Stock Rally Stalls as Earnings Kick Into High Gear: Markets Wrap

(Bloomberg) — Stocks struggled to gain much traction as traders waded through a deluge of corporate results for clues on whether the market will be able to extend this year’s record-breaking rally.

Most Read from Bloomberg

Companies will have to impress as expectations are elevated, especially for megacaps. Though still robust, their earnings are projected to slow. Tesla Inc. and Alphabet Inc. will be the first of the “Magnificent Seven” to report earnings after the closing bell.

“Given that profit expectations are high for the Magnificent Seven, these companies will have a lot to prove when they report results,” said Anthony Saglimbene at Ameriprise. “At the same time, their outlooks will likely be heavily scrutinized in comparison to elevated valuations.”

As the earnings season rolled in, United Parcel Service Inc. — an economic barometer — headed toward its biggest plunge on record as profit missed estimates. General Electric Co. jumped on a bullish outlook. A disappointing forecast from NXP Semiconductors NV weighed on chipmakers. Texas Instruments Inc. is also due to report results.

Upbeat earnings would be a much-needed driver for equities after a roaring first half of the year. The stock market is facing pressure heading into a seasonally weaker period, with volatility likely to be heightened by uncertainty surrounding the presidential election.

The S&P 500 hovered near 5,565. A gauge of the “Magnificent Seven” megacaps underperformed the Russell 2000 of smaller companies. Treasury 10-year yields three basis points to 4.23%. That’s ahead of a $69 billion auction of two-year notes. The latest economic data showed existing-home sales slumping to one of the slowest paces since 2010.

Oil fell as futures hit key technical levels, spurring a bout of algorithmic selling amid low summer liquidity. Iron ore crumbled below $100 a ton as a policy meeting in China failed to deliver major stimulus, while supplies stayed strong.

The five biggest US technology companies — Apple Inc., Microsoft Corp., Nvidia Corp., Alphabet and Amazon.com Inc. — are facing tough comparisons with stellar earnings cycles of the past year. Profits for the group are projected to rise 29% in the second quarter from the same period a year earlier, data compiled by Bloomberg Intelligence show.

While still strong, that’s down from the past three quarters and, to investors, the stock reaction to earnings remains one of the biggest wild cards.

“We expect the earnings season to bolster confidence in the equity market,” said Solita Marcelli at UBS Global Wealth Management. “While markets could be choppy in the near term, after a period in which investor positioning had become overextended, we believe fundamentals remain strong.”

While investors are concerned about a sustained selloff in US technology megacaps, Barclays Plc strategists say a robust earnings outlook means the cohort is still attractive after the recent rout.

The team led by Venu Krishna raised its year-end target for the S&P 500 Index to 5,600 points from 5,300, citing solid profit expectations for big tech.

“While our valuation assumption for big tech is high, growth-adjusted multiples are reasonable and we expect the group to earn into its valuations,” they said.

Corporate Highlights:

Coca-Cola Co. raised its full-year outlook as higher prices bolstered the soft-drink giant’s performance.
Kimberly-Clark Corp., the owner of the Kleenex brand, reported quarterly sales that trailed estimates, partially driven by retailers lowering their stocks of the company’s bath tissue and intensifying private-label competition.
Philip Morris International Inc. raised its forecast for annual profit growth on higher demand for its Zyn nicotine pouches, as enthusiasm for tobacco alternatives rages on.
Comcast Corp. reported second-quarter revenue that missed analysts’ estimates, dragged down by a slower season at its movie studios and theme parks.
General Motors Co.’s profit surged 60% from a year ago, easily beating Wall Street’s expectations on strong demand for gas-powered trucks in the US.
Spotify Technology SA, the Swedish audio-streaming giant, reported a record profit in the second quarter and strong growth in paying subscribers.
Delta Air Lines Inc. is under investigation by US authorities over its handling of a technology glitch that has led to thousands of canceled flights.
US regulators are examining how companies including Mastercard Inc., JPMorgan Chase & Co. and a unit of Goldman Sachs Group Inc. provide clients with algorithms that use consumers’ personal data to tailor product pricing to individuals — what the agency termed “surveillance pricing.”