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TUMBLING AD TECH STOCKS LEAVE WALL STREET SHARPLY DOWN (1615 EDT/2015 GMT)
Wall Street ended sharply lower on Friday after a dismal quarterly report from Snap crushed internet ad stocks including Meta Platforms and Google owner Alphabet .
Snap tumbled 39% after the Snapchat owner late on Thursday posted its weakest-ever quarterly sales growth as a public company, setting off worries about ad spending as investors worry about a potential recession.
Alphabet dropped 5.6% and Facebook-owner Meta lost 7.6%. Alphabet posts its quarterly results on Tuesday, followed on Wednesday by Meta.
A recent rally in chip stocks ended abruptly after disk-drive seller Seagate Technology spooked investors already worried about a downturn. Seagate dropped over 8% after warning late on Thursday it was cutting production as customers reduced orders due to macroeconomic uncertainty and broader component shortages. That left the Philadelphia semiconductor index down 2.55% for the session and down about 28% for the year-to-date.
Tesla edged up 0.2% and was Wall Street's most traded stock, with about $28 billion worth of shares exchanged, according to Refinitiv data.
Among 11 S&P 500 sector indexes, communication services fell the most, ending down 4.3%.
The S&P 500 gained about 2.6% for the week, but is still down 17% for the week.
Here is your final snapshot:
(Noel Randewich)
Q2 PROFIT ESTIMATE INCHES UP AS 2022 SLIPS (1330 EDT/1730 GMT)
The estimate for second-quarter earnings from S&P 500 companies moved up slightly this week with results in so far from 106 reports.
S&P 500 earnings are now expected to have gained 6.2% from the year-ago period, compared with 5.7% estimated two weeks ago, according to IBES data from Refinitiv.
Some 76% are reporting above analysts' earnings expectations, the data showed. That compares with an average of about 81% over the past four quarters.
But investors have also been carefully watching estimates for all of 2022 and even for 2023, and those have come down slightly since the start of the month as more companies have given guidance.
Analysts now expect S&P 500 earnings growth of 9.2% for all of 2022, versus 9.5% at the start of the month; and they expect earnings growth of 8.6% for 2023, versus 9.3%, according to Refinitiv data.
With a full slate of reports on tap for next week, those numbers could start shifting more dramatically.
The week ahead brings results from a number of mega-cap companies, like Alphabet and several top industrial names like 3M.
(Caroline Valetkevitch)
IS TRANSPORTS REPRIEVE JUST A PIT STOP? (1253 EDT/1653 GMT)
If transportation stocks are seen as a key indicator for the health of the economy, the last week might give the impression of easing investor angst about the prospects for a recession.
The Dow Jones Transport Average index was last down 0.2% after earlier rising as much as 0.6%. But the index remains up ~5% for the week, which would be its strongest showing since the week ended June 24.
This was mostly thanks to freight carrying companies and slightly offset by weakness in airlines.
Matson was leading the charge for the week with the shipping and logistics provider rising 7% on July 20, its 10th straight day of gains, following its results after market close Tuesday.
CSX Corp, which reported on Thursday, was also a strong gainer, on track for its biggest weekly gain since early March. Old Dominion, due to report July 27, and Kirby Corp, to report July 28, were also among the top gainers for the week so far.
Paul Nolte, portfolio manager at Kingsview Investment Management in Chicago is "favorable" towards the sector right now, and here's why: "They're able to raise prices and pass them on to the consumer. Their customers need to get stuff from point A to point B ... Its very similar to any other businesses where demand is outstripping supply."
Still, Nolte said he sees strong recessionary signals and that he remains wary of cyclical businesses like transportation in a recession.
Dow transports were still down ~16% YTD compared with the S&P 500's ~17% drop for the year so far. If trends continue July would be its first monthly gain since March.
(Sinéad Carew)
CHIP RALLY SNAPS AFTER SCARE FROM SEAGATE (1240 EDT/1640 GMT)
Chip stocks look to be ending their recent rebound on Friday after a disk-drive seller Seagate Technology spooked investors already worried about a downturn.
The Philadelphia Semiconductor index is sinking 2.4%, and on track to close lower for its first time since Monday.
Seagate late on Thursday warned https://s24.q4cdn.com/101481333/files/doc_financials/2022/q4/STX-Q4 '2022-Press-Release.pdf it was cutting production as customers reduce orders due to macroeconomic uncertainty and broader component shortages.
Seagate's stock is tumbling 8.5% and rival Western Digital is down 5.7%.
Marvel Technology and Micron Technology, which both sell chips used to make storage devices, are losing 4.7% and 2.5%, respectively.
Other heavyweight chipmakers are also down, with Intel , Advanced Micro and Nvidia falling between 2.3% and 4%.
Semis have been hammered in 2022 as investors worry about rising interest rates and a slowing economy, with many analysts predicting the industry's first sales downturn since 2019.
The Philadelphia chip index has rebounded in recent weeks, and is now up 11% so far in July, and up almost 6% this week, even after Friday's selloff.
The index remains down 28% for all of 2022.
(Noel Randewich)
BEARS AT 7-WEEK LOW, BULLS AT 7-WEEK HIGH - AAII (1215 EDT/1615 GMT)
Individual investor pessimism over the short-term direction of the U.S. stock market fell to a seven-week low in the latest in the latest American Association of Individual Investors Sentiment Survey (AAII). With this, optimism extended its rebound into a second week by rising to a seven-week high.
AAII reported that bearish sentiment, or expectations that stock prices will fall over the next six months, declined 4.3 percentage points to 42.2%. Pessimism was last lower on June 2, 2022 (37.1%). Bearish sentiment is above its historical average of 30.5% for the 34th time out of the past 35 weeks and is at an "unusually high level for 23rd time out of the last 27 weeks."
That high level of pessimism in the latest survey is considered bullish for stocks, according to many institutional investors.
Bullish sentiment, or expectations that stock prices will rise over the next six months, gained 2.7 percentage points to 29.6%. "The increase puts optimism back within its typical range of readings for the first time since June 2, 2022." In any event, bullish sentiment is below its historical average of 38.0% for the 35th consecutive week.
Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, rose 1.6 percentage points to 28.2%. Neutral sentiment is below its historical average of 31.5% for the 12th time in 13 weeks.
With these changes, the bull-bear spread narrowed to -12.6% from -19.6% last week. However, it is "unusually low for the 23rd time in 26 weeks":
AAII said that, "historically, the S&P 500 index has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually low readings for the bull-bear spread. Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500."
(Terence Gabriel)
HIGH-YIELD RETURN OUTLOOK TANKS AS FED DOUBTS MOUNT (1200 EDT/1600 GMT)
The likelihood of a 10% to 12% return on high-yield debt two weeks ago has plunged to just 4% to 6% after expectations of a 100 basis point hike by the Federal Reserve in interest rates next week appear off the table, BofA credit strategists say.
The spread between Treasuries and high-yield has narrowed sharply in the past week, erasing what appeared a decent margin of safety into what may become a risky bet on potential returns, says Oleg Melentyev, credit strategist at BofA Securities.
A spread of 600 basis points over Treasuries has tightened to about 450 basis points, he said. More importantly, that's not the return an investor is likely to realize once defaults are taken into account.
"These are not investment-grade companies, some of them will not survive recession," he said. "A 450 spread that you get is not necessarily something that you will actually realize."
Melentyev and his colleague Eric Yu have calculated credit losses to be about 200 basis points, or about 6% of a portfolio. Two weeks ago a 600 basis points spread would provide a return of 400 - historically a decent level - but if it's 450, the math is very different.
"You're left with 250, which is historically tight and it's also assuming we are right about our credit-loss assumption," Melentyev said. "But what if it's not 200, what if it's 300 because things are uncertain?"
A bigger rate hike indicated the Fed was adamant about tackling inflation. But a smaller hike, while significant, also suggests the U.S. central bank may be blinking, Melentyev said.
"At 600 basis points our expected total returns were significant because you were compensated so well," he said. "But now after this very sharp market move, we're essentially looking at best below-average returns."
(Herbert Lash)
WINTER IS COMING - WILL EUROPE BE READY? (1115 EDT/1515 GMT)
Nations across Europe are ramping up preparations to get through the coming winter with sufficient energy supplies.
However, these efforts may not be enough, Laura Page, senior LNG analyst at Kpler says.
"It's going to be a tough winter, that's for sure," Page told the Reuters Global Markets Forum https://www.refinitiv.com/en/products/refinitiv-messenger/global-markets-forum, citing the chances of reduced or cut-off Russian gas flows and spot buying from Asia reducing available supplies to Europe.
European Union member states have been asked to take steps to voluntarily reduce gas consumption, countries are building new floating liquid natural gas import terminals for storage, coal power plants are being restarted and Germany may even soften its stance on nuclear power plants.
Still, "it's going to be tight," Page notes, as Russia accounted for around 40% of EU gas imports last year and new sources of LNG may take years to come online.
"We are in that stage of the cycle where there is limited new supplies, and it will remain that way until the middle of this decade," she added.
Gas prices are likely to stay elevated as well, according to Page, as the market remains uncertain over the stability of Russian flows.
"European countries will need to work together fast if they are to survive the winter relatively unscathed, and even if they do, the specter of the next winter in 2023/24 is likely to keep prices elevated for months on end," Rystad Energy analysts wrote in a note on Thursday.
(Lisa Mattackal)
CONTRACTION ACTION: BUSINESS ACTIVITY SHRINKS FOR THE FIRST TIME SINCE COVID (1055 EDT/1455 GMT)
While temperatures approach record highs the economic mercury appears to be falling as data shows U.S. business activity is contracting this month for the first time in two years.
While S&P Global's advance "flash" purchasing managers' index (PMI) showed modest, but decelerating expansion, in the manufacturing sector, giving up 0.4 point to 52.3, the services side plunged into contraction with its print of 47.
A PMI reading over 50 signifies expansion from the previous month; below 50 indicates reduction of monthly activity.
Taken together, the composite index dropped to 47.5, entering contraction territory for the first time since climbing out of the COVID abyss two years ago.
"The preliminary PMI data for July point to a worrying deterioration in the economy," writes Chris Williamson, chief business economist at S&P Global. "Excluding pandemic lockdown months, output is falling at a rate not seen since 2009 amid the global financial crisis."
But Williamson softens his doom and gloom by adding "the weakening demand environment has helped to alleviate inflationary pressures. Average prices charged for goods and services consequently rose at a much reduced rate in July."
A "weakening demand environment" is precisely the aim of central bank interest rate hikes designed to tackle inflation and prevent it from becoming entrenched.
This report suggests that aim is coming to fruition.
As inflation dampens demand, the supply chain - suffering a recovery setback at the hands of China's latest round of lockdowns to crush the spread of COVID - is slowly on the road back to normal.
Comparing U.S., euro zone and China manufacturing PMI shows Chinese activity rebounding from lockdown contraction, which bodes well for factories in the rest of the world, many of which source supplies from China:
Wall Street is mixed in morning trading, with Meta Platforms and Alphabet weighing heaviest on the S&P 500 .
Still, all three major U.S. stock indexes are on track to notch weekly gains as the book closes on the first full week of second quarter earnings season.
(Stephen Culp)
U.S. STOCKS MIXED EARLY, BUT STILL ON PACE FOR WEEKLY GAINS (0958 EDT/1358 GMT)
The main U.S. indexes are mixed early Friday with the Dow just slightly higher, while the S&P 500, and Nasdaq post losses. This, as social media and ad tech firms are taking hits after dismal quarterly revenues from Twitter and Snap, while an upbeat forecast from American Express is boosting the Dow. FANGs and chips are underperformers, while defensive S&P 500 sectors are showing strength. In any event, all three of the major indexes are on pace for weekly gains. In terms of data, the July S&P Global Manufacturing PMI flash came in at 52.3 just slightly above the 52.0 estimate, while the Services PMI flash came in under 50.00, at 47.00, well below the estimate of 52.6.
With this, the U.S. 10-Year Treasury yield hit 2.73%, or its lowest level since late May. The yield fell as low as 2.7060% on May 26. The 200-month moving average is important support around 2.63%.
Here is where markets stood just before 1000 EDT:
SOCIAL MEDIA STOCKS: BEARS HAVE CERTAINLY BEEN LIKING 'EM (0900 EDT/1300 GMT)
In the wake of Snap's ad spending alarm , social media and ad-tech firms are under pressure in premarket trade on Friday.
Adding to woes, Twitter is sliding ahead of the opening bell after its Q2 revenue fell, amid uncertainty around the Elon Musk deal.
That said, social media has been one of the hardest hit areas of the market for quite some time. The Global X Social Media ETF peaked in February 2021, and it's been pretty much all down hill since then:
The ETF lost as much as 60% of its value from its 2021 high into its low of this month.
After testing a monthly log-scale support line from early-2016 with its July 14 $31.65 low, the ETF saw an 11%, five-day, thrust, to $35.11, which put it on pace to end its eight-month losing streak.
However, the ETF is quoted down around 3% in premarket trade, suggesting bears may make another go at the support line. A monthly close below it can threaten a longer-term support line from 2012, now around $26.75, as well as the March 2020 trough at $24.57.
On strength, the descending 5-month moving average, now around $37.00, has been a tough hurdle. The SOCL has not seen a monthly close above it since June of last year.
Other key SOCL holdings, Alphabet and Meta Platforms, are slated to release their quarterly reports next week.
TWTR, GOOGL and META accounted for more than 20% of the SOCL's weighting as of the end of June.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)