U.S. equities melted higher at the open, setting a new intraday record high on a continuation of July’s month-to-date volatility-free meltup, before an inexplicable bout of selling pressure materialized. Like, out of the blue. As if someone flipped the switch.
I told my Investorplace editor, jokingly, that someone must’ve front run the Amazon.com, Inc. (NASDAQ:AMZN) earnings due to hit after the close. And now, with AMZN down 3% after hours after missing, that’s not such a farfetched conclusion to be honest.
In the end, the Dow Jones Industrial Average gained 0.4%, the S&P 500 lost 0.1%, the Nasdaq Composite lost 0.6% and the Russell 2000 lost 0.6%. Treasury bonds weakened, the dollar strengthened, gold gained 0.8% and crude oil gained for the fourth consecutive session up 0.6% amid choppy trading.
Click to Enlarge Breadth was negative with 1.3 decliners for every advancing issue on heavy volume, with NYSE activity at 115% of the 30-day average. Defensive telecom stocks soared, up 5.2%, after Verizon Communications Inc. (NYSE:VZ) reported inline earnings but better revenues in the wake of launching an unlimited data plan in February. Tech stocks were the laggards, down 0.8%.
Sirius XM Holdings Inc (NASDAQ:SIRI) gained 8.2% after reporting better-than-expected operating earnings on a 16% jump in net subscribers. Tempur Sealy International Inc (NYSE:TPX) gained 8% on an earnings beat. And Facebook Inc (NASDAQ:FB) added 2.9% after reporting a top- and bottom-line beat.
On the downside, Twitter Inc (NYSE:TWTR) fell 14.1% depite better-than-expected numbers as user metrics disappointed.
Click to Enlarge After the close, AMZN reported earnings of 40 cents per share (vs. $1.40 expected) on $38 billion in revenue (vs. $37.2 billion expected) on a contraction in profit margins to 1.7% vs. 2.8% last quarter and 4.2% last year.
Forward income guidance was weak. All of this, along with a worsening free cash flow position, is sending shares down some 4% over the past 24 hours.
Conclusion
For the past week, I’ve been writing about the historic volatility crush underway in the stock market with the CBOE Volatility Index (INDEXCBOE:VIX) setting an all-time record low on Wednesday. But the VIX had also formed two “key day reversals” on Tuesday and Wednesday, bouncing off of its intra-day lows to finish higher.
Click to Enlarge A review of market history suggested that this setup presaged a bout of market weakness. That weakness looks to have started on Thursday with the worst one-day selloff for the Nasdaq since July 6. Transportation stocks were hit particularly hard, down 3.1% for the worst selloff since May.
What’s interesting is that Treasury bonds are also suffering with the iShares 20+ Year Treasury Bond (NYSEARCA:TLT) dropping 0.5% as long-term rates drift higher. It’s unclear whether this is being driven by economic growth hopes, worries a rally in oil prices will boost inflation, expectations of further Federal Reserve policy tightening, or some combination.
But as we saw back in June, when both stocks and bonds drop it pressures “risk parity” funds on Wall Street since traditionally these two assets move in opposite directions. Given the complacency in the air right now, this will make the reappearance of market volatility and asset price declines even more painful.
Check out Serge Berger’s Trade of the Day for July 28.
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.
