Most Stocks Under Pressure from Earnings and Higher Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.27%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.22%.

Stocks this morning are mixed, with the Dow Jones Industrials climbing to a 17-month high.  The broader market is under pressure from some disappointing quarterly earnings results.  Zebra Technologies is down more than -18% after reporting disappointing Q2 net sales, and Norwegian Cruise Line Holdings is down more than -16% to lead cruise stocks lower after forecasting weaker-than-expected Q3 EPS.  A +7% rally in Caterpillar is pushing the Dow Jones Industrials higher after Caterpillar reported stronger-than-expected Q2 adjusted EPS.

Q2 earnings season is mostly positive so far, with 83% of the 271 companies in the S&P 500 that have reported earnings results beating estimates.  That is up from 74% a year ago, according to Bloomberg data. 

Today’s U.S. economic news was weaker than expected and is also weighing on stocks.  The Jul ISM manufacturing index rose +0.4 to 46.4, weaker than expectations of 46.9. Also, the Jun JOLTS job openings report fell -34,000 to a 2-year low of 9.582 million, showing a weaker labor market than expectations of 9.600 million.  In addition, Jun construction spending rose +0.5% m/m, weaker than expectations of +0.6% m/m.

U.S. stocks have some negative carryover from a fall in European stocks as BMW AG dropped more than -6% after warning about higher costs, and DHL Group tumbled more than -3% after giving weak profit guidance.  Also, concern about China’s economy dampened global growth prospects after China's Jul new home sales fell by the most in a year and after the Caixin Jul manufacturing PMI contracted by the most in 6 months.

The markets are discounting the odds at 19% for a +25 bp rate hike at the September 20 FOMC meeting. 

Global bond yields are higher.  The 10-year T-note yield rose to a 3-week high of 4.047% and is up +8.6 bp at 4.045%.  The 10-year German bund yield is up +6.0 bp at 2.551%.  The 10-year UK Gilt yield rose to a 2-week high of 4.390% and is up +7.9 bp at 4.388%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -1.11%.  China’s Shanghai Composite Index today closed unchanged.  Japan’s Nikkei Stock Index closed up +0.92%.

Today’s stock movers…

Zebra Technologies (ZBRA) is down more than -18% to lead losers in the S&P 500 after reporting Q2 net sales of $1.21 billion, weaker than the consensus of $1.31 billion, and forecasting Q3 adjusted EPS of 60 cents to $1.00, well below the consensus of $3.78. 

Cruise line operators are falling today after Norwegian Cruise Line Holdings reported Q2 passengers carried were 693,085, below the consensus of 719,589, and forecasted Q3 adjusted EPS of 70 cents, weaker than the consensus of 79 cents.  As a result, Norwegian Cruise Line Holdings (NCLH) is down more than -16%.  Carnival (CCL) is down more than -5%, and Royal Caribbean Cruises (RCL) is down more than -2%.

Rockwell Automation (ROK) is down more than -8% after reporting Q3 adjusted EPS of $3.01, weaker than the consensus of $3.18. 

Molson Coors Beverage (TAP) is down more than -5% after reporting Q2 Americas net sales of $2.62 billion, weaker than the consensus of $2.66 billion, and forecasting full-year free cash flow of $1.20 billion, below the consensus of $1.23 billion. 

Illinois Tool Works (ITW) is down more than -5% after reporting Q2 operating revenue of $4.07 billion, weaker than the consensus of $4.13 billion.

Hologic (HOLX) is down more than -4% after forecasting Q4 adjusted EPS of 80 cents-87 cents, below the consensus of 89 cents.

Western Digital (WDC) is down more than -2% after forecasting a Q1 adjusted loss of -$1.80 to -$2.10 a share, wider than the consensus of -$1.34. 

Arista Networks (ANET) is up more than +17% to lead gainers in the S&P 500 after reporting Q2 revenue of $1.46 billion, well above the consensus of $1.38 billion.

Global Payments (GPN) is up more than +7% after reporting Q2 adjusted net revenue of $2.20 billion, above the consensus of $2.19 billion, and raised its full-year adjusted revenue forecast to $8.66 billion-$8.74 billion from a prior estimate of $8.64 billion-$8.74 billion, the midpoint above the consensus of $8.65 billion.

Caterpillar (CAT) is up more than +7% to lead gainers in the Dow Jones Industrials after reporting Q2 adjusted EPS of $5.55, well above the consensus of $4.54.

Leidos Holdings (LDOS) is up more than +5% after reporting Q2 revenue of $2.84 billion, better than the consensus of $3.73 billion, and raising its full-year revenue estimate to $14.9 billion-$15.2 billion from a previous estimate of $14.7 billion-$15.1 billion.

Eaton Corp Plc (ETN) is up more than +4% after reporting Q2 adjusted EPS of $2.21, stronger than the consensus of $2.11, and raising its full-year adjusted EPS estimate to $8.65-$8.85 from a  previous estimate of $830-$8.50.

SBA Communications (SBAC) is up more than +4 after reporting Q2 AFFO/share of $3.24, above the consensus of $3.14, and raising its full-year AFFO/share estimate to $12.80-$13.16 from a prior view of $12.55-$12.91.

Stanley Black & Decker (SWK) is up more than +3% after reporting Q2 net sales of $4.20 billion, better than the consensus of $4.12 billion.

ResMed (RMD) is up more than +2% after RBC Capital Markets upgraded the stock to outperform from sector perform. 

Across the markets…

September 10-year T-notes (ZNU23) today are down -18 ticks, and the 10-year T-note yield is up +8.6 bp at 4.045%.  The 10-year T-note yield rose to a 3-week high today of 4.047%.   Sep T-notes today are under pressure from a slide in 10-year UK gilt prices to a 2-week low.  Also, concerns about larger U.S. government debt sales are weighing on T-notes on expectations for the Treasury on Wednesday to announce a boost in its quarterly refunding to $102 billion from $96 billion.  T-notes recovered from their worst levels on the weaker-than-expected JOLTS job openings and ISM manufacturing reports.

The dollar index (DXY00) today is up by +0.47% at a 3-week high.  The dollar today is finding support on higher T-note yields.  Also, weakness in the yen is giving the dollar a boost after the yen dropped to a 3-week low against the dollar today.  In addition, a slide in stocks has boosted liquidity demand for the dollar. 

EUR/USD (^EURUSD) today is down by -0.28%.  Strength in the dollar today is undercutting the euro.  Losses in EUR/USD are limited on signs of economic strength in Europe after the Eurozone Jun unemployment rate remained at a record low and the German July unemployment rate unexpectedly declined.

The Eurozone Jun unemployment rate was unchanged at a record low 6.4%, showing a stronger labor market than expectations of an increase to 6.5%.

The German Jul unemployment change unexpectedly fell by -4,000, showing a stronger labor market than expectations of an increase of +20,000.  The Jul unemployment rate unexpectedly fell -0.1 to 5.6%, showing a stronger labor market than expectations of no change at 5.7%.

USD/JPY (^USDJPY) is up by +0.60%.  The yen retreated for a third session today and posted a 3-week low against the dollar.  The yen remains under pressure from Monday when the BOJ announced an unscheduled bond-purchase operation in an attempt to keep 10-year JGB bond yields from climbing.  Also, higher T-note yields today are weighing on the yen. 

Today’s Japanese economic news was bullish for the yen.  The Jun jobless rate unexpectedly fell -0.1 to 2.5%, showing a stronger labor market than expectations of no change at 2.6%.  Also, the Jul Jibun Bank manufacturing PMI was revised upward by +0.2 to 49.6 from the initially reported 49.4.

October gold (GCV3) today is down -27.6 (-1.39%), and Sep silver (SIU23) is down -0.592 (-2.37%).  Precious metals prices this morning are moderately lower, with gold falling to a 2-1/2 week low. A stronger dollar today is undercutting metals prices.  Also, higher global bond yields today are bearish for metals.  In addition, gold prices are under pressure from fund liquidation after long gold holdings in ETFs fell to a new 3-year low on Monday. Silver prices were weighed down by today’s weaker-than-expected U.S. economic reports on Jul ISM manufacturing and Jun construction spending, which signals reduced industrial metals demand.

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