On Friday, the stock market ended July on a cautious note with the S&P 500 falling 0.2%. Despite today's downturn, the benchmark index added 1.2% for the week, ending the month higher by 2.0%. Meanwhile, the NASDAQ ended flat, locking in a 2.8% gain for July. On the week, the Dow Jones Industrial Average declined 56.12 points to close at 17,689.86, the NASDAQ fell 0.50 points to close at 5,128.28 while the S&P 500 dropped 4.79 points to close at 2,103.84.
On Monday, the stock market began the trading week on a cautious note with the S&P 500 (down 0.6%) settling just above its 200-day moving average (2,064.00) while the NASDAQ underperformed falling 1.0%. Indices spent the entire day in negative territory after overnight trading was highlighted by an 8.5% plunge in China's Shanghai Composite, which endured its largest one-day decline in more than eight years. The index widened its slide from June highs to 28.0%, falling to lows during the final hour of action after the International Monetary Fund (IMF) voiced concerns about the degree of recent government intervention in the market.
Indices broke their five-day losing streak with a Tuesday advance that sent the S&P 500 higher by 1.2%. The benchmark index tested its 100-day moving average (2,095.00) during afternoon action while the NASDAQ (up 1.0%) underperformed throughout the day. The key indices rebounded from losses registered over the past week, starting the day on an upbeat note after the overnight session saw more volatility in Asia. Specifically, China's Shanghai Composite was down as much as 5.1% at the start of the trading day, but narrowed its loss to 1.7% by the close. The turnaround off session lows coincided with a spike in S&P 500 futures in the early hours of the morning. All ten sectors posted gains with some of the recent underperformers leading the market higher.
Stocks on Friday climbed during the first three hours of trading on Friday, but relative weakness among several cyclical sectors acted as a drag on the broader market, pulling the S&P 500 to new lows during the afternoon.
Most notably, the energy sector tumbled 2.6%, widening its July decline to 7.8% after Dow components Chevron and ExxonMobil reported disappointing results. The two names posted respective losses of 4.9% and 4.6% while crude oil slid 2.9% to $47.12/barrel. For the month, the energy component plunged more than 21.0%, returning to its January low.
Elsewhere among growth-sensitive sectors, financials declined 0.4% and technology fell 0.5%, lagging throughout the day. Typically, underperformance in the technology sector tends to be consistent with weakness in the NASDAQ, but the index outperformed on Friday thanks to gains in the biotechnology space.
Similar to the health care industry, the three other countercyclical groups settled ahead of the broader market. The utilities sector spiked 1.0% while consumer staples (up 0.1%) and telecommunications (rising 0.1%) posted slimmer gains.
From an economic data perspective, the Employment Cost Index, Chicago PMI, and Michigan Consumer Sentiment statement were released. Employment costs rose 0.2% in Q2 2015 after a 0.7% increase in the first quarter while analysts expected an increase of 0.6%. That was the smallest increase in employment costs since the index was created in 2001. The Chicago PMI increased to 54.7 in July from 49.4 in June while analysts’ anticipated an increase to 54.7. There was a large improvement in production as the related index increased to 61.8 in July from 49.8 in June. The production gain came after strengthening growth in the new orders index, which rose to 58.5 from 51.7.
The University of Michigan Consumer Sentiment Index was revised down to 93.1 in the final June reading from 93.3 in the preliminary report while analysts’ anticipated an increase to 94.0. The index is down from 96.1 in June, which was the best reading since January.
On Friday, U.S. oil and gas firms Exxon Mobil Corp. and Chevron Corp., the biggest U.S. energy producers, announced their worst quarterly performances in several years. Exxon reported its lowest profit since 2009 as crude prices fell twice as fast as the world’s largest crude producer by market value could cut expenses. Chevron recorded its lowest profit in more than 12 years after the market rout forced $2.6 billion in asset write downs and related charges. The companies’ shares fell to multi-year lows.
Both companies are being hit by the worst market collapse since the financial crisis of 2008. A range of oil firms are letting go employees, scaling back drilling, canceling rig contracts and reducing share buybacks to conserve funds. Chevron said the slump convinced it to lower its long-term outlook for crude prices.
Oil entered its second phase of declining prices since the middle of 2014 in July as a flood of output from North American shale regions, the Persian Gulf and deepwater fields overwhelmed consumption by refiners and chemical producers.
Exxon and Chevron contributed to the excess supply situation by increasing second-quarter crude output by 12% and 1.7%, respectively. Exxon expanded oil production in every region where it operates except Australia/Oceania.
The price of West Texas Crude oil has lost more than half its value over the past year — a major disappointment for the big energy companies to absorb. Most of them haven't been able to cut costs fast enough to defray the imploding price of the underlying commodity.
As a result of these earnings, Exxon shares fell 4.6% to $79.21, the lowest closing price since June 2012. Chevron dropped 4.9% to $88.48, the lowest close since December 2010. The companies were the day’s worst performers in the Dow Jones Industrial Average index.
The Dow Jones Industrial Average, which fell 56 points to 17,690.46 on Friday, would have closed almost unchanged if not for the drops in components Exxon and Chevron.
Exxon cut share repurchases for the current quarter in half to $500 million after net income fell to $4.19 billion, or $1 a share, from $8.78 billion, or $2.05, a year earlier, the Irving, Texas-based company said in a statement.
Refinery profits in addition to lower crude costs were more than offset by weaker results in the company’s primary business, oil and natural gas production. Exxon’s U.S. wells lost $47 million. Exxon reduced spending on major projects like floating crude platforms and gas-export terminals by 20% to $6.746 billion during the quarter, according to their statement. International crude prices fell 42% from 2014 to average $63.50 a barrel.
For the week, ExxonMobil’s stock reached a record weekly high of $83.49 on Friday after it traded at a weekly low of $79.04 on Monday.
In the week ahead, a range of economic and corporate data is bound to be released that will have an impact on the markets. First of all, Motor Vehicle Sales will be announced on Monday, August 3rd in the U.S. If motor vehicle sales are on the rise, this is likely to have a positive impact on a range of automotive stocks and U.S. indices. Although this report will focus on U.S. automotive sales, it will also reflect a trend on whether there is growing interest for new vehicle purchases. If there is, and motor vehicle sales are on the rise, this could cause automotive stocks such as Tesla Motors and BMW to rise in response. Then, on Thursday August 6th chain store sales and U.S. jobless claims will be released. If chain store sales are declining, this could have a negative impact on retail stocks such as Abercrombie & Fitch Co. Finally, on Friday, August 7th, consumer credit figures and a general report on the employment situation will be released. If there is an indication that the employment situation in the U.S. is improving, this could cause U.S. indices such as the S&P 500 and Dow Jones to rise in response.
As we head into a new month, there is bound to be a range of corporate and economic factors that influence the markets – as there always is. With a number of economic announcements on the cards for next week alone, August is shaping up to be another busy month to impact financial assets from across the global market.
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