U.S. equities mostly moved lower on Tuesday as traders continue to focus on earnings and hopes of an aggressive new push of global monetary stimulus fade somewhat. After all, with the Brexit vote unleashing one of the most severe and powerful market rebounds in history, central bankers don’t really need to do anything. Do they?
In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 Index shed 0.1%, the Nasdaq Composite lost 0.4% and the Russell 2000 finished the day 0.6% lower. Elsewhere: Treasury bonds were stronger, the dollar lagged against the yen (bad for carry trades), gold gained 0.2% and oil continued its recent slide, finishing down 1.3%.
Financial stocks led the way with a 0.1% gain while materials and energy were the laggards, down 0.7% and 0.5%, respectively. The Dow’s rise sends the wrong signal to regular folks checking the close on the evening news since most stocks moved lower: There were more than 500 net declining issues on the New York Stock Exchange.
This continues an ongoing narrowing of market breadth that started two weeks ago. As the market’s climbed to new records, it’s been doing it on the back of fewer and fewer stocks. In fact, as shown above, there were more stocks rising when stocks were topping back in April than there are now.
Netflix, Inc. (NASDAQ:NFLX) dropped 13.1% after weaker-than-expected subscriber additions in the second quarter. Forward guidance was also soft. Headwinds include media coverage of cancellations amid price increases.
Meanwhile, Goldman Sachs Group Inc (NYSE:GS) dropped 1.2% in volatile trading, reversing at its 200-day moving average despite reporting a top- and bottom-line beat on quarterly results as investors focused on a year-over-year decline in revenues.
After the bell, Microsoft Corporation (NASDAQ:MSFT) gained nearly 3% — reversing a 1.6% drop in the cash session — after reporting a non-GAAP earnings beat of 69 cents per share vs. the 58 cents expected. Revenues beat on an adjusted basis as well, at $22.6 billion vs. $22.1 billion expected.
On a GAAP basis, which is the accounting standards they are supposed to follow — instead of this pro-forma ridiculousness designed to boost the share price and thus executive bonuses — the company missed: Earnings were 39 cents per share on revenues of $20.6 billion. The tax rate was also pulled down to just 7% vs. a typical corporate rate of 25%.
On the economic front, there was more good news in housing with starts up 4.8% for the best report since February. Combined with ongoing strength in the labor market, this is raising chatter of a hawkish Federal Reserve policy statement when officials meet next week — setting up a possible rate hike in September.
This is well ahead of what the futures market currently has priced in: No action until late 2017 at the earliest. And it would upend the fever dream about “helicopter money” out of Japan that’s been fueling the market’s rise over the last few weeks.
Also keep an eye on crude oil, which looks vulnerable to a breakdown here as U.S. production ramps up and overseas supply disruptions fade amid bloated inventories. A dramatic comedown in energy prices would rattle oil and gas stocks and rattle investors with the return of a negative catalyst they’ve not dealt with since February amid all the chatter of an OPEC-Russia supply ceiling deal (remember that?) which never came to fruition.
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.
