U.S. equities overall didn’t do much on Tuesday. But the 4.7% post-earnings surge in Apple Inc. (NASDAQ:AAPL) was enough to push the Dow over the 22,000 level for the first time — taking the market’s post-election, big-tech focused melt up to the next level. AAPL reported stronger-than-expected iPhone and iPad sales after the close on Monday as well as issued very strong forward guidance ahead of the release of the iPhone 8 in September.
In the end, the Dow Jones Industrial Average gained 0.2%, the S&P 500 gained 0.1%, the Nasdaq Composite lost a touch and the Russell 2000 lost 1.1%. Treasury bonds were little changed, the dollar was mixed, gold lost 0.1% and oil gained 0.9%.
Breadth was negative, as the tape outside of AAPL felt heavy, with 1.5 decliners for every advancing issue. Volume was 104% of the NYSE’s 30-day average. Technology led the way with a 0.5% gain while telecoms were the laggards, down 1.3%.
Click to Enlarge Papa John’s Int’l, Inc. (NASDAQ:PZZA) gained 9.6% on better-than-expected earnings despite slightly weaker revenues and North American comp-store sales growth. Groupon Inc (NASDAQ:GRPN) gained 9.3% on a big earnings beat as its North American business regains some traction.
On the downside, AMC Entertainment Holdings Inc (NYSE:AMC) fell 26.9% on a negative second-quarter pre-announcement on underperformance in the United States. Big Five Sporting Goods Corporation (NASDAQ:BGFV) fell 7.8% on an across the board miss and the issuance of light forward guidance. And Nordstrom, Inc. (NYSE:JWN) fell 5% after Women’s Wear Daily said the company’s talks with buyout partners were still at an informal stage as the window on a potential deal before the end of the year is closing.
On the economic front, ADP private payrolls increased a weaker-than-expected 178k in July (missing the 190k expected). While job gains continued to be strong, employers could be having a more difficult time finding the right workers based on evidence of labor market tightening.
All eyes are now on Friday’s non-farm payroll report for insight into the health of the economy and the path of Federal Reserve policy going forward. Analysts are looking for payrolls of 178k vs. 222k in June with a slight dip in the unemployment rate to 4.3%.
After the close, the pattern of big-tech earnings beats rolled on with Tesla Inc (NASDAQ:TSLA) reporting a smaller-than-expected loss of $1.33 per share vs. the $1.94 decline expected. Revenues clocked in at $2.8 billion vs. $2.6 billion expected. Shares are up 5.5% in after-hours trading.
Investors, however, are ignoring the deepening cash burn rate as Tesla ramps up spending as the Model 3 rollout accelerates. The company burned a record $13 million per day in the second quarter. Moreover, the number of customer deposits on Model 3s declines for the third consecutive quarter.
Conclusion
Click to Enlarge The breakdown in the U.S. dollar is deepening and the associated increase in volatility looks ready to spill into other asset classes. The decline represents an exit from a three-year-long consolidation pattern — associated with the energy price wipeout that started in 2014. The result will be increased inflation pressure as a weaker dollar boosts import price inflation and commodities prices in general.
This could also prove a drag on the economy, as higher costs will further weigh on real disposable incomes (which fell last month for the first time since December) and consumer spending. And most importantly, it will increase pressure on the Federal Reserve to move ahead with its “quantitative tightening” plans in September as well as another rate hike before the end of the year.
Check out Serge Berger’s Trade of the Day for Aug. 3.
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.
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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.
