By Clive McKeef
Microsoft shares rally after earnings beat
U.S. stocks were little changed mid-session Friday, with Wall Street hopeful that the Federal Reserve will take aggressive action to stamp out signs of stress in the economy, while digesting mixed corporate earnings reports against the backdrop of the unresolved U.S.- China trade dispute.
The S&P 500 index rose back above 3,000 level in early trade, but all three benchmarks look likely to end slightly lower for the week.
How are the major benchmarks performing?
The Dow Jones Industrial Average was up 78 points at 27,301, while the S&P 500 index was up 2.4 points to 2,997, and the Nasdaq Composite index up 10 points at 8,217.
What's driving the market?
Good earnings from the heavyweights like Microsoft Corp. (http://www.marketwatch.com/story/microsoft-earnings-jump-nearly-50-to-destroy-expectations-stock-heads-higher-2019-07-18)(MSFT) are helping to bolster equity markets. Microsoft (http://www.marketwatch.com/story/microsoft-earnings-jump-nearly-50-to-destroy-expectations-stock-heads-higher-2019-07-18)blew away earnings (http://www.marketwatch.com/story/microsoft-earnings-jump-nearly-50-to-destroy-expectations-stock-heads-higher-2019-07-18)expectations late Thursday thanks to strong growth from its Azure cloud offering and LinkedIn.
And the likelihood of a Federal Reserve interest rate cut at its policy meeting July 30-31 remained in focus Friday after both New York Fed president John Williams (http://www.marketwatch.com/story/new-york-fed-downplays-williamss-speech-calling-it-academic-and-not-about-july-policy-meeting-2019-07-18) and Fed board vice-chair Richard Clarida (http://www.marketwatch.com/story/feds-clarida-echoing-williams-says-cutting-interest-rates-quickly-is-a-good-strategy-2019-07-18) said Thursday that central banks should act pre-emptively on signs of economic growth slowing.
Analysts have now moved from debating whether Fed will lower rates in July to how much the central bank will ease (https://www.wsj.com/articles/july-data-throw-size-of-first-fed-rate-cut-into-doubt-11563451200). The probability of a 50 basis point cut in the federal funds rate in late July rose to 43% from 23% a week ago according to CME FedWatch.
Globally other central banks have also been easing monetary policy again too, with 18 interest rate cuts in the past six months, according to Bank of America Merrill Lynch. BlackRock's CEO Larry Fink told CNBC Friday (http://www.marketwatch.com/story/head-of-worlds-largest-asset-manager-says-taking-risk-off-the-table-in-stocks-is-a-mistake-2019-07-19)that stocks should rise further, despite new record highs being hit only last week, given the support from easier monetary policy currently.
But now that earnings reports are in for the largest 10 U.S. banks, investors expect some trouble from likely interest-rate cuts by the Federal Reserve. (http://www.marketwatch.com/story/big-banks-earnings-reports-point-to-near-term-pain-and-long-term-opportunity-2019-07-19). Banks remain strongly capitalized, with earnings-per-share growth benefiting from share buybacks but looking ahead, profits are expected to be pressured by declining interest rates.
The U.S - China trade dispute remains on the markets worry list.. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Mnuchin spoke with their Chinese counterparts by phone on Thursday (https://www.reuters.com/article/us-usa-trade-china/u-s-china-officials-discuss-trade-mnuchin-eyes-possible-in-person-talks-idUSKCN1UD1LU) but there was little sign of progress in the talks. The U.S. technology industry is lobbying the Trump administration for permission to supply Huawei (https://www.washingtonpost.com/business/2019/07/19/us-tech-companies-push-trump-allow-some-sales-huawei/?noredirect=on&utm_term=.e32064aed0e5) and several large semiconductor companies have recently made formal requests to Commerce Department.
The market is also keeping an eye on the prospects for a deal to raise the federal government's debt ceiling before the U.S. Treasury starts to run out of cash to pay it's bills in September without more borrowing. The White House and congressional leaders reportedly reached an agreement (https://www.bloomberg.com/news/articles/2019-07-19/white-house-sends-pelosi-spending-cut-options-for-debt-deal?srnd=premium) on defense and welfare spending levels in a two-year deal to raise spending caps along with debt ceiling, but have yet to agree on the offsetting cuts to other parts of the budget that the White House is demanding.
Geopolitical risks are a concern also as tensions continue to simmer in the Middle East. President Trump said Thursday that US destroyed an Iranian drone (http://www.marketwatch.com/story/strait-of-hormuz-oil-choke-point-in-focus-as-trump-says-us-downed-iranian-drone-2019-07-18)that approached USS Boxer near Strait of Hormuz. Regional tensions remain high following recent attacks on cargo ships, Iran's shooting down of a US drone, and British seizure of an Iranian oil tanker.
Which stocks are in focus?
Microsoft (MSFT) was up after it topped analysts' estimates. Analysts found little to complain about following Microsoft Corp.'s latest earnings report, (http://www.marketwatch.com/story/microsoft-stock-hits-another-record-high-on-belief-that-big-growth-is-far-from-over-2019-07-19) as the software and cloud giant once again topped expectations and its shares hit a new intraday high in Friday trading.
Boeing Co.'s stock (BA) was in focus after the aeronautics and defense contractor said it would take a $4.9 billion second-quarter charge related to its 737 Max groundings.
BlackRock Inc. (BLK) reported second-quarter earnings (http://www.marketwatch.com/story/blackrocks-stock-slips-after-profit-and-revenue-fall-below-expectations-2019-07-19)and revenue that fell below expectations, as the investment management and advisory company said it had lower base fees as a result of lower securities and lending revenue and lower performance fees.
Shares of American Express Co. (AXP) fell after the payment-processing company reported second-quarter earnings (http://www.marketwatch.com/story/american-expresss-stock-edged-up-after-profit-rises-above-expectations-dividend-boost-2019-07-19) and revenue that slightly surpassed expectations. The stock has rallied 33.2% year-to-date.
Shares of Schlumberger NV(SLB) fell after the oil services company reported second-quarter revenue that beat expectations and revenue that was in line and announced that CEO Paal Kibsgaard will retire and step down as chairman of the board.
How are other markets trading?
The yield on the 10-year U.S. Treasury was little changed around 2.04%.
In commodities markets, the price of U.S. crude oil initially jumped as Iran denied that the U.S. Navy downed one of its drones in the Strait of Hormuz, while gold extended its gains, after earlier climbing to a six-year peak.
Gold prices are up about 12% this year to a six year high with some analysts noting a correlation between the rise in the amount of global bonds with negative yields to $13 trillion from $6 trillion last year and the rise in gold prices (https://www.ft.com/content/1a7b2212-a6fe-11e9-b6ee-3cdf3174eb89). Bridgewater Associates fund manager Ray Dalio said this week (http://www.marketwatch.com/story/head-of-the-worlds-largest-hedge-fund-says-a-paradigm-shift-in-markets-now-makes-gold-a-good-bet-2019-07-17)that in a negative yield environment it "would be both risk-reducing and return-enhancing to consider adding gold to one's portfolio."
The U.S. dollar index , meanwhile, was slightly firmer around 97.15.
In Asia overnight Thursday, stocks closed mostly higher, with the China CSI 300 rising 1.5% , Japan's Nikkei 225 jumping 2%, while Hong Kong's Hang Seng Index added 1.1%. In Europe, stocks were slightly higher, with the Stoxx Europe 600 up 0.2%.
(END) Dow Jones Newswires
July 19, 2019 12:22 ET (16:22 GMT)
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