The Dow Jones Industrial Average is falling this morning as the U.S. dollar surges. In today's Morning Movers, we...
Stocks are sinking this morning--but don't blame the job market for the losses.
S&P 500 futures have declined 0.3%, while Dow Jones Industrial Average futures have fallen 86 points, or 0.3%. Nasdaq Composite futures have dropped 0.4%.
The drop has nothing to do with today's jobless claims, however. Initial clams came in at 207,000 for the week ending July 14, the lowest since December 1969. Needless to say, it was fewer claims than economists had predicted. "Given the size of the labor force and the typical pace of employment churning, it is hard to imagine that claims could go much lower," writes Jefferies economist Thomas Simons. "On the other side of the coin, firms are still finding difficulty in filling positions, evidenced by record job openings and responses to the NFIB Small Business survey. There is no reason to expect that layoffs will accelerate."
The data confirms, once again, that the yield curve, though flattening, is not signaling a weakening economy. In fact, argues Standard Chartered Bank strategist Steve Englander, the yield curve might simply be following the labor market. Englander explains that the yield curve is simply a reflection of the U.S. economy. When the economy appears set for a slowdown, investors expect the Fed to cut rates, which steepens the yield curve. But when the economy is strengthening, the yield curve reflects a tighter Fed. Furthermore, the yield curve has tracked the job market since the late 1980s. "It is possible that end-cycle curve flattening reflects Fed mistakes, but over most of the cycle the slope seems to follow labour-market developments, not lead them," Englander explains.
It may also be one reason the dollar has been stronger. The U.S. Dollar Index has gained 6.3% during the past three months, and the dollar looks set to rise again today. Bleakley Advisory Group's Peter Boockvar calls the dollar "the story this morning, particularly against the yuan, which continues to weaken." The yuan is having its worst day since August 2015, when its drop caused global stock markets to slump. Boockvar also notes that it's the "#1 factor companies are citing as having a negative impact on earnings," according to FactSet.
If it keeps rising, earnings forecasts could end up looking too optimistic.
Earnings & News
Alcoa (AA) is down 2.3% to $46.85 after reporting second-quarter earnings. The aluminum maker earned $1.52 a share on revenue of $3.58 billion. Analysts were looking for earnings of $1.32 a share on revenue of $3.49 billion. For the full year, it lowered its earnings before interest, taxes, depreciation and amortization forecast to $3 billion to $3.2 billion, from $3.5 billion to $3.7 billion.
American Express (AXP) is down 3% to $99.90 after reporting second-quarter earnings. The charge card firm earned $1.84 a share on revenue of $10 billion. Analysts were looking for earnings of $1.81 a share on revenue of $10.05 billion. For the full year, it expects EPS of $6.90 to $7.30, compared with the $7.24 per-share consensus estimate.
Blackstone (BX) is up 0.9% to $36.55 after reporting second-quarter earnings. The asset manager earned 90 cents a share on revenue of $2.63 billion. Analysts were looking for earnings of 74 cents on revenue of $1.74 billion.
Dover (DOV) is up 1.4% to $75.20 after reporting second-quarter earnings. The industrial firm earned $1 a share on revenue of $1.8 billion. Analysts were looking for earnings of $1.21 a share on revenue of $1.78 billion. For the full year, it sees EPS of $4.75 to $4.85, compared with the $4.80 per-share consensus estimate.
eBay (EBAY) is down 8.2% to $34.84 after reporting second-quarter earnings. The e-commerce firm earned 53 cents a share on revenue of $2.64 billion. Analysts were looking for earnings of 51 cents on revenue of $2.66 billion. For the full year, eBay expects EPS of $2.28 to $2.32, on revenue of $10.75 billion to $10.85 billion. Consensus calls for earnings of $2.27 on revenue of $10.95 billion.
International Business Machines (IBM) is up 2.1% to $147.50 after reporting second-quarter earnings. The tech giant earned $3.08 a share on revenue of $20 billion. Analysts were looking for earnings of $3.04 on revenue of $19.85 billion. For the full year, it expects to earn $13.80 a share, compared with the $13.78 per-share consensus estimate.
Philip Morris International (PM) is down 4.8% to $78.18 after reporting second-quarter earnings. The tobacco firm earned $1.41 a share on revenue of $7.73 billion. Analysts were looking for earnings of $1.23 a share on revenue of $7.53 billion. For the full year, it expects EPS of $5.02 to $5.12, compared with the $5.14 per-share consensus estimate. - Teresa Rivas
Upgrades & Downgrades
Colgate-Palmolive (CL) is up 0.9% to $68.40 after UBS upgraded it to Buy.
Discovery (DISCA) is up 3.8% to $27.58 after Goldman Sachs added it to the firm's Conviction Buy list.
F5 Networks (FFIV) is down 2.2% to $175.50 after Morgan Stanley downgraded it to Underweight.
Procter & Gamble (PG) is down 1.8% to $78.28 after UBS downgraded it to Neutral.
Square (SQ) is up 1% to $68.98 after Credit Suisse upgraded it to Buy.
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