Markets slid lower with a crippling IT outage in focus

Dow dropped 258, decliners over advancers 2-1 & NAZ was off 10.  The MLP index gained almost 2 to 299 & the REIT index fell 2 to the 398s.  Junk bond funds were mixed & Treasuries had more selling which increased yields (more below).  Oil drifted lower in the 82s & gold tumbled 54 to 2401 following recent strength.

Dow Jones Industrials 

Microsoft (MSFT), a Dow stock, users around the world are experiencing an error screen known as the “blue screen of death,” amid persisting widespread tech outages.  The US technology giant was impacted by an update from cybersecurity firm CrowdStriken (CRWD) which led to a major IT outage.  Many other businesses have also been affected.  “We’re aware of an issue with Windows 365 Cloud PCs caused by a recent update to CrowdStrike Falcon Sensor software,” MSFT said on its 365 Status X account.  It advised affected users to “restore their Windows 365 Cloud PC to a known good state prior to the release of the update (July 19, 2024)” & directed them to some online instructions.  In a separate update, MSFT said users may encounter a bug check — known as BSOD, or the blue screen of death — “and get stuck in a restarting state.”  “We have received reports of successful recovery from some customers attempting multiple Virtual Machine restart operations on affected Virtual Machines,” the company said.  “The affected update has been pulled by CrowdStrike.  Customers who are continuing to experience issues should reach out to CrowdStrike for additional assistance.”  CrowdStrike's CEO said that it was “actively working with customers impacted by a defect found in a single content update for Windows hosts. Mac and Linux hosts are not impacted.”  “This is not a security incident or cyberattack. The issue has been identified, isolated and a fix has been deployed,” George Kurtz added.  MSFT stock fell 2.68 & CRWD stock tumbled 30.34 (9%).

Microsoft users hit with ‘blue screen of death’ after massive outage

Treasury yields ticked higher as investors considered the path ahead for interest rates after the latest comments from Federal Reserve officials.  The yield on the 10-year Treasury added more than 3 basis points to 4.22% & the 2-year Treasury yield rose more than 3 basis points higher to 4.49%.  Yields & prices move in opposite directions & 1 basis point equals 0.01%.  Investors digested remarks from Fed policymakers made throughout the week as they weighed the potential path ahead for interest rates.  Yesterday, San Francisco Fed Pres Mary Daly indicated that she was still hoping for more data to provide evidence of inflation sustainably returning to the central bank's 2% target rate.  There had recently been some good data, she noted, but said “we’re not there yet.”  Daly also suggested making monetary policy decisions was currently a fine balance & there were risks of cutting too soon, or waiting for too long.  Earlier in the week, Fed Governor Christopher Waller said the central bank was “getting closer to the time when a cut in the policy rate is warranted,” even as the “final destination” had not yet been reached.  Fed Chair Jerome Powell also this week said that rate cuts would begin before inflation reaches the 2% target.

Treasury yields rise as investors weigh rate outlook

Credit card giant American Express (AXP), a Dow stock, raised its full-year profit forecast, as its wealthy customers persisted in splurging on travel, dining & entertainment.  The company also reported better-than-expected 2nd-qtr profit, underscoring the benefit it has enjoyed by focusing on a premium customer base.  Its affluent cardholders have somewhat insulated it from weakness in the broader economy, even as rival lenders warn of tepid demand due to elevated borrowing costs.  “Increased scale, combined with our premium, high credit quality customers, our well-controlled expense base and our successful investments... fuels the earnings power of the core business,” CEO Stephen Squeri said.  The company sees its 2024 EPS at $13.30 - $13.80, versus the $12.65 - $13.15 range it had forecast earlier.  In the 2nd qtr ended Jun 30, EPS was $4.15, 39% higher than a year ago.  Excluding a 1-time gain from the sale of its fraud prevention technology unit, Accertify, EPS was $3.49, higher than the estimate of $3.24.  Revenue jumped 9% to a record $16.3B, but fell short of an estimate of $16.6B.  The stock dropped 9.93 (4%).

AmEx lifts 2024 profit forecast on robust spending by affluent customers

In the early hours, investors assessed the potential impact of an "unprecedented" failure in computer systems worldwide that grounded flights & hit banks, telecoms & media companies, among others.  But concerns eased after CRWD said a fix was in place for the glitch, a botched update that affected MSFT systems.  With all the confusion today, price swings shouldn't be significant.  However after a strong rally this year, profits were taken this week.