Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan” will be posted around 9:00am EDT, every trading day.
For the Outlook, Forecast, and Trading Plans published this morning, please click here
For the Results of the morning’s Trading Plans, please click here.
THE GIST (“THE WHAT”)
Strong corporate earnings pushed the S&P 500 index 0.74% higher to log another record daily close this week at 3025.86, up 22.19 points over previous session’s close. The less-than-expected slowdown in the second quarter GDP solidified the expectation of a quarter-point rate cut by the Fed next week, further boosting sentiment.
Opening higher, the index maintained a steady stream of gain as upbeat results by Alphabet Inc., Intel Corp., McDonald’s Corp and Starbucks Corp outweighed Amazon.com Inc.’s disappointing earnings. Communication Services led the advances after the DOJ approved the $26 billion merger between T-Mobile Inc. and Sprint Corp. Energy and Industrials were the only sectors to limit the upside amid weak earnings.
THE DETAILS (The “How & Why”):
The second quarter U.S. GDP grew at 2.1%, primarily led by a 4.3% jump in consumer spending which helped offset a sharp 5.5% drop in business investment. While the economy slowed down compared to the first quarter growth rate of 3.1%, the slowdown was less than the expected rate of 1.8%, cementing a 25 basis point rate cut expectation by the Federal Reserve next week.
The 10-year Treasury yield received a slight boost in the early session, but closed mostly flat at 2.074% as investors keenly await the monetary policy decision by the Fed next week. Banks and Financials stocks traded higher ahead of the critical policy decision, up 0.99%.
Meanwhile, Consumer Staples, Technology and Health Care sectors received a solid boost from strong quarterly earnings reported by blue-chips companies. Universal Health Services Inc. was the top gainer of today’s rally, soaring 10.89% on beating revenue estimates. Alphabet Inc., Starbucks Corp. and Twitter Inc. climbed 9.62%, 8.94% and 8.92%, respectively on the back of stronger-than-expected earnings.
Communication Services sector led the day’s advances, gaining 3.25% following DOJ’s approval of a $26 billion merger between T-Mobile Inc. and Sprint Corp that lifted their stock prices to all-time highs. T-Mobile Inc. jumped 5.43% on reports of consolidation between the nation’s third and fourth largest wireless providers. Utilities, Real Estate and Consumer Discretionary also added to modest gains driven by earnings.
On the flip side, Energy and Industrials were the only sectors to buck the trend and close lower by 0.50% and 0.17%. Cabot Oil & Gas Corp. weighed down heavily on the energy space, tumbling 12.07% despite beating estimates but warning of declining production and rising costs.
Mohawk Industries Inc. was the worst decliner of the session, plunging 17.60% after the flooring specialist missed estimates and guiding lower. Xilinx Inc., Williams Co and Fortive Corp. were the other major decliners on the back of disappointing earnings, down 5.35%, 4.52% and 4.10%, respectively. Amazon.com Inc. also disappointed investors by reporting a reduction in profits due to higher-than-expected cost of the online retail giant’s one-day delivery initiative.