FDA drops the bomb on cigarette companies
Amazon falls on weak guidance
The S&P 500 closed at 2,472, down 3 points
The Dow Jones industrial average climbed 34 points to 21,830
The S&P 500 and the Dow Jones went their separate ways on Friday, with the former sliding and the latter advancing to a new high.
The S&P 500 closed at 2,472, down 3 points on the day and more or less unchanged on the week.
The Dow Jones industrial average climbed 34 points to 21,830, to finish 1.2% higher on the week.
The tech-heavy Nasdaq Composite retreated 8 points to 6,375, weighed down by online retail monster Amazon.com Inc (NASDAQ:AMZN), which fell 2.5% in the wake of its second quarter results.
READ Amazon's shares fall after second-quarter profits plunge but analysts upbeat on growth potential
“Not making money,” was the pithy verdict of Richard Windsor, an analyst at Edison Investment Research.
“Amazon reported disappointing results and guided weakly as it once again spent everything it could on investing in future revenue growth,” Windsor said.
“The valuation of Amazon looks more stretched than ever. We prefer not to pay now for profitability that very fleetingly materialises,” he said.
Investors cooled on overpriced coffee pedlar Starbucks Corporation (NASDAQ:SBUX) after its fiscal third quarter results revealed 8% year-on-year revenue growth that was on the tepid side, according to analysts.
Mid-session
The stock of cigarette makers was going up in smoke after the Food and Drug Administration (FDA) proposed a reduction of nicotine levels in cigarettes.
The FDA wants the nicotine level reduced to non-addictive levels, to reduce the likelihood of under-18 smokers becoming hooked for life on the evil weed.
British American Tobacco plc (NYSE:BTI) shed 8.7% and Altia Group Inc (NYSE:MO) but sector peer Philip Morris International Inc (NYSE:PM) defied the trend and rose 0.4%.
In the rest of the market, stocks slowly righted themselves after some mildly disappointing gross domestic product numbers.
“The US revealed second-quarter growth figures of 2.6%, which met expectations, but the first-quarter growth rate was revised from 1.4% to 1.2%. This may prevent the Federal Reserve from hiking interest rates again this year, but ultimately the news shouldn’t be welcomed as the US economy isn’t as strong as traders thought,” suggested David Madden, a market analyst at spread betting outfit CMC.
The Dow Jones was barely changed – down 2 at 21,794 – while the S&P 500 was 6 points lower at 2,469.
Oil giant Exxon remained in the red after its results, but Chevron was in positive territory.
The former was down 2% and the latter up 2.2%.
“Exxon reported 2Q17 results this morning with a miss to net earnings consensus but slightly ahead of RBC's cash flow estimate,2 noted the Royal Bank of Canada's (RBC) Biraj Borkhataria.
“Given all majors reporting so far had beat consensus earnings, we believe the market may take this result negatively today. More positively, Exxon's spending levels remain at a run rate of $4bn for the quarter (c$16bn for the year), which compares to consensus closer to $18bn in 2017,” Borkhataria added.
As for Chevron, the analysts noted: “Chevron reported 2Q17 results this morning with adjusted EPS $0.91 vs consensus at $0.81. We believe the out-performance was driven by the downstream, which offset a higher than expected corporate charge.
“Chevron came in below our estimates on cash flow generation, reporting $5.3bn excluding working capital, versus our $5.5bn estimate.”
Open
Stocks opened on the back foot, with the tech-heavy Nasdaq Composite hit hardest of the three big benchmarks.
The Nasdaq was down 28 points (0.43%) at 6,355, with Goodyear Tire & Rubber Co (NASDAQ:GT) acting as a weight on the index, after it fell 10% to US$32 on disappointing second quarter results.
Goodyear's earnings per share of 70 cents were in line with expectations but down from US$1.16 the year before.
Revenue fell 4.9% to US$3.69bn from US$3.88bn.
The S&P 500 was off 8 points (0.32%) at 2,468 while the more narrowly-based Dow Jones 30-share was faring a bit better, down 27 points (0.12%) at 21,770.
Oil giant Exxon Mobil Corp (NYSE:XOM) – not so long ago the biggest company in the world by market capitalisation, and still a heavyweight at US332bn – was the most heavily traded stock after it underwhelmed with its second quarter trading statement.
READ Exxon nearly doubles second quarter earnings
The shares retreated 2.6% to US$78.77 in the first half-hour of trading.
Economic data provided some isolated cheer, as US gross domestic product rose by an annualized 2.6% in the second quarter, after rising 1.2% in the first quarter.
“Growth in all major categories were solid with the exception of residential investment,” noted German bank Berenberg.
“In the medium term, expect GDP growth in the 2-2.3% range, with fiscal reform pushing growth above potential starting in H2-18,” the bank suggested.
“The underlying details of the Q2 GDP report were positive for US economic momentum with real final private sales to domestic purchasers (excludes government, exports and inventory investment) growing by a solid annualized 2.7% q/q; this measure has averaged over 3% in the last three years,” the bank disclosed.
Nancy Curtin, chief investment officer at Close brothers Asset Management, said: “A strong performance in export and industrial sectors has been buoyed by weaker dollar, and we’ve seen a steady increase in earnings too. We’re still some way from the President’s 3%+ growth target, but the good news is this wasn’t priced in by the market, so any additional tax relief or infrastructure spending could support markets into year end.
“Despite improving growth, wage inflation remains somewhat elusive, but the labour market remains reasonably strong, and we anticipate the Fed will proceed as planned with its slow and steady programme of interest rate normalisation,” she added.