(Friday market open) With no data on today’s calendar, focus turns squarely to earnings. It’s been a mixed bag so far, but stocks rose slightly in premarket trading following a weak outing for most major indexes Thursday.

After disappointing results from Netflix (NASDAQ:), American Express (NYSE:), and CSX (NASDAQ:), and a less-than-stellar outlook from Tesla (NASDAQ:), S&P 500 firms are beating Wall Street’s average earnings estimate at a 73% clip. That’s well below the three-year average of 80%.

While Tesla and Netflix took the spotlight as most major indexes retreated yesterday, another factor received less attention: Taiwan Semiconductor Manufacturing (TSM) issued a disappointing outlook based on potential demand challenges from global economic pressure. The chip sector is often viewed as a canary in the coal mine for economic growth because chips are used in everything from video games to phones to cars to artificial intelligence (AI). The (SOX) tumbled 3% Thursday.

Recession worries also mounted after another gloomy Leading Indicators report from The Conference Board. Defensive sectors like health care and utilities, which are generally considered more recession-proof, were the strongest performers yesterday. We’ll learn today whether investors continue to take a “defensive” stance.

It’s not surprising that softness developed on Wall Street after so many weeks of exuberance. The elevator never goes straight up, and it wouldn’t be a shock if there’s more pressure as the weekend nears. Technical factors might also be at play. The S&P 500® Index (SPX) recently approached 4,600, a point on the charts where it flared out a couple of times in early 2022.

Attention next week turns to tech earnings and a Federal Open Market Committee (FOMC) meeting in which the market expects another 25-basis-point interest-rate increase following last month’s pause.

Morning rush

  • The 10-year Treasury note yield (TNX) fell 1 basis point to 3.83%.
  • The ($DXY) rose to 101.08.
  • Cboe Volatility Index® () futures eased slightly to 13.84.
  • WTI (/CL) rose 1.3% to $76.63.

Stocks in Spotlight

American Express (AXP) reported this morning, coming up short of analysts’ average revenue estimate. Shares fell nearly 4% in premarket trading, though the company did beat Wall Street’s average bottom-line average forecast and posted record revenues. Spending by card members reached an all-time high in the quarter, buoyed by travel and restaurants, American Express said, but it still raised its provision for defaults to a level far above where it was a year ago. That could be a sign that the company worries more customers won’t pay off their balances.

Off track: Transportation stocks might struggle today following results from CSX. The railroad’s quarter derailed a bit, slightly missing analysts’ revenue expectations and posting earnings per share (EPS) matching Wall Street’s estimates. That EPS performance might be fine for many companies, but it rang warning bells for CSX investors because it was the first time in five years that CSX failed to surpass Wall Street’s EPS forecast. The company saw declining volume in several key products it transports, including agricultural and food, chemicals, and forest. Volume growth in coal provided some locomotion. Railroads have grappled with worker shortages and supply chain issues.

Next week’s earnings feature info tech stocks and companies whose businesses include info tech components. Microsoft (NASDAQ:) and Intel (NASDAQ:) report, along with Alphabet (NASDAQ:), which has a major presence in the tech sector despite being a communication services company. Meta Platforms (META) is another big name to watch. Though info tech ran up huge market gains in the first half of the year, it’s expected to be the fourth-worst sector performer in the S&P 500 for Q2 earnings, FactSet noted. Earnings are seen falling 3.6% year-over-year while revenue is seen down 1.3%, according to the average analyst estimate.

High Bar: Though analysts arguably set a low bar for companies to clear regarding earnings results this quarter, companies aren’t getting much support from investors for beating those marks. Only 52% of stocks rose after quarterly results so far this earnings season, The Wall Street Journal reports, well below the nearly three-quarters of companies that exceeded the average analyst earnings estimate.

What to Watch

Numbers of note: Data picks up next week after a light calendar the last few days. Some crucial numbers to watch include Tuesday’s Consumer Confidence reading, Wednesday’s New Home Sales, Thursday’s Q2 Gross Domestic Product (GDP), and Friday’s Personal Consumption Expenditure (PCE) prices. PCE prices next Friday arguably outweigh the other numbers in terms of potential market impact, as it’s the Fed’s preferred inflation meter.

The light tone of this week’s data continued yesterday with June Existing Home Sales that missed analysts’ expectations. The supply pipeline seems to be inching higher over the last few months, possibly offering some relief in the future from prices that remain lofty.

The Conference Board’s Leading Indicators released Thursday continued the string of bearish economic data, falling for the 15th consecutive month in June. That’s only happened twice before, in recessions that started in 1973 and 2007. The Conference Board noted rising initial unemployment claims, weakness in housing, and declining consumer expectations. The Board expects the U.S. economy to be in recession from the current quarter to Q1 of next year.

Talking technicals: Looking at the broader market, it remains quite remarkable (and troubling) that the Nasdaq (COMP) continues to trend higher (near a 52-week high) while the number of its members making new 52-week highs continues to trend lower. The same metric for the S&P 500® Index (SPX) has looked healthier, but we need to see a continued broadening out in breadth for this to be considered a “dura-bull” market, says Kevin Gordon, senior investment strategist at the Schwab Center for Financial Research.

AI power and perils: Check out the latest episode of Schwab’s WashingtonWise podcast, in which experts discuss how AI is being used and the emerging real-world applications that could enhance productivity, customer service, and information quality—as well as the concerns for misuse, the possible need for government guardrails, and the importance of international cooperation.

SPX Daily Chart

CHART OF THE DAY: The (SPX—candlesticks) appeared to flinch after coming within 22 points intraday recently of resistance near 4,600 (red line) that goes back to early last year. Meanwhile, the 50-day moving average (blue line) is a long way below but served as support on downturns earlier this year. Data source: S&P Dow Jones Indices.. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Thinking cap

Ideas to mull as you trade or invest

Perfect storm: If you wanted to dial up a bearish scenario for stocks, you couldn’t have done much better than yesterday’s news cycle. First, weekly initial jobless claims fell to their lowest level in more than a month, suggesting the labor market remains tight and the Fed might have to respond more aggressively to slow it down and arrest inflation. Treasury yields climbed in response, dragging growth-oriented sectors. Then economic and earnings data suggested economic softness, and The Conference Board said we may already be in a recession, which makes it unclear how jobs data can remain so healthy. Perhaps it’s a good thing that the FOMC meets next week. Maybe Chairman Jerome Powell’s post-meeting remarks will help investors figure out whether the main worry is higher rates due to a strong labor market or an economic downturn just when there’d been hopes of a “soft landing.”

Growing concern for Fed? The Fed closely watches so-called “core” inflation, which strips out volatile food and energy prices. However, food prices arguably affect consumers more closely than just about any other measure and may start climbing soon if wheat doesn’t cool. Prices of the important food commodity jumped 8% Wednesday on new geopolitical concerns related to the war in Ukraine. Russia is now blocking exports from Ukraine, which had been among the top-10 wheat-producing countries prior to the war, according to the World Economic Forum. Rising food costs can force people to step back from discretionary spending, though perhaps counterintuitively, the actual cost of wheat doesn’t necessarily make up a major percentage of say, a box of cereal. (The cost for a box of cereal also reflects things like transportation, fuel, marketing, and packaging.)

Dueling chambers: Shelving the debt ceiling debate for two years arguably helped jumpstart the recent Wall Street rally. The next Washington-related barrier could be a potential government shutdown if both the House and Senate can’t fund their 2024 appropriations bills by October 1. Each chamber is processing these bills now, and there’s already been wrangling over the defense budget. The debt ceiling deal called for non-defense spending to remain at 2023 levels, and the Senate has begun funding appropriations bills within those funding parameters. But House Republicans, frustrated that government spending was not reduced by more in the debt ceiling agreement, are drafting funding bills at 2022 levels, which represent a reduction of about $120 billion in non-defense spending. That will set up a clash with the Senate that could be difficult to resolve—increasing the risk that there will be a government shutdown this fall, says Michael Townsend, managing director of legislative and regulatory affairs at the Schwab Center for Financial Research.


July 24: Expected earnings from Domino’s Pizza (DPZ) and Whirlpool (NYSE:)

July 25: July Consumer Confidence and expected earnings from Alaska Air (NYSE:), Archer Daniels (ADM), Biogen (NASDAQ:), Dow (DOW), Alphabet (GOOGL), General Electric (NYSE:), General Motors (NYSE:), Kimberly-Clark (NYSE:), Verizon (NYSE:), Microsoft (MSFT), and Visa (NYSE:)

July 26: FOMC rate decision, June New Home Sales, and expected earnings from AT&T (T), Boeing (NYSE:), Coca-Cola (NYSE:), Union Pacific (NYSE:), Chipotle (), Meta Platforms (META)

July 27: Q2 Gross Domestic Product (GDP) first estimate, June Pending Home Sales, June Durable Orders, and expected earnings from AbbVie (NYSE:), Baxter (NYSE:), Bristol-Myers (BMY), Honeywell (NASDAQ:), McDonald’s (NYSE:), Ford (F), Roku (NASDAQ:)

Disclosure: TD Ameritrade® commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.

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