Closing Market Summary: Investors Take Earnings in StrideThe stock market cruised to a victory on Tuesday with the S&P 500 (+0.3%), the Nasdaq (unch), and the small-cap Russell 2000 (+0.9%) all settling at fresh record highs. The Dow (+0.5%) outperformed the benchmark index, but finished just 30 points shy of its record mark. The Nasdaq lagged as a handful of influential tech stocks underperformed.
Investors were drowning in earnings reports on Tuesday, but took the news in stride as the results largely came in better than expected. For instance, out of the five Dow components that reported their quarterly results on Tuesday morning, four of them--Caterpillar (CAT 114.54, +6.36, +5.9%), McDonald's (MCD 159.07, +7.22, +4.8%), DuPont (DD 85.49, +1.14, +1.4%), and United Technologies (UTX 120.42, -2.71, -2.2%)--beat earnings per share estimates. 3M (MMM 199.39, -10.61, -5.1%) was the only Dow component to miss bottom-line estimates.
However, stock movement didn't necessarily reflect earnings performance, at least on the surface, with Alphabet (GOOGL 969.03, -29.28) serving as a prime example. The tech giant reported better than expected earnings and revenues, but slipped 2.9% nonetheless. There were some concerns surrounding a 28.0% year-over-year increase in the company's traffic acquisition costs (TAC), but the sell off was more likely a signal that the good earnings news was priced in during a three-week rally leading up to the report; GOOGL shares jumped 8.6% from July 3 to July 24.
Alphabet weighed on the top-weighted technology sector, which finished with a loss of 0.2%. The industrial (-0.1%) sector also settled with a modest decline while the health care and utilities spaces suffered more substantial losses, losing 0.7% and 0.5%, respectively. Biotechnology names struggled, sending the iShares Nasdaq Biotechnology ETF (IBB 323.81, -3.53) lower by 1.1%. However, pharmaceutical giant Eli Lilly (LLY 82.19, -2.55) did even worse, dropping 3.0%, despite beating top and bottom line estimates.
On a related note, the Senate voted to move forward with a debate on health-care reform on Tuesday afternoon with Vice President Mike Pence breaking a 50-50 tie.
Seven of eleven sectors advanced on Tuesday with the financials (+1.3%), energy (+1.3%), and materials (+1.2%) groups leading the charge. The financial space benefited from Citigroup's (C 68.03, +1.93) upbeat long-term profitability projections, which were provided at its first investor day since the Great Recession. In addition, a curve-steepening trade in the Treasury market also underpinned financials' positive performance.
Treasuries settled lower across the curve with the heaviest selling taking place at the back end; the 10-yr yield climbed eight basis points to 2.33% while the 2-yr yield climbed three basis points to 1.39%.
Meanwhile, the energy space benefited from a rally in the crude oil market. The commodity advanced for the second day in a row, underpinned by yesterday's news that Saudi Arabia will curb its exports next month. Technical trading also played a factor as WTI crude managed to break above its 50-day simple moving average ($46.52/bbl), which acted as a level of resistance on Monday. WTI crude settled higher by 3.3% at a price of $47.89/bbl.
As for the materials sector, Freeport-McMoRan (FCX 14.87, +1.91) was the top performer, surging 14.7%, after saying on its post-earnings conference call that copper demand from China has been better than expected. FCX beat revenue estimates, but came up a little short on earnings. Meanwhile, copper jumped 3.9% to $2.84/lb.
Out of the remaining advancers--consumer discretionary (+0.7%), consumer staples (+0.7%), telecom services (+0.3%), and real estate (+0.1%)--the consumer discretionary and consumer staples groups were the top performers as retailers outperformed. The SPDR S&P Retail ETF (XRT 40.81, +1.05) climbed 2.6% amid broad strength.
Reviewing Tuesday's economic data, which included the Conference Board's Consumer Confidence Index for July, the May FHFA Housing Price Index, and the May S&P 500 Case-Shiller Home Price Index:
- The consumer confidence reading for July rose to 121.1 from the prior month's revised reading of 117.3 (from 118.9). The consensus expected the survey to hit 116.8.
- The key takeaway from the report is that the uptick in July was forged by a pickup in sentiment for current conditions as well as the short-term outlook.
- The FHFA Housing Price Index for May rose 0.4%, while the consensus expected an increase of 0.7%. The prior month's reading was revised to 0.6% (from 0.7%).
- The May Case-Shiller 20-city Index hit 5.7%, which is in line with the consensus. The prior month's reading was left unrevised at 5.7%.
On Wednesday, investors will receive just two pieces of economic data--the weekly MBA Mortgage Applications Index and the June New Home Sales Report (consensus 610K). The two reports will cross the wires at 7:00 ET and 10:00 ET, respectively.
Also of note, the Fed's latest policy directive will be released on Wednesday afternoon at 14:00 ET.
- Nasdaq Composite +19.1% YTD
- S&P 500 +10.6% YTD
- Dow Jones Industrial Average +9.4% YTD
- Russell 2000 +6.9% YTD