NASDAQ 100, Dow Jones, S&P 500: Earnings Caution as Investors Brace for Tech Stock Volatility

Highlights

• Stock market faces bearish start with S&P 500 and Nasdaq Composite declines.
• Caterpillar and Merck report positive earnings, boosting Dow Jones Industrial Average.
• Job openings and manufacturing data reflect continued economic challenges.

Overview

The stock market faced a bearish start for the new month as the S&P 500 and Nasdaq Composite both experienced declines, losing 0.4% and 0.8%, respectively.

However, there were some bright spots as Caterpillar reported better-than-expected earnings and revenue, leading to a surge in its shares by nearly 7%, which, in turn, helped lift the Dow Jones Industrial Average by about 40 points or 0.1%.

Merck’s Positive Earnings Propel Shares

Pharmaceutical giant Merck also contributed to the positive sentiment as it reported a smaller-than-expected loss and revenue that exceeded expectations, mainly driven by strong sales of its drug Keytruda. As a result, Merck’s shares rose 1.6%. Conversely, Pfizer, although adding 1.7%, reported mixed results due to a significant drop in Covid product sales. Meanwhile, Uber faced a decline of nearly 5% in response to its mixed earnings report.

Investors Eyeing Earnings Decline

Investor focus was also directed towards a flood of corporate earnings reports, with more than 160 S&P 500 constituents slated to report results during the busiest stretch of the second-quarter earnings season. The positive news was that over 82% of the companies had already exceeded earnings expectations, offering hope that the economy might be able to avoid a recession amid signs of cooling inflation. However, analysts were still cautious, as they anticipated a 7.1% earnings decline compared to the previous year and a third consecutive quarter of falling profits.

Jobs Data Weak, Manufacturing Contracts

In addition to earnings reports, investors closely monitored critical economic indicators to gain insights into the state of the economy. Unfortunately, the job openings data came in slightly below expectations, and the manufacturing data indicated continued contraction for the ninth consecutive month, albeit with a marginal improvement from the previous month. The manufacturing PMI was reported at 46.4, lower than the expected 46.9, signaling contraction in the sector.

Short-Term Outlook:  Mixed Forecast ahead of Expected Volatility

With the tech reporting season about halfway through, investors were advised to brace for volatility and exercise selectivity within the sector, given the demanding valuations for tech stocks as a whole. Overall, the short-term outlook remained mixed, with some optimism driven by positive earnings surprises but countered by concerns about economic contraction and declining profits. Investors were urged to proceed with caution and carefully evaluate investment decisions amidst the uncertain market conditions.