Markets closed lower on Friday after a report stated that Fed officials would reduce the benchmark interest rates in its next meeting by only a quarter percentage points. This was in contrast to investors’ expectations that there would be a rate cut by half a point.
Further, Iran seized two oil tankers near the Strait of Hormuz in a major escalation in geopolitical tensions between the country and the West. The three major benchmarks ended in the red for the day as well as the week.
The Dow Jones Industrial Average decreased 0.3%, to close at 27,154. The S&P 500 decreased 0.6% to close at 2,976. The tech-laden Nasdaq Composite Index closed at 8,146, losing 0.7%. The fear-gauge CBOE Volatility Index (VIX) increased 6.6% to close at 14.42. Decliners outnumbered advancers on the NYSE by a 1.29-to-1 ratio. On Nasdaq, a 1.51-to-1 ratio favored declining issues.
How Did the Benchmarks Perform?
The Dow dipped 68 points to close in the red. Losses for the 30-stock index were broad-based. Shares of UnitedHealth Group UNH decreased 1.5% and weighed on the Dow. UnitedHealth carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The S&P 500 dropped 18 points to end in negative territory. Of the 11 major sectors of the S&P 500, eight ended in the red, with real estate and utilities stocks leading the decliners. The Real Estate Select Sector SPDR Fund (XLRE) and Utilities Select Sector SPDR Fund (XLU) decreased 1.6% and 1.5%, respectively on Friday.
Meanwhile, the Nasdaq declined 60 points to also close in the red. Losses for the Nasdaq were broad-based. Shares of Apple AAPL lost 1.5% and weighed on the tech-heavy index.
Markets also suffered losses after The Wall Street Journal reported that officials from the Fed had hinted toward a quarter percentage-point rate cut at its Jul 31-31 meeting. The reported also stated that the Fed was not prepared to reduce the benchmark interest rate by half percentage point. This weighed on the investor sentiment.
Shares of Microsoft Hit an all-time High
Microsoft MSFT delivered fourth-quarter fiscal 2019 non-GAAP earnings of $1.37 per share, which beat the Zacks Consensus Estimate of $1.21 per share. The figure surged 21% on a year-over-year basis. Revenues of $33.72 billion increased 12% from the year-ago quarter (up 14% in constant currency or cc). The figure also surpassed the Zacks Consensus Estimate of $32.73 billion.
Following the release of such stellar earnings, shares of Microsoft surged to close at $136.42 and a market cap of $1.045 trillion, the only American company with a cap of more than $1 trillion.
Iran Captures British Oil Tankers
Britain’s foreign secretary Jeremy Hunt announced that authorities in Iran had captured two oil tankers on Friday in the Strait of Hormuz. This led to a further escalation of geopolitical tensions between Iran and the Western world.
Hunt stated that one of the vessels had a British flag, the other had Liberia’s flag. Shortly after Hunt’s announcement, Iran’s Fars news agency tweeted that the second tanker had already left Iran’s waters.
Hunt also stated that, “It is essential that freedom of navigation is maintained and that all ships can move safely and freely in the region.”
For the week, while the S&P 500 and the Nasdaq fell more than 1% each, the Dow declined 0.6%. The three major benchmarks posted their biggest weekly drop since the end of May.
A top Fed official said that trimming rates at the first sign of economic distress is an effective tactic for the central bank, especially when benchmark rates are already so low. Investors took it as a sign of easier monetary policy ahead, and geared up for rate cuts.
President Donald Trump expressed his doubts about a near term solution to the lingering trade battle between the United States and China. Meanwhile, major banks reported sold second-quarter results although investors remained cautious about the possibility of an overall decline in earnings during the second quarter.
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