Week 29 in Brief
Stocks closed at record highs Friday, with the Dow inching above 35,000 for the first time. The S&P 500 and Nasdaq also registered new highs, as investors cheered corporate earnings reports and ignored concerns on the potential impact of the delta variant of Covid-19 on economic recovery.
How did the major indices perform?
- In the US, the Dow Jones Industrial Average climbed 238.20 points, or 0.7%, to close at a record 35,061.55, finishing above the 35,000 milestones for the first time.
- The S&P 500 advanced 44.31 points, or 1%, to a record 4,411.79.
- The Nasdaq Composite rose 152.39 points, or 1%, to a record 14,836.99.
- For the week, the Dow rose 1.1%, the S&P 500 climbed 2% and the Nasdaq advanced 2.8%, according to FactSet data.
What drove the market?
- It’s been a turbulent week on Wall Street, starting with a massive selloff over worries about the Delta variant. But by Friday, stocks were back up and each index closed at record highs.
- Corporate earnings: Strong corporate earnings are helping to fuel the stock market higher. With about a quarter of the S&P 500 index companies now reported, profit growth for the second quarter is expected to be 76%, compared with the second quarter last year during the worst of the pandemic, the best growth since 2009, according to Refinitiv. Profit margins have been sustained in the face of rising inflation. So far for the second quarter, companies are reporting average profit margins of 12.8%, above the historic range, according to S&P Global.
- Technology stocks rally: Technology stocks continued to curry favor with investors, with more positive earnings news late Thursday from Twitter and Snapchat parent Snap. Investors were looking to the week ahead, which will feature earnings reports from several tech heavyweights, including Tesla, Apple, Google parent Alphabet, Microsoft, and Amazon.
- Economic data: A report from data firm IHS Markit showed on Friday that U.S. business activity grew at a moderate pace for a second straight month in July amid supply constraints, suggesting a cooling in economic activity. The U.S. composite output index fell to 59.7 in July from 63.7 a month earlier, a four-month low, reflecting a drop in the services index, though the manufacturing PMI rose to 63.1, a record for the series.
- Coronavirus concerns: Financial markets have swung from one direction to another this week as investors try to assess what the surging Delta variant means for the world economy. Some parts of the United States are implementing mask mandates again due to new COVID-19 cases, while others have not, leading to confusion.
- Moves in the bond market. One thing is for sure: the Delta variant is bringing more uncertainty to the market. Over the past few weeks, bond yields tumbled as investors poured into the safe-haven investments. On Friday, as stocks headed higher, the 10-year US Treasury yield was at 1.28% around the stock market close. Bond yields and prices move inversely to each other.
- Yields on U.S. Treasuries were up, as was the dollar, with investors eyeing next week’s Federal Reserve meeting for hints on the U.S. economic recovery from the COVID-19 pandemic and when the central bank will pull back support for the economy.
Which stocks were in focus Friday?
- Shares of Snap Inc (SNAP) surged almost 24% Friday after the social-media company late Thursday said it saw revenue more than double in the last quarter thanks to a continued rebound in the advertising market.
- Shares of Twitter Inc. (TWTR) rose about 3.1% after the company late Thursday said it swung to a profit in the second quarter, while revenue rose as the company increased its share of active users.
- Intel Corp. (INTC) shares fell 5.3% after the chipmaker late Thursday reported results that topped expectations but saw its outlook barely surpass the average forecast from Wall Street analysts.
- American Express topped earnings and revenue expectations Friday morning, while also pointing to an acceleration in spending and “robust” interest in its fee-based cards. Shares of the Dow component closed 1.3% higher.
- Boston Beer stock tumbled 26% after the company reported a second-quarter profit fall and earnings miss. Executives also slashed the annual forecast they had just lifted three months prior.
- Shares of Honeywell International fell 1.5% after the aerospace and industrials company reported second-quarter profit and sales that beat expectations and raised its full-year outlook.
How did the European markets perform?
- European stocks closed at all-time highs on Friday as optimism about the earnings season and the European Central Bank’s pledge of continued monetary support outweighed risks of a resurgence in COVID-19 cases.
- The pan-European STOXX 600 index rallied 1.1% to hit a record high of 461.75 and marked a 1.5% weekly rise - its biggest weekly gain since early May.
- Automakers were the top gainers, up 2.5%. Mercedes-Benz maker Daimler gained 5.5% after Kepler Cheuvreux upgraded its stock to “buy”, saying its growth is not properly reflected in the share price. French car parts maker Valeo jumped 6% after it posted higher first-half sales and profit, and said it expected the shortage of key technology chips to ease. Peers Faurecia and Continental AG rose more than 3% each.
- Rafale jets maker Dassault Aviation climbed 4.5% on reporting higher sales and profits in the first half, while UK’s Vodafone rose 2.4% after a service revenue beat.
- A bout of selling hit financial markets on Monday as investors grew nervous about the fast-spreading Delta variant of COVID-19 hampering a global economic recovery. But strong earnings reports and the ECB’s commitment kept interest rates at record lows for even longer pushed the benchmark STOXX 600 higher every day since then.
- The European market will benefit from the growth recovery in the second half of the year; Eurozone business activity expanded at its fastest monthly pace in over two decades in July, IHS Markit’s flash survey showed. Still, fears of another wave of infections may hit business confidence.
How did Asian markets perform?
- Asia Pacific stocks were mostly up on Friday morning but ended the week on a cautious note as investors digested the latest U.S. economic data and earnings.
- China’s Shanghai Composite fell 0.7%, Hong Kong’s Hang Seng Index fell 1.4% while South Korea’s KOSPI was up 0.22%.
- NYSE-listed Chinese company Didi Global Inc. came under scrutiny as regulators mull serious, even unprecedented penalties to punish the ridesharing company after its controversial U.S. IPO in June 2021.
Commodities and Bonds
- Oil futures ended the day higher, with the U.S. benchmark West Texas Intermediate crude rising 0.2% to settle at $72.02 a barrel, while gold futures fell 0.2% lower at $1,801.80 an ounce.
- The yield on 10-year Treasuries was little changed at1.28%. In Europe, Germany’s 10-year yield was little changed at -0.42% while Britain’s 10-year yield advanced two basis points to 0.58%
- The US Dollar booked a second week of gains after a volatile few days as risk appetite waxed and waned.
- The ICE dollar index, which measures the greenback against a basket of six major currencies, was slightly higher on the day at 92.894. That was off a 3-1/2-month high of 93.194 hits on Wednesday.
- The Bloomberg Dollar Spot Index was little changed. The euro was little changed at $1.1772. The British pound fell 0.1% to $1.3750. The Japanese yen fell 0.4% to 110.55 per dollar
- Big tech companies including Tesla, Apple, Google, Microsoft, and Amazon report earnings.
- Investors are also eyeing next week’s Federal Reserve meeting for hints on the U.S. economic recovery and when the central bank will pull back support for the economy.