U.S. stock-indexes were gaining altitude late-morning Tuesday in volatile trading as investors sold some technology stocks and digested second-quarter earnings results from a trio of big banks.
Technology-related stocks have been at the vanguard of the recovery since the March lows for the benchmarks, but investors have been on edge as some U.S. states close down businesses again with coronavirus cases rising, and U.S. – China relations deteriorating.
The Dow Jones Industrial Average
gained 240 points, or 0.9%, at 26,323, in bumpy opening action, while S&P 500
was up 8 points at 3,162, a gain of 0.3%, as energy shares and materials shares rallied. The Nasdaq Composite Index
was 37 points, or 0.4%, lower at 10,351.
The Dow on Monday eked out a gain of 10.50 points, a rise of less than 0.1%, to end at 26,085.80, while the S&P 500 shed 29.82 points, or 0.9%, to close at 3,155.22. The Nasdaq led the market action, trading at an intraday record in the early going before turning south hard in afternoon activity to finish the day down 226.60 points, or 2.1%, at 10,390.84.
What’s driving the market?
After a wild ride in equities on Monday, investors parsed earnings reports from some of the nation’s largest banks that offered some insights about the outlook for the domestic economy that has been ravaged by the coronavirus pandemic.
Banking giant JPMorgan Chase & Co.
saw earnings fall sharply, even if they topped expectation. Wells Fargo & Co.
saw its shares punished after reporting a deeper-than-expected loss, and Citigroup Inc.
shares also lost ground even as its earnings topped expectations.
The quarterly update from the banking sector comes as investors who think stocks have rallied too far off the March lows, sold assets on Monday partly in response to the spreading pandemic in the U.S. and other parts of the world.
Specifically, analysts attributed blame for Monday’s reversal in part to California Gov. Gavin Newsom’s order to rollback indoor operations at restaurants as well as bars, zoos, wineries, museums, and movie theaters, igniting fresh worries that the economic rebound from the COVID-19 pandemic may be longer than the rebound in equities imply.
The U.S. death toll stands at 135,615 and is rising again after it had started to flatten in mid-to-late April. There are now 41 U.S. states and regions showing increasing cases over a 14-day period, according to a New York Times tracker.
While stocks have largely traded sideways since early June, technology stocks as evidenced by the tech-heavy Nasdaq have continued to rally on expectations that major players will remain largely immune to the effects of the pandemic, benefiting from shifts to distance learning, and working from home.
“With markets pricing in a rosy recovery scenario, recent hurdles have slowed risk appetite, but we believe that markets will not be completely derailed by the risks ahead and gradually advance,” wrote Esty Dwek, head of global market strategy at Natixis Investment Managers, in a research note.
But some investors contend the tech sector was overdue for a pullback too, particularly relative to other sectors.
“I tend to think the Nasdaq is still overbought by a lot and that it needs to fall to the other side of the trading range. What happens after, we will find out when we get there,” said Michael Kramer, founder of Mott Capital, in a note.
He said there is “considerable distance” for the popular Invesco QQQ Trust Series ETF
which tracks the Nasdaq-100 Index
to fall, with initial support seen at $251, with the next level seen near $247 — around 5% below Monday’s close.
On the U.S. data front, the National Federation of Independent Business said its Small Business Optimism Index rose to 100.6 in June, a 6.2 point increase from May’s reading.
The June consumer-price index rose 0.6%, while the core reading, which strips out volatile food and energy prices was up 0.2%. Economists surveyed by MarketWatch had forecast a 0.5% rise in the overall figure, while the core reading matched expectations.
Federal Reserve Gov. Lael Brainard is scheduled to deliver remarks at 2 p.m. Eastern, while St. Louis Fed President James Bullard is due to speak at 2:30 p.m. Eastern.
Meanwhile, U.S. – China relations are deteriorating again, impacting technology stocks. The Trump administration rejected China’s claims in the South China Sea, while China announced it was imposing sanctions on Lockheed Martin Corp.
after the U.S. approved a deal for the supply of missile parts to Taiwan, and the U.K. reversed its policy by banning Chinese telecoms company Huawei.
“Indeed, rising tensions between the US and China are unlikely to subside ahead of the US elections, and higher volatility is expected as markets price in the most likely winner as well, but with sentiment still bearish, high cash levels and ongoing central bank support, we believe that the downside has become more limited,” Dwek wrote.
Which stocks are in focus?
- Shares JPMorgan Chase
were up 0.7% after delivering results.
- In other bank performance, Citigroup
shares were down 2.2%.
- Shares of Wells Fargo & Co.
tumbled in morning trading, enough to pace the large-capitalization banking sector’s decliners, after the bank reported second-quarter results that missed expectations.
- Shares of Delta Air Lines Inc.
were down 4.1% after reporting a larger-than-expected second-quarter loss.
- Amazon.com Inc.
said Tuesday it was collaborating with primary care services provider Crossover Health to establish health centers near Amazon fulfillment centers and operations facilities around the country. Shares were off 1.7%.
- Shares of Spotify Technology S.A.
sank 2.2% to extend the previous session’s pullback, after UBS analyst Eric Sheridan swung to bearish from bullish on the music streaming platform, saying future opportunities are “more than priced in.”
- Shares of Tesla Inc.
climbed 1.8% after Piper Sandler analyst Alexander Potter raised his price target on the stock to $2322 from $939, writing of “faster-than-expected share gains” and big opportunities in software.
- Shares of Harley-Davidson Inc.
rallied 4.8% Tuesday, after BMO Capital’s Gerrick Johnson became the most bullish analyst covering the motorcycle maker following an upgrade and price target boost.
- Beyond Meat Inc.
products will be sold at select Metro China locations in Shanghai starting July 15, Metro China announced Tuesday. Shares were up 1.8%.
- Shares of 3M Co.
headed 1.6% higher on Tuesday after the company said it is developing a rapid diagnostic test for COVID-19 that would be used at the point of care.
- Shares of Bed Bath & Beyond Inc.
rose 7.1% Tuesday, after the home-accessories retailer said June same-store sales were “positive” for reopened stores and digital channels.
What did other markets fare?
In Asia, the Shanghai Composite
fell 0.8%, while the CSI 300 Index
declined 1%. Japan’s Nikkei 225 Index
retreated 0.9%, while the Hang Seng Index in Hong Kong
closed 1.1% lower.
The yield on the benchmark 10-year Treasury note
was off 3,4 basis points at 0.60%. Yields and bond prices move in opposite directions. The ICE U.S. Dollar Index
a measure of the currency against a basket of six major rivals, was off 0.1%.