In financial markets, there are disappointments, and then there are disappointments. As was widely expected, the Federal Reserve cut interest rates by a quarter point today and set the stage for another rate cut later this year.
“In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the committee decided to lower,” said the Federal Open Market Committee (FOMC) in a statement.
Even with the benefit of the widely-anticipated rate cut, stocks tumbled with losses accelerating late in Wednesday’s session. The Nasdaq Composite plunged 1.19% while the S&P 500 slid by 1.10%. The Dow Jones Industrial Average shed 1.23% on the final trading day of July. All that after the Fed’s first rate cut in more than a decade.
“As the committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” said the FOMC.
Adding to the Wednesday woes was that stocks tumbled followed a decent jobs data point. Earlier today, the ADP private payroll survey for July showed the addition of 156,000 private sector jobs this month, topping the estimate of 150,00. The July jobs report from the Labor Department is due out Friday before markets open.
Let’s look at some Dow winners, of which there were not many.
An Apple Today …
If not for shares of Apple (NASDAQ:AAPL), which gained 2%, it’d be painful to imagine how bad the Dow’s losses would be today. The iPhone reported impressive earnings for the June quarter, saying it earned $2.18 a share on revenue of $53.8 billion, ahead of estimates of earnings of $2.10 a share on sales of $53.39 billion.
Apple also said up its fiscal fourth-quarter revenue guidance to $61 billion to $64 billion. In the low end, that’s slightly ahead of the $60.98 billion analysts are expecting. Both iPhone and services revenue for the most recently completed quarter missed estimates, but investors appeared more focused on the bullish revenue guidance.
“The iPhone accounted for 48.3% of Apple’s overall revenue, the first time that it hasn’t contributed over half of Apple’s sales since 2012,” according to CNBC.
In late trading, just two other Dow stocks were in the green, but the gains paled in comparison to Apple and are hardly worth mentioning.
Too Many Losers In the Dow Today
Among the Dow’s losers today, and there were plenty to pick from, were all of the index’s financial services components, including Goldman Sachs Group (NYSE:GS) and JPMorgan Chase (NYSE:JPM). That was somewhat predictable given the belief that bank stocks benefit from higher interest rates.
However, that conventional wisdom was probably dealt a blow last year when the sector struggled amid four rate hikes. Indicating that Wednesday’s losses in bank stocks like JPM may be no more than knee-jerk reactions is increasing sentiment that some banks, including JPM, are poised to thrive as rates decline.
After all, many of the largest domestic money center banks already warned on net interest margins on second-quarter earnings calls, so that should be baked into these stocks.
Familiar face UnitedHealth Group (NYSE:UNH) slipped 2.32% today. Guess why? There was a Democratic presidential debate last night (another one tonight). I’m not making political commentary here. All viewpoints are welcome, but the fact remains that of the participants in the debate, the ones with better chances to emerge from the crowded field appear to favor some form of Medicare For All, while lower-tier candidates favor a more gradual approach to altering the healthcare system in the U.S.
Either way, there’s a good chance UnitedHealth makes another appearance here tomorrow.
Dow Jones Today: Bottom Line
Wednesday’s market action was very much a case of “sell the news.” With plenty of earnings reports still left and Friday’s job number loom, near-term catalysts are in play. That could help riskier assets start August on a strong note. Investors looking for sector ideas in the eighth month of the year may want to consider tech and utilities, which historically perform well in August.
Todd Shriber does not own any of the aforementioned securities.
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