Technology earnings were mixed and falling jobless claims weren’t enough to push stocks higher this week. The Nasdaq saw a decline of 2.3 percent for the week, while the S&P 500 Index lost 2.2 percent. The Dow Jones Industrial Average fell 2.9 percent on the week and is now in negative territory for the year.
Jobless claims fell to 255,000 last week, the smallest number since 1973. The Federal Reserve has been most concerned about the job market in making the case for a possible delay in rate hikes, but this most recent data removes another potential hurdle. Currency markets reacted by sending the U.S. dollar higher and speculators have upped their odds of a September rate hike to 80 percent, with nearly 20 percent expecting a hike of 0.50 percent. At the start of the week, Federal Reserve Bank of St. Louis President James Bullard said a September rate hike was a 50/50 proposition. The Fed meets next week and if a rate hike is coming in September, the Fed is widely expected to open the door to a rate hike by changing the language of the policy statement.
Earnings reports were a mixed bag this week. Apple (AAPL) disappointed investors with its guidance for the current quarter and shares fell about 7 percent on the news. Since Apple is a major component of many indexes, the top holding in the S&P 500 Index and by far the top holding in the Nasdaq, it weighed heavily on the broader market. On Friday, Amazon (AMZN) jumped 10 percent, following in the footsteps of Internet firms Google (GOOG) and Netflix (NFLX). Amazon beat estimates and its fast growing web services division, which is more profitable than its retail business, saw revenues increase 81 percent versus last year. Starbucks (SBUX), AT&T (T), General Motors (GM), Southwest Airlines (LUV) and Verizon (VZ) were a few of the companies that also beat earnings estimates. Caterpillar (CAT) and International Business Machines (IBM) also disappointed and were the main reasons why the Dow underperformed this week.
Another big story was the plunge in commodity prices. West Texas Intermediate Crude crossed the $50 level and has fallen to $48.08. Energy funds fell to new 52-week lows due to the dip and gasoline prices have even started to nose down, despite it being the height of summer driving season. Gold generated headlines after it was walloped by a trader dumping 5 tons of the metal in a two-minute span in Shanghai trading on Monday. Industrial metals such as platinum and palladium have been faring worse in recent weeks, while copper broke to a new 5-year low. China’s economic slowdown coupled with increased production has created the conditions for another commodity market bust. This may be the start of the final capitulatory stage as long-term commodity bulls throw in the towel.
Bond yields dipped during the week even though the odds of an earlier rate hike are rising. The 10-year Treasury bond is still hovering near its high for the year at 2.26 percent. Investment grade corporates benefited from the dip in yield, but high-yield bonds were pressured by weakness in oil prices due to concerns about shale drillers.