Major Earnings “Misses” Threaten Bull Market

The Dow continued its winning streak, leaping for a ninth day in a row this morning, largely owing to stronger-than-anticipated earnings results from healthcare giant Johnson & Johnson. If bulls keep control of the session, the Dow will score its most impressive daily winning spree since 2017.

But not all stocks enjoyed such an upbeat trajectory; the S&P and Nasdaq Composite were hit by post-earnings slumps in investor favorites Netflix and Tesla.

The 30-stock Dow, with a lesser dependency on tech stocks, advanced by 266 points, or 0.8%. In contrast, the S&P 500 and the Nasdaq Composite slid by 0.4% and 1.5%, respectively.

Dow member Johnson & Johnson surged by 6.5% after the stock not only exceeded Wall Street’s quarterly estimates but also upgraded its full-year guidance. Insurer Travelers, another Dow stock, surpassed revenue estimates for the quarter, giving its shares a lift.

Overall, though, earnings were a mixed bag today. And even the stock that presented a relatively good quarter – Netflix – still got hammered with an 8% loss. Expectations were sky-high given the stock’s near 50% ascent this year.

Tesla shares similarly tumbled 8% following revelations from CEO Elon Musk and his team during the company’s earnings call, announcing a slowdown in vehicle production in the third quarter due to factory improvements.

As per FactSet data, 74% of S&P 500 companies reporting earnings thus far have surpassed expectations. This sturdy corporate performance is fostering optimism for a possible soft landing for the economy.

Still, some skepticism remains. But BMO Capital Markets analyst Brian Belski says bearish fears are overblown:

“Although the number of bear market prognosticators has certainly thinned out given the market’s impressive run, there remains a diehard contingent that have viewed recent trends as nothing more than a bear market rally. Unfortunately for this crowd, history does not appear to be on their side.”

However, it’s not all sunshine and rainbows. The Philly Fed Manufacturing Business Outlook Survey released this morning showed a continued overall decline in regional activity for June. And while the index for shipments improved and turned positive, indicators for general activity and new orders stayed in the red.

Yet, future prospects look somewhat brighter. The index for future general activity rebounded to a positive reading in June after four negative months, recording its highest figure since March 2022. While new orders shrank for the 14th consecutive month, future new order expectations soared.

Existing home sales also dipped more than predicted in June, sliding 3.3%, a figure worse than the Dow Jones’ anticipated 2.3% drop, as per data from the National Association of Realtors. The Conference Board revealed that its composite of leading indicators saw a 15th straight month of decline, too, hitting the longest streak since the 2007-08 period, signaling possible economic trouble ahead.

Justyna Zabinska-La Monica, senior manager of business cycle indicators at The Conference Board, noted:

“We forecast that the US economy is likely to be in recession from Q3 2023 to Q1 2024. Elevated prices, tighter monetary policy, harder-to-get credit, and reduced government spending are poised to dampen economic growth further.”

If earnings from major stocks continue to disappoint, the “imminent recession” narrative will gain steam. With a rate hike in July a foregone conclusion at this point, the market’s attention will be focused solely on earnings and whether Fed Chair Powell sees an economic downturn rapidly approaching.


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