Markets meander ahead of earnings from big tech companies

Dow fell 57 in a wobbly market & selling into the close, advancers over decliners 5-4 & NAZ was off 10.  The MLP index slid back 1 to 297 & the REIT index crawled higher in the 404s.  Junk bond funds remained mixed & Treasuries had limited buying which  lowered yields.  Oil dropped 1+ to the 77s & gold rose 12 to 2406 (more on both below).

Dow Jones Industrials 

General Motors (GM) is raising several key financial targets for 2024 after easily beating earnings expectations for the 2nd qtr, while it restructures money-losing operations such as autonomous vehicles and its China business.  The automaker expects full-year adjusted earnings before interest & taxes of $13-15B ($9.50 - $10.50 per share), up from previous guidance of $12.5-14.5B ($9 - $10 per share), previously.  It also raised its adjusted automotive free cash flow forecast, while slightly lowering the range for its net income attributable to stockholders by less than 1%.  Despite the solid financial results, shares of GM stock fell as investors balked at pullbacks in growth businesses, waning upside during the 2nd ½ of the year & fear that earnings power has peaked, according.  GM's 2nd-qtr results included net income attributable to stockholders, which excludes some div payouts, of $2.93B, up 14.3% from $2.57B a year earlier.  On a per-share basis, GM reported earnings of $2.55, up from $1.83 a year earlier.  Adjusted earnings before interest & taxes came in at $4.44B, up 37.2%, & adjusted EPS was $3.06.  Its unadjusted net income was $2.88B, up 14.8% from a year earlier.  Its revenue for the 2nd qtr was a fresh quarterly record for the automaker, up 7.2% compared with $44.75B a year earlier.  “It was truly a great first half and second quarter, and we’re positioned to have a very strong year,” CFO Paul Jacobson said during a media briefing.  “We expect to see some seasonally higher commodity costs, as well as some pricing headwinds that we’ve assumed in the second half of the year.”  The North America division increased adjusted earnings during the qtr to $4.43B, up nearly 40% from a year earlier.  The unit reported a profit margin of 10.9%, up 2.3 percentage points from a year earlier.  While GM outperformed in several areas, it did not achieve an anticipated return to profitability in China, where the automaker has experienced significant declines in earnings.  The stock fell 3.19 (6%).

GM shares sink 7% despite second-quarter beat as Wall Street fears ‘good times won’t last’

United Parcel Service (UPS) reported profit & revenue for the 2nd qtr that came in below expectations & cut its 2024 revenue guidance.  “Our revenue came in just short of the low end given the current volume momentum we are now experiencing in our business,” CEO Carol Tomé said.  “Accordingly, we are adjusting our full-year operating margin guidance to reflect the nature of the volume flowing through our U.S. network.”  UPS now expects 2024 revenue to be approximately $93B, revised from a previous forecast for as much as $94.5B.  Full-year capital expenditures, however, are now expected at around $4B, rather than the previous $4.5B.  UPS noted that the current 2024 outlook still includes revenue from its trucking business Coyote Logistics, which the company recently announced it’s selling.  The transaction is expected to close by the end of the year, freeing up cash that the company plans to deploy for share repurchases totaling around $500M.  For the qtr, EPS was $1.79 adjusted vs $1.99 expected & revenue was $21.8B vs $22.18B expected.  Reported net income for the qtr was $1.65 per share, compared with $2.42 per share a year earlier.  Adjusting for the impact of settling an “international regulatory matter,” posted earnings were $1.79 per share.  Operating profit was $1.94B, down from $2.78B a year earlier.  “This quarter was a significant turning point for our company as we returned to volume growth in the U.S., the first time in nine quarters,” Tomé said.  “As expected, our operating profit declined in the first half of 2024 from what we reported last year. Going forward we expect to return to operating profit growth.”  Revenue also fell to $21.8B, down from $22.1B a year earlier, mainly due to declines in the company's domestic & intl segments.  Its US operation saw a 1.9% decrease in revenue, which was due primarily to changes in product mix.  UPS's intl segment saw a 1% decline in revenue during the 2nd qtr, which UPS attributes to a 2.9% decrease in average daily volume.  The stock tumbled 17.50 (12%).

UPS shares on pace for worst day on record after earnings miss, guidance cut

Car owners are having a hard time hanging onto their vehicles in the midst of an economy with soaring interest rates.  According to Cox Automotive, the volume of repossessed vehicles at Manheim auctions, the largest wholesale marketplace, is up 23% year over year thru the first ½ of 2024.  They are also up 14% compared with the same period in 2019.  While that's only 1 metric, Cox Automotive senior analyst Jeremy Robb said that he also tracks defaults industry-wide using Equifax data.  That data suggests that defaults are up 11% during the first ½ of the year compared with the same period in 2019.  Lenders can repossess a vehicle when a loan is in default.  Data from the Federal Reserve Bank of New York's latest quarterly tracking of American households' levels of indebtedness, also revealed that 4.4% of Americans' outstanding auto loan debt is in "serious delinquency."  During the first fiscal qtr of 2024, auto loan balances also increased by $9B & now stand at $1.62T, according to the Fed.  Experts are putting part of the blame on the high interest rate environment.  Today, the average new car loan interest rate is sitting at 7.9%, up from the 4.18% in Jul 2021, which is right before the Fed started raising interest rates, according to data from Bankrate.  Meanwhile, the average used car loan rate is at 8.55%, up from the 4.80% in Jul 2021, according to Bankrate data.  Policymakers raised interest rates sharply in 2022 & 2023 to the highest level in more than 2 decades in a bid to slow the economy & cool inflation.  Officials, now grappling with when they should take their foot off the brake, entered 2024 expecting to reduce rates at least 3 times this year, but have repeatedly pushed back their plans, even though inflation eased in both Apr & May.  While new vehicle inventory is improving, it's still down from pre-pandemic times, according to Robb.  Today, there are 3M units of inventory for new vehicles sitting on the ground.  That's up from 1M a year ago but still 800K less than 2019 levels

Americans are falling behind on their car payments as interest rates soar

Gold Edges up as Focus Shifts From US Politics to Economic Data.  Gold edged higher as attention turns to key US economic data due later this week.  Spot bullion rose to near $2,410 an ounce, though was still well short of last week's all-time high.  India has meanwhile slashed its import tax on gold, supporting jewelry manufacturing in the world's 2nd-biggest consumer of the precious metal.  Later this week, US 2nd-qtr GDP data & the core personal consumption expenditures price index, the Federal Reserve's preferred measure of underlying inflation, should offer clues on the path forward for rate cuts by the central bank.  Lower interest is traditionally seen as bullish for non-yielding gold.  Gold is up by more than 16% so far this year, supported by expectations that the Fed will soon pivot to lower borrowing costs, buying by central banks as well as haven demand amid ongoing geopolitical tensions.  The market's reaction to Joe Biden dropping out of the US election race & VP Kamala Harris gathering enough pledged delegates to clinch the Dem presidential nomination, has been muted.  Trump remains the frontrunner & if successful, his administration could unleash both bullish & bearish forces for gold.  Spot gold was up 0.5% at $2407 an ounce.  The Bloomberg Dollar Spot Index was little changed, while US 10-year Treasury yields edged down.

Gold Edges Up as Focus Shifts From US Politics to Economic Data

Oil fell for a 4th straight session, the longest losing streak since early Jun, driven by algorithmic selling & low summer liquidity.  West Texas Intermediate (WTI) dropped 1.8% to settle below $77 a barrel.  The decline was propelled by commodity trading advisers dumping their bullish positions after futures surpassed both the 50-day & 100-day moving averages, which have acted as support levels.  But oil has edged into oversold territory on the 9-day relative strength index, suggesting a reversal may be imminent.   The industry-funded American Petroleum Institute will issue its estimate for weekly shifts in US inventories, followed by a gov breakdown tomorrow.  Nationwide crude stockpiles have dropped for the past 3 weeks, reaching the lowest level since Feb.  Crude prices remain higher YTD, helped by OPEC+ supply cutbacks & expectations for lower US interest rates, perhaps as soon as Sep.   Political risks remain front & center as investors weigh the implications of Pres Biden dropping his reelection bid.  WTI for Sep declined 1.8% to settle at $76.96 a barrel & Brent for Sep settlement dipped 1.7% to $81.01 a barrel.

Oil Sinks for Fourth Day Propelled by Algos in Summer Trade

Traders are eagerly waiting for reports from important tech companies.  The early reports have been glum.   In the meantime, interest rates are still quite high & a drag on the economy.