U.S. equities recovered from early session weakness driven by a big wipeout in crude oil — on inventory data — to finished mixed ahead of the critical June payroll report on Friday morning.
Overseas, the Brexit fallout continues with seven U.K. property funds now suspending redemptions as investors scramble to sell their exposure to a falling pound sterling. European banks stocks remain under pressure as well as focus remains on the political bickering surrounding a possible Italian bank bailout. Rome wants it. Brussels doesn’t.
In the end, the Dow Jones Industrial Average lost 0.1%, the S&P 500 Index lost 0.1%, the Nasdaq Composite gained 0.4% and the Russell 2000 gained 0.2%.
Treasury bonds were little changed, the dollar was weaker against the yen, gold lost 0.4% amid some profit-taking and oil dropped 4.8% to return to levels not seen since May. That boosted the ProShares UltraShort Crude Oil (NYSEARCA:SCO) to an 8.7% gain for Edge subscribers.
The energy drop was driven by a government report showing crude stockpiles fell 2.2 million barrels vs. the 2.5-million-barrel draw that was expected and the private API report on Wednesday night showing a 6.7-million-barrel draw. This came despite refinery outages. Supply-side headwinds are accumulating for energy, with disruptions out of Nigeria and Libya fading.
Consumer discretionary stocks led the way with a 0.4% rise. Defensive utility and telecom stocks were the laggards, down 1.8% and 1.6%, respectively.
First Solar, Inc. (NASDAQ:FSLR) dropped 9.8% after being downgraded to hold from buy at Deutsche Bank on slower than expected bookings growth. Chipotle Mexican Grill, Inc. (NYSE:CMG) dropped 2.6% after unsubstantiated rumors of an illness from its Manhattan location. Shake Shack Inc (NYSE:SHAK) dropped 1.4% after being initiated at underperform at Wedbush citing valuation concerns.
Looking ahead, analysts are looking for a June payroll gain of 180,000, rebounding from the pitiful 38,000 result from May. A positive factor is the return of 35,100 striking workers from Verizon Communications Inc. (NYSE:VZ). The private ADP employment report suggests the number will be strong after reporting a 172,000 gain in June vs. the 160,000 that was expected.
We also have the start of the second-quarter earnings season on Monday when Alcoa Inc (NYSE:AA) reports. Analysts are looking for earnings of 10 cents per share on revenues of $5.2 billion. Overall, stock market valuations are growing increasingly demanding amid a corporate earnings recession that will likely grow to a five quarter long decline when Q2 results are fully released.
According to FactSet, analysts are looking for S&P 500 earnings to decline 5.3% from last year in what would be the first five-quarter-long decline in profitability since the 2008/2009 nightmare. The drag from weaker energy prices and a stronger dollar look set to continue. Watch for management to add Brexit concerns to the list of excuses for declining earnings.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
