Stocks fell Wednesday as market participants awaited another wave of earnings results and considered ongoing global trade tensions.
The three major indices were weighed down as investors continued to digest uncertainty over U.S.-China trade relations, after President Donald Trump on Tuesday suggested he could still impose tariffs on about $300 billion worth of Chinese goods.
However, positive earnings surprises this week have provided a small catalyst to markets. As of Wednesday morning, companies comprising just over 10% of the S&P 500’s market capitalization had reported second-quarter results. More than two-thirds of these companies exceeded their bottom-line estimates, according to an analysis from Credit Suisse’s Jonathan Golub.
Companies in the financial sector have been a focal point this week, with JPMorgan Chase (JPM), Wells Fargo (WFC) and Citigroup (C) delivering mixed results amid expectations for easier monetary policy.
“Despite successes elsewhere,” each of the three banks “highlighted potential headwinds from lower rates,” Golub said, with Federal Reserve officials widely expected to cut benchmark interest rates at the close of their July meeting. JPMorgan Chase executives said they are planning for three cuts to interest rates this year.
Bank earnings carried on Wednesday morning, with Bank of America (BAC) reporting results before market open. Driven by a strong three-month performance in the retail banking unit, the firm delivered record quarterly profit of $7.3 billion, or 74 cents per share, which topped consensus expectations by 3 cents. However, net interest income and margin, which signal banks’ profitability, contracted over the quarter prior.
Other quarterly results were more worrying. Railroad giant CSX Corporation (CSX), a bellwether for the global economic, missed expectations on the top and bottom lines in quarterly results released Wednesday and delivered disappointing guidance for the full year. James Foote, CEO of CSX, blamed a deteriorating global economic landscape for disappointing shipping volumes, adding, “The present economic backdrop is one of the most puzzling I have experienced in my career.”
Investors will turn their attention Wednesday afternoon to quarterly results from streaming giant Netflix (NFLX), the first of the “FAANG” big tech names to deliver its second-quarter report. Netflix shares were flat in early trading as investors awaited the results, after the company in April guided toward a deceleration in new subscriber additions over last year. E-commerce platform eBay (EBAY) will also report results after market close Wednesday.
Meanwhile, peer tech giant Facebook (FB) faced more questioning from lawmakers on its proposed cryptocurrency Libra and crypto wallet Calibra. David Marcus, Facebook’s head of Calibra, took to Capitol Hill for a second day of congressional testimony, this time before the House Financial Services Committee.
Marcus answered lawmakers’ questions about the digital currency project Tuesday before the Senate Banking Committee. Most senators expressed trepidation over the project and whether it might enable privacy breaches, fraud and other criminal activity if executed poorly.
Signs of a still-struggling housing market rolled in Wednesday even as lower interest rates have favored new-home buyers and builders.
New-home construction in the U.S. fell in June for a second consecutive month to a seasonally adjusted annual pace of 1.253 million, missing consensus expectations. Economists polled by Bloomberg had expected the Census Bureau to report a milder decline to just 1.26 million for the month. Housing starts for May were downwardly revised by 4,000 to 1.265 million.
Closely watched single-family housing starts rose 3.5% in June, after falling in May. By region, single-family home-building picked up in the Midwest, West and South, but fell in the Northeast.
Meanwhile, building permits unexpectedly dropped 6.1% to 1.22 million, sharply missing consensus expectations for a 0.1% increase to 1.3 million in June. This marked the lowest level since May 2017 for building permits, which serve as a proxy for future home-building.
“Weak housing data gives the Fed some dry powder on cutting rates, as it’s an important part of the economy that they can point to in building their case, and there aren’t many sectors that benefit more from lower rates than housing, as it directly translates into more mortgages,” Mike Loewengart, vice president of investment strategy for E-Trade Financial, wrote in an email.
“Housing is tangential to the Fed's primary goals of keeping inflation in check and the job market strong, but given the market pressure to cut rates this month, it will likely take whatever data it can get to support doing so,” he added.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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