The stock market is off to a mixed start in early trading Thursday morning, with major indexes flip-flopping between small gains and losses. Corporate earnings reports continue to roll in, providing insights into how companies are faring amidst rising interest rates and economic uncertainty.
The Dow Jones Industrial Average is up a slim 0.1% in pre-market trading, on pace to extend its longest winning streak since 2019. The blue-chip index has rallied for six consecutive days, buoyed by strong earnings from banks and dimming recession fears.
The tech-heavy Nasdaq Composite is virtually flat, while the broad-based S&P 500 has dipped 0.2%. Both indexes snapped five-day winning streaks during Wednesday’s session.
Notable stock moves Thursday morning include:
- American Airlines dipping 1.3%, despite beating estimates and lifting guidance.
- Johnson & Johnson edging up after topping forecasts.
- Netflix sinking 6.5% on disappointing subscriber additions.
- Tesla dropping 3.4% following its latest quarterly figures.
- Discover Financial plummeting 12% on an accounting error admission.
With nearly a fifth of S&P 500 companies having reported, earnings season is kicking into higher gear. According to data from Refinitiv, profits are expected to decline 3.1% for the second quarter — better than initial estimates for a drop of more than 5%.
Labor Market Remains Sturdy Despite Rate Hikes
The labor market has proven surprisingly resilient even as the Federal Reserve embarks on its most aggressive tightening campaign in decades.
Hiring has remained robust, with the economy adding 372,000 jobs in June. There are nearly two open positions for every unemployed American, giving job seekers tremendous leverage.
Layoffs remain historically low, with weekly filings for unemployment benefits hovering near pre-pandemic levels. Outside of frontline industries like real estate and retail, few companies are conducting major job cuts.
With the supply-demand balance continuing to favor workers, wage growth is running well above inflation. Average hourly earnings jumped 5.1% in June from a year earlier.
The strength of the job market has led many economists to predict that the Fed will raise interest rates by another 75 basis points when it meets next week. That would bring the federal funds rate up to a range of 2.25% to 2.5%, the highest since 2018.
After back-to-back 0.75 percentage point hikes in June and July, investors are hopeful that next week’s anticipated move will be the Fed’s final rate increase of this cycle.
Inflation Shows Further Signs of Cooling
The June consumer price index (CPI) rose 9.1% from a year ago, marking the first single-digit annual inflation reading in months.
Core CPI, which excludes volatile food and energy costs, increased 5.9% — down from 6% in May and the second straight slowdown.
Lower gas prices provided major relief, with energy costs falling 7.5% last month. Used car prices also declined for the first time in nearly two years.
With inflationary pressures continuing to ease, hopes are rising that the Fed may be able to tame price increases without triggering a serious economic downturn. The central bank aims to cool demand enough to bring inflation back down to its 2% target.
Many analysts now expect the Fed to adopt a more cautious stance later this year, potentially transitioning to smaller 25 basis point rate hikes starting in September. However, policymakers have emphasized that they will keep rates higher for longer to ensure inflation is contained.
Asian Shares Recover Following Weak Japan Trade Data
Asian stock markets overcame an early stumble after Japan reported weaker-than-expected trade data for June.
Japan logged its first trade surplus in nearly two years as imports plunged 12.9%, weighed down by declining commodity prices and a depreciating yen. However, export growth missed estimates, rising just 1.5%.
Japan’s Nikkei 225 fell 1.2% on the news, while Hong Kong’s Hang Seng dipped 0.1%.
But most other major indexes recovered from the soft open:
- China’s Shanghai Composite erased an early decline to trade 0.2% higher.
- South Korea’s Kospi edged down 0.3%.
- Australia’s S&P/ASX 200 was virtually unchanged.
The region’s mixed performance follows an upbeat session on Wall Street, where the S&P 500 and Dow both gained ground despite disappointing results from Tesla and Netflix.
With inflation easing globally, Asian shares have rallied in recent weeks on hopes central banks can pull off a soft landing. But weaker demand from key trading partners poses risks for export-reliant economies like Japan.
Earnings Pour In As Season Hits Its Stride
Second-quarter earnings season is hitting its stride, with dozens of S&P 500 components slated to report results on Thursday.
Notable companies opening their books after Wednesday’s close include:
- American Airlines
- Philip Morris International
- Union Pacific
Other big names on tap later this week include Verizon, Twitter, Snap, Intel, and American Express.
According to FactSet, 75 S&P 500 companies have issued guidance for the second quarter so far. Of those, 65 have provided negative guidance and just 10 have given positive outlooks.
Companies have cited various headwinds, including supply chain disruptions, labor shortages, rising costs, and waning consumer demand. With the economy slowing, firms face pressure to shore up margins and protect profits.
Now halfway through earnings season, second-quarter profits for S&P 500 firms are projected to decline 3.1% year-over-year. That would mark a notable improvement from initial estimates for a drop of more than 5%.
Stay tuned to our market coverage as more corporate results come in. We’ll break down the key takeaways and tell you what they could mean for investors.
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