U.S. equities mostly finished lower on Friday as volatility — which has long been dormant — seemed to make a reappearance. Earnings flow was heavy as well, resulting in some dramatic individual stock moves both up and down.
In the end, the Dow Jones Industrial Average gained 0.2%, the S&P 500 lost 0.1%, the Nasdaq Composite lost 0.1% and the Russell 2000 lost 0.3%. Treasury bonds strengthened slightly, the dollar came under pressure to hit a new year-to-date low, gold gained 0.7% and oil extended its recent rally up 1.4%.
Breadth was mixed, slightly positive on the NYSE and slightly negative on the Nasdaq. Healthcare led the way with a 0.5% after a “skinny” Obamacare repeal effort in the Senate fizzled out.
Consumer staples and consumer discretionary were both the laggards, down 0.9% and 0.7% respectively. Tobacco stocks were hit hard on an FDA proposal to cut nicotine levels in cigarettes to non-addictive levels. Amazon.com, Inc. (NASDAQ:AMZN) fell 2.5% in the wake of a weaker-than-expected earnings report after the close on Thursday.
Intel Corporation (NASDAQ:INTC) gained 1% as PC sales drove upside. Keytruda was a bright spot for Merck & Co., Inc. (NYSE:MRK), which gained just 0.7% on a lack of a guidance raise. Exxon Mobil Corporation (NYSE:XOM) fell 1.5% after reporting weak results, testing intraday lows not seen since early 2016, bolstering the August $80 puts recommended to Edge Pro subscribers.
Click to Enlarge Chinese internet play Baidu Inc (ADR) (NASDAQ:BIDU) gained 9.5% after a quarterly earnings beat on lower expenses. Expedia Inc (NASDAQ:EXPE) gained 3.4% on results.
On the downside, Starbucks Corporation (NASDAQ:SBUX) fell 9.2% after revenues missed by 2% on soft comp-store sales in what looks like a decelerating trend — suggesting management will need to make deeper strategic changes and investments to reinvigorate top line growth.
On the economic front, Q2 GDP increased at a 2.6% annualized rate as prior quartered were downwardly revised, with Q1 growth coming down to 1.2% from 1.4% previously. Details highlighted positive contributions from personal consumption expenditures, business spending and government offset by weakness in private residential and inventories.
Conclusion
Click to Enlarge The big takeaway from the week was that finally, after so much evidence of market topping behavior from narrowing breadth to extreme sentiment and negative seasonality, volatility has made a comeback. The CBOE Volatility Index (INDEXCBOE:VIX) has climbed for four straight sessions for the first time since March. The big-cap “FAANG” tech stocks suffered their first down week in a month.
Keep an eye on the U.S. dollar, which as shown above is in full meltdown mode. The 200-week moving average is being tested for the first time since 2014 as critical support for the greenback’s three-year range is in play. The motivation? An ongoing political circus in Washington D.C. and economic data that continues to miss analyst estimates on a scale not seen since the energy sector was being gutted in early 2016.
This is a problem for a few reasons. Currency market volatility has a strong tendency to spill over into stock and bond market volatility as it did in the late 1990s during the Asian financial crisis. Dollar weakness will boost inflation, and thus, increase pressure on the Federal Reserve to continue with its policy tightening. And higher import and energy prices resulting from a weak currency will put the clampers on consumers.
And yet, to keep appearances up, the big players made sure the Dow closed at an incremental new high. Got to make sure no one feels any fear over the weekend, right?
Click to Enlarge Final note: A chart analogue comparing the current market to the runup to the 1987 market crash has been circulating around trading desks. I’ll just leave this here with no comment.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
