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Markets Drop on Tariff Threats; Jobless Claims, Q2 Earnings Solid

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Thursday, August 2, 2018

Like Thursday-morning clockwork, new Initial Jobless Claims for last week have been released before today’s opening bell. They further push the narrative that we are sturdily within an historically low range of new claims: 218K, up 1000 from the unrevised previous week’s 217K and keeping the 4-week average squarely within the 200-225K range that we thought impossible not all too long ago.

Continuing claims have also reached new preposterously low levels: 1.724 million versus the previous week’s 1.747 million, well below the psychologically satisfying threshold of 2 million continuing claims we had seen not all too long ago. These figures, of course, come sandwiched between yesterday’s private-sector ADP (ADP - Free Report) jobs survey, which outperformed expectations with 219K new jobs produced in July, and tomorrow’s non-farm payroll report from the U.S. Government, expected to reach 190K with a new Unemployment Rate of 3.9%.

Futures are down significantly in today’s pre-market, however, as trade tensions heat up again between the U.S. and China. President Trump is openly considering turning the screws on tariffs for Chinese goods — up to 25% on $200 billion worth of goods beyond the initial tariffs already instituted. The Trump administration is hoping this will cause China to reconsider its retaliatory tariffs on U.S. goods — particularly soybeans, of which it is easily the world’s largest importer.

Talks between Washington, DC and Beijing have stalled as of late, and as Trump discusses his plans for all to hear, operatives within his administration plan to meet with U.S. industry leaders for perspective on this latest proposal. No action is expected before next month. However, the overall thinking seems to be that the U.S. operates from a stronger position — our economy is rolling while China’s has been flagging.

Yet China has already devalued the yuan currency to absorb some of the impact on tariffs, and analysts expect more of the same should Trump’s plan go into action next month. This, while the U.S. dollar continues to grow in value, further separating the two currencies and potentially leading to a whole host of problems regarding U.S. trade, not only in China — which would either acquiesce to Trump’s demands or instate further tariffs on U.S. goods, making the situation worse — but everywhere around the world.

In the hear and now, however, Q2 earnings results keep rolling in, to mostly good news: Kellogg Company (K - Free Report) reported earnings of $1.14 per share versus $1.05 expected, DowDuPont (DWDP - Free Report) posted $1.37 per share versus the Zacks consensus of $1.33, Cigna’s (CI - Free Report) $3.89 per share trounced the estimated $3.33 and Royal Caribbean (RCL - Free Report) topped expectations with $2.27 per share versus the $1.97 estimate.

For more on K’s earnings, click here.
For more on DWDP’s earnings, click here.
For more on CI’s earnings, click here.
For more on RCL’s earnings, click here.

Mark Vickery
Senior Editor

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