Markets wobble as tech shares have a modest rebound

Dow slid 49, decliners over advancers 4-3 & NAZ added 12.  The MLP index slid back 1+ to the 288s & the REIT index added 2+ to the 404s.  Junk bond funds remained mixed & Treasuries were in demand, which lowered yields slightly.  Oil fell 1+ to the high 75s & gold backed off 4 to 2376 (more on both below).

Dow Jones Industrials 

 

Apple (AAPL), a Dow stock, released the first version of Apple Intelligence, its suite of artificial intelligence features that will improve Siri, automatically generate emails & images & sort notifications.  The new software called Apple Intelligence was released in the developer beta of iOS 18.1.  It is also available in similar releases for iPad & Mac.  It is currently only available to registered AAPL developers. AAPL's developer program costs $99 a year.  In addition, users will have to register for a waitlist inside AAPL's settings app after updating to gain access to the service, which involves pinging AAPL servers for more complicated requests.  Later this year, it will be released to the public, but the 18.1 version number suggests Apple Intelligence will not be released alongside new iPhone hardware, which is expected to be launched running iOS 18 in the fall.  Apple Intelligence is an important initiative for AAPL.  Investors hope the tight integration of AI with Apple's operating system can spur a big wave of upgrades in the coming years, especially since the system will only work on the iPhone 15 Pro & iPhone 15 Pro Max & newer.  The stock settled 28¢ higher.

Apple releases first preview of its long-awaited iPhone AI

Companies with disappointing quarterly results are getting punished more than usual this earnings season.  2nd-qtr earnings misses have resulted in an average 3.8% decline for a stock from 2 days before the quarterly release thru the 2 days after the report comes out, according to FactSet.  That is compared to the 5-year average price decrease of 2.3% during this same window for companies that disappointed.  The ones that beat expectations have been rewarded less than average.  They are seeing only a 0.3% rise during that same period, per FactSet.  That is compared to a 5-year average price increase of 1%, FactSet said.  This phenomenon underscores the high expectations going into this season as well as a stock market that is viewed by many as overheated.  The S&P 500 has gained more than 14% this year & is trading at 21 times forward earnings.  Shares of Ford (F) plunged more than 18% on Thurs after the automaker came in short of earnings expectations due to warranty costs.  Dexcom (DXCM) tumbled 40% on the same day after the diabetes management company reported disappointing revenue & offered weak guidance.  Those that delivered stellar results did not necessarily see a pop in their stocks.  For example, JPMorgan Chase (JPM), a Dow stock, shares dipped 1% on Jul 12 even after the bank's profit & revenue topped expectations as investment banking fees surged 52% from a year earlier.  The strong tech-led rally this year has shown some signs of broadening out to small-cap shares & cyclical names as investors rotated out of winning megacap names.

Investors are punishing stocks that miss earnings more than normal this season

Most Federal Reserve watchers don't expect the central bank to ease monetary policy this week in DC but what they do expect is that policymakers will set the stage for an interest rate cut at their next meeting in Sep.  Fed officials have said they are getting closer to having confidence inflation is sustainably dropping to their 2% goal.  They have also said they are paying more attention to rising unemployment, another sign that cuts may be nearing.  But most Fed watchers say the central bank still needs just a bit more time to be sure, while also preparing the markets for the significant action to come.  "The pressure is growing for them," said former Kansas City Fed pres Esther George.  "I think that they are going to look at September very seriously. It’s looking to me like we are coming to a time where that decision is more important and it's why I'm more confident."  The latest reassurance that a cut could be nearing came Fri when a new reading of the Fed's preferred inflation gauge, the core Personal Consumption Expenditures (PCE) index, showed its lowest annual gain in more than 3 years.  The 2.6% annual increase in the month of Jun was the same level as May & down from 2.8% in Apr.  On a 3-month annualized rate, core PCE dropped back to 2.3% from 2.9%.  Another inflation measure, the Consumer Price Index (CPI), has also shown progress.  On a "core" basis, which excludes volatile food & energy prices the Fed can't control, CPI rose 3.3% year over year in the month of Jun.  That was down from 3.4% in May & 3.6% in Apr.  Some Fed watchers do argue the Fed has the basis to support a cut at its meeting this week, even as they note they don’t expect it to happen.

Risk of 'spooking the markets': Odds are Fed won't cut just yet

Gold prices edged up on heightened geopolitical tensions in the Middle East & expectations of a US rate cut in Sep, with the focus on this week’s Federal Reserve policy meeting.  Spot gold rose 0.1% to $2387 per ounce.  Non-yielding gold is up 3% in Jul after hitting a record high of $2483 on Jul 17 on growing optimism of a rate cut from the Federal Reserve in Sep.  After a benign Jun inflation report, markets are wagering that the Fed will lay the groundwork for the Sep rate cut at its policy meeting on Wed.  Supporting the demand for gold as a hedge against geopolitical risks were worries of a widening conflict in the Middle East following a rocket strike in the Israeli-occupied Golan Heights.  As to the physical demand, consumption of gold in China, the world's biggest user, fell by 5.6% in the first ½ of 2024 as demand for gold jewelry tumbled by 26.7% amid high prices; however, purchasing of gold bars & coins surged by 46%.

Gold Edges Up on Fed Rate-Cut Hopes, Geopolitical Risks

West Texas Intermediate (WTI) crude oil closed lower for a 2nd-straight session, dropping to a 7-week low amid weak risk appetite.  West Texas Intermediate crude for Sep closed down $1.35 to $75.81 per barrel, the lowest since Jun 7, while Sep Brent crude, the global benchmark, was last seen down $1.23 to $79.90.  The drop comes as the market remains in summer doldrums with weak demand from China, the #1 importer. somewhat offset by geopolitical concerns over spreading Middle East violence as Israel & the Iran-backed Hezbollah militant group in Lebanon trade attacks.

WTI Crude Oil Falls to a Seven-Week Low as Traders Shy Away from Risk

After opening with a gain, sellers brought the Dow back to around even where it stayed for the rest of today's session.  There was not a lot of excitement in today's trading with traders waiting for the conclusion of the Fed meeting on Wed.