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Stock Market News for Aug 01, 2019

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Major indexes closed in the red on Jul 31 despite the Federal Reserve cutting interest rates by 25 basis points. The central bank cut its benchmark rates in a bid to support the American economy amid slowing global growth. However, some investors were disappointed with the extent of the rate cut and Fed Chair Jerome Powell’s dismissal to suggest any further rate cuts. In addition, the first round of U.S.-China trade talks ended recently with only few signs of progress. This affected investor sentiment as well. Trade representatives are set to meet again in September.

The Dow Jones Industrial Average shed 1.2% to close at 26,864.27 on Jul 31. The broader S&P 500 and tech-laden Nasdaq Composite followed suit, losing 1.1% and 1.2% respectively. The former closed at 2,980.38 while the latter ended the day at 8,175.42. The fear-gauge CBOE Volatility Index (VIX) rose 15.6% to close at 16.12. Lastly, advancers outnumbered decliners on the NYSE by a 1.47-to-1 ratio.

Fed Cuts Rates by a Quarter Point

The policymaking Federal Open Market Committee concluded its two-day meeting on Jul 31 after deciding on a 0.25% cut in benchmark rates. This marked the first rate cut by the Fed in more than a decade. The current interest rates now hover in the 2-2.25% range.

Powell said that the Fed had taken a somewhat accommodative stance. He referred the rate cut as part of a “mid-cycle adjustment”, citing trade tensions and global manufacturing slowdown as culprits behind the decision. Powell’s comments largely disappointed investors who were banking on further rate cuts ahead.

The Fed focused on potential threats that could harm the economy in the future. Most of these threats stem from President Trump’s trade policies and the resulting cooling global economic growth.

Fresh Round of U.S.-China Trade Talks in September

Trade negotiators from the United States and China plan to meet in early September as the first round of trade talks ended this week with little progress.

On Jul 31, Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer concluded talks with their Chinese counterparts in Shanghai, where they discussed on an array of issues related to trade. According to a White House statement, officials discussed “forced technology transfer, intellectual-property rights, services, non-tariff barriers, and agriculture.”

The new round of trade talks will be held in Washington.

Q2 Earnings Picture

In the corporate sector, shares of Apple Inc. (AAPL - Free Report) climbed 2% after the technology giant reported earnings of $2.18 per share for its fiscal Q3, which beat the Zacks Consensus Estimate by 3.8%. iPhone sales appear to be stabilizing and the tech giant increased its outlook for the rest of the financial year. Apple carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Second-quarter earnings continue to come through, with reported earnings largely meeting expectations. Out of the 305 S&P 500 members that have reported Q2 results so far, 77.7% beat EPS estimates and 57.7% surpassed revenue estimates. (Read more)

Economic News

 According to payroll processor ADP, 156,000 private-sector jobs were created in July. Large businesses added 78,000 jobs, medium-sized businesses gained 67,000 and small businesses added 11,000 jobs. On a sectoral basis, service-providing sectors beat goods-producing sectors in terms of new job additions.  Professional/business services added the most new jobs among service-providing sectors, with 44,000 new positions.

 Monthly Roundup

July was a good month for stocks. The three major indexes witnessed impressive new highs during the month although they lost the momentum toward July-end. The Dow gained 1% and S&P 500 rose 1.3% for the month. The tech-laden Nasdaq Composite also added 2.1%.

 

 

 There were three major reasons for the markets to end in positive territory for July. First, investors were widely expecting Federal Reserve to cut interest rates and it did in the FOMC meeting on Jul 31. Secondly, majority of companies that have reported Q2 earnings so far have met analyst expectations. Lastly, U.S. economy grew at a pace of 2.1% in the second quarter, beating analyst expectations of 2%.

 Stocks That Made Headlines

Shell Q2 Earnings Miss as Commodity Prices Fall

 Europe’s largest oil company Royal Dutch Shell plc reported earnings per ADS (on a current cost of supplies basis, excluding items - the market’s preferred measure) of 86 cents, below the Zacks Consensus Estimate of $1.22 and the year-ago profit of $1.12. (Read more)

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