) rallied 7.5% after beating top- and bottom-line estimates for the quarter.

The heavyweight health care sector (+0.4%) outperformed amid relative strength in biotechnology. The sub-group traded higher in sympathy with Biogen (BIIB 282.45, +20.04) after the company reported top- and bottom-line beats for the quarter. Health care service plans also outperformed after Humana (HUM 171.53, +13.12) increased its outlook for the year. However, it is worth mentioning that the sub-group was under early selling pressure after the Department of Justice announced that it is seeking to block mergers between Anthem (ANTM 139.00, +3.53) & Cigna (CI 140.32, +7.21) and Aetna (AET 118.30, +1.81) & Humana.

The U.S. Dollar Index (96.94, -0.26) settled modestly lower as the euro and the yen gained ground against the greenback. The single currency ticked higher by 0.1% against the buck (1.1022) while the dollar/yen pair finished lower by 1.1% (105.76). The move in the yen was prompted by commentary out of Japan, which called into question the size and nature of potential easing measures.

The Treasury complex finished higher with yields slipping throughout the group. The yield on the 10-yr note settled lower by three basis points at 1.56%.

Today's trading volume was below the recent average as fewer than 803 million shares changed hands on the NYSE floor.

Today's economic data included weekly initial claims, July Philadelphia Fed Survey, FHFA Housing Price Index for May, Existing Home Sales for June, and June Leading Indicators:

  • Initial claims for the week ending July 16 were 253,000 (consensus 265,000), a decrease of 1,000 from the prior week.
    • The initial claims reading was the lowest it has been since mid-April, which belies the fact that initial claims are close to their lowest levels over the past 45 years.
    • This suggests employers are very comfortable with the size of their existing workforces even if they are not altogether comfortable increasing their headcount with new, full-time employees.
    • There were no special factors influencing the initial claims reading, which held below 300,000 for the 72nd straight week -- the longest streak since 1973!
    • The four-week moving average for initial claims fell to 257,750 from 259,000
  • Continuing claims for the week ending July 9 dropped to 2.128 million from 2.153 million in the prior week.
    • The four-week moving average for continuing claims dropped to 2.141 million, a decrease of 2,750 from the prior week.
  • The Philadelphia Fed Index produced a headline disappointment for July, falling to -2.9 (consensus 5.0) from 4.7 in June.
    • The indexes for new orders, shipments, and unfilled orders all moved back into an expansion mode.
    • New orders rose from -3.0 to 11.8; shipments increased from -2.1 to 6.3; and unfilled orders jumped from -12.6 to 1.9.
    • The current employment index remained in a state of contraction; however, the pace of contraction slowed noticeably, evidenced by a reading of -1.6 for July versus -10.9 for June.
    • Separately, there was an uptick in the diffusion index for future general business activity, which increased four points to 33.7, bringing it close to its five-year average of 35.9.
  • The FHFA Housing Price Index for May rose 0.2%, which followed an increase of 0.3% in April.
  • Existing home sales increased 1.1% in June to a seasonally adjusted annual rate of 5.57 million (consensus 5.50 million). 
    • The most encouraging aspect of the June report was that first-time buyers accounted for 33% of home sales, which was up from 30% in May and marked the highest share since July 2012.
    • The high-price obstacle didn't go away in June, which produced a 4.8% increase in the median existing-home price for all housing types to $247,700.
    • That is the 52nd straight month of year-over-year gains and tops May's peak median sales price of $238,900.
    • Price support continues to be underpinned by limited supply and it doesn't sound as if there will be a meaningful break in the pricing trend on the near horizon.
    • To that end, unsold inventory is at a 4.6-month supply at the current sales pace versus 4.7 months in May.
    • Individual investors, who account for many cash sales, purchased only 11% of homes in June, which is the lowest since July 2009. Their reduced interest is likely a reflection of high-price constraints.
    • Single-family home sales increased 0.8% in June to a seasonally adjusted annual rate of 4.92 million while existing condominium and co-op sales rose 3.2% to 650,000 units on the same basis.
    • On a regional basis, existing home sales declined 1.3% in the Northeast, increased 3.8% in the Midwest, remained unchanged in the South, and jumped 1.7% in the West.
    • Existing home sales in May were revised from 5.53 million to 5.51 million.
  • The Conference Board's Leading Economic Index for June increased 0.3%, which was right in-line with the consensus estimate and followed on the heels of an unrevised 0.2% decline for May.
    • Every component index contributed to the monthly increase, with the exception of the average workweek in manufacturing (-0.07 percentage points) and average consumer expectations for business conditions (unchanged).
    • The largest contributors to the Leading Economic Index for June were average weekly initial claims (0.15 percentage points) and the interest rate spread (0.14 percentage points).
    • The two components estimated by the Conference Board -- manufacturers' new orders for consumer goods and materials and nondefense capital goods orders excluding aircraft -- were tagged as contributing 0.02 percentage points and 0.03 percentage points, respectively.
    • Over the first half of the year, the Leading Economic Index increased 0.3% (about a 0.6% annual rate), which is roughly the same pace seen in the second half of 2015, according to the Conference Board.
    • Separately, the Coincident Economic Index increased 0.3% in June after being unchanged in May. The Lagging Index, meanwhile, decreased 0.1% on the heels of a 0.4% increase in May.

There is no economic data of note scheduled to be released tomorrow.