By Alex Eule |
Tuesday, July 26
A
Deluge of News. With markets on the cusp of the biggest stretch of news
in months -- maybe years -- stocks had a rough day. Sentiment was negative from
the start of trading, partly in the wake of last night's profit warning from Walmart,
which said that inflation was pushing consumers to spurn higher-price goods in
favor of essentials that carry lower profit margins.
Walmart closed down nearly 8%, and all three
indexes finished in negative territory.
Five minutes after the closing bell, a deluge
of tech earnings arrived, with Microsoft, Alphabet,
Texas Instruments reporting their results.
The numbers from
Microsoft and Alphabet
weren't terribly impressive with both companies missing analysts' estimates for
revenue and profits. But some of the bad news seems to have already been priced
in. Despite the disappointing reports, shares of Alphabet and Microsoft were
both up about 5% in after-hours trading.
While Microsoft's numbers missed overall --
"evolving macroeconomic conditions and other unforeseen items had an
impact on financial results," the company said -- one bright spot came
from its cloud business, which continues to grow impressively. Microsoft Cloud
revenue was up 28% in the quarter to $25 billion. Google Cloud revenue was
similarly strong, up 36% in the quarter to $6.3 billion.
That could be a good sign for Amazon.com,
the largest public cloud player, when it reports results on Thursday. Shares of
Amazon fell 5.2% today, but they were up in after-hours trading tonight.
Meanwhile, Texas Instruments blew past Wall
Street's estimates. The company is something of a bellwether for the tech
industry and the economy. "The chip maker sells the basic building-block
chips that go into products in nearly every sector of the economy from autos
and industrials to consumer electronics," Barron's
Tae Kim reports in his earnings
story today.
Another bit of good news came from Chipotle
Mexican Grill, which reported an earnings
beat for its second quarter. "Our pricing power is strong and
the brand is resilient," CEO Brian Niccol said on the
company's earnings call this evening. Chipotle said a planned 4% price increase
in August would "help offset incremental inflation pressures, especially
in dairy, tortillas and packaging as well as pockets of wage pressure
throughout the country."
Chipotle shares were up 8% after hours.
When markets open for regular trading
tomorrow, investors will have to make quick work of the earnings news. By 2
p.m., the focus will shift to the Federal Reserve and its latest interest rate
decision. Investors are basically locked in on a three-quarter point rate
increase. Anything else would be a big surprise at this point -- one that
markets might not
appreciate.
The Fed news and Chair Jerome
Powell's press conference tomorrow afternoon will be closely
followed by the first report of second-quarter gross domestic product on Thursday
morning. Economists surveyed by FactSet expect growth of 0.8% in the quarter,
after the first quarter's 1.6% decline. The GDPNow real-time forecast from the Federal
Reserve Bank of Atlanta is less optimistic. Its latest estimate
calls for a second-quarter GDP decline of 1.6%
A decline would be significant since
recessions are generally defined by two consecutive quarters of economic
contractions. It gets more complicated than that, though, as Barron's
Ben Levisohn recently
explained. Import versus export activity and inventory drawdowns
could be cited as a few of the countervailing factors. Expect plenty of
spin to follow the GDP report, as economists, Wall Street strategists, and
politicians debate whether the criteria to define a recession has been
met.
DJIA: -0.71% to 31,761.54
S&P 500: -1.15% to 3,921.05
Nasdaq: -1.87% to 11,562.57
The Hot Stock: 3M Company +4.9%
The Biggest Loser: Fortinet -7.8%
Best Sector: Utilities +0.6%
Worst Sector: Consumer Discretionary -3.2%
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