Intraday Market Update
Equities gapped lower at the open this morning after a disappointing first glance at Q2 GDP but have overcome early pressure, bouncing hard to close the gap. After yesterday's whipsaw the S&P 500 opened more than -10 points lower but buyers immediately stepped in after a better than expected Chicago PMI reading and an improved consumer sentiment report. All of the major indices are oscillating near breakeven in mid-day trading but have since backed off and are firmly in the red. Front Month crude is has lost -0.50% but is well off of its lows while copper has broken out to three month highs. Overseas, equities were mostly lower. It is worth noting that US treasuries gapped higher at the open as equities gapped lower, and treasuries have not given up their gains while stocks have rallied. This has me questioning whether or not the momentum of this morning's bounce in equities can continue higher. If treasury prices begin to decline and yields begin to increase equities may go higher. However, if treasury prices and yields hold at current levels (as they have all day) equities will most likely struggle. Below is a 30-minute chart of 10 YR Treasury Note prices compared to the S&P 500 E-mini Futures. There is clearly a disconnect as equities have bounced are +10 points off of their lows while treasuries have not given up anything.
There was a lot of noise in the advanced Q2 GDP report this morning as the number came in at an annualized 2.4% growth rate. This was just below estimates calling for a 2.5% growth rate. However, Q1 GDP was upwardly revised from 2.7% to 3.7%. Many are pointing to the upward revision as a positive surprise, however, I would argue that big upward revision to the final Q1 reading made today's data look even more disappointing and confirming a more rapidly slowing economy. In the end, it appears the market is confused and will keep traders guessing into the weekend.
This morning's bounce in equities gained steam when the Chicago PMI data was released. The report showed an unexpected improvement rising from 59.1 in June to 62.3 in July. Estimates called for a decline to 56.0. The index takes a look at business activity in the Midwest and there was strength across all areas, including expansion in employment and increases in production, new orders, order backlogs, and inventories. This is a stand out report considering the string of decelerating economic reports in recent weeks.
Meanwhile, the University of Michigan/Reuters consumer sentiment index rose +1.3 points to 67.8 vs. 66.5 at mid month, and compared to 76.0 at month end for June. Although consumer sentiment edged higher over the past two weeks it hasn't offset the significant weakness seen in the first two weeks of July. The strength in today's report came from the current economic conditions component which increased from 75.5 in the mid-month reading to 76.5, while the economic outlook component rose from 60.6 to 62.3. Simply put, consumer sentiment is far below the 76.0 reading in June, which was the highest level since January 2008, and consumer participation in the recovery remains questionable.
There were several earnings reports from energy companies making the rounds. Earnings from Chevron were similar to those of Exxon and Royal Dutch Shell yesterday. CVX's earnings beat estimates which were more than double on a y/y basis but revenue was missed. CVX said downstream profit margins rose on returning demand for gasoline and diesel fuel. CVX is off less than -1%. The increase in downstream profit margins aided Sunoco's (SUN) results as they crushed earnings and revenue targets. SUN said their refining business was profitable for the first time since the first quarter of 2009. SUN has gained +4%. Shares of coal miner Arch Coal are up +5.5% after the firm reported a much better than expected profit. However, on the conference call the CEO warned that while coal markets have improved considerably since this time last year, they still remain well below the levels of the bull market of 2008. First Solar reported strong Q2 results and increased its outlook for the full year. The company said revenues rose on increased production volumes and systems revenue, partially offset by declining prices and lower euro exchange rates. Nevertheless, FSLR's revenue guidance was a bit light and the stock has lost -7.3%.
Core Sector List:
Overall reading: 3 sectors advancing, 13 sectors declining
Strongest Sectors: Gold Miners, Biotechnology, Retail
Weakest Sectors: Semiconductors, Utilities, Oil Services
S&P 500 - Daily and 30-minute Intraday Charts:
Dow Jones - Daily and 30-minute Intraday Charts:
NASDAQ - Daily and 30-minute Intraday Charts:
Russell 2000 - Daily and 30-minute Intraday Charts: