The Nasdaq composite continued to lead the way down as Apple (AAPL), Amazon (AMZN), Facebook (FB) and other big techs extended losses, while the S&P 500 index closed below its 50-day moving average. Tesla (TSLA) crashed amid a variety of news that raised concerns, while auto sales slumped overall.
Stocks Continue Retreat
XAutoplay: On | OffThe Nasdaq composite fell 0.8% as of Thursday's close, hitting its lowest levels since May 19. Facebook and Amazon.com, among the last big techs to hold 50-day support, retreated below that line. The S&P 500 index lost 0.6%, but closed below its 50-day line for the first time since mid-May. The Dow industrials, buoyed by financial and energy components, hit an all-time high Monday but was down a fraction as of Thursday. The Dow's General Electric (GE) and Verizon (VZ) both dived to 21-month lows. Tesla plunged amid weak Q2 deliveries, Model 3 news and a less-than-stellar safety rating. The latest Federal Reserve and European Central Bank meeting minutes indicated that policymakers are moving toward tightening policy, weighing on stocks and lifting global bond yields.
Economic Data Solid, Jobs Loom
The ISM manufacturing index for June rose to the best in years while the ISM nonmanufacturing gauge showed still-strong expansion. On Friday, the Labor Department will release its monthly employment report. Economists expect an increase of 170,000 jobs with the jobless rate holding at 4.3% and wages up 0.3%.
Central Banks Signal Tightening Trend
For the second straight week, U.S. investors paid more attention to the European Central Bank than to the Federal Reserve. Both central banks released minutes from their June meetings.
Economists interpreted the Fed minutes as indicating a bit more uncertainty about whether inflation will rebound and, thus, about the Fed's rate trajectory. Still, absent a surprise, the Fed seems likely to announce in September that it will gradually scale back its $4.5 trillion balance sheet, inflated with Treasury and mortgage bonds purchased in response to the financial crisis.
The ECB's policy signals have been jarring because they represent a pretty dramatic, if gradual, potential change from the central bank's long-running asset-purchase program.
ECB President Mario Draghi indicated last week that the eurozone monetary authority could begin scaling back its asset buys, which economists now expect to happen by early 2018. The ECB minutes from the June 7-8 meeting revealed that policymakers discussed dropping language from future meeting statements saying that they're prepared to reverse course and increases asset purchases if conditions demand.
Tesla Dives On Deliveries, Safety
Tesla CEO Elon Musk announced that the closely watched Model 3 has passed all regulatory inspections, signaling that production will start Friday and announcing a "handover party" on July 28 for the first 30 customers. He predicted a rapid ramp up in production. Late Monday, the electric car maker announced that its second-quarter deliveries climbed 53%, but were at the low end of expectations. Goldman Sachs, reiterating a sell rating, cut its price target to 180 from 190, while several other analysts noted some concerns with Tesla's data and outlook. Meanwhile, Tesla's Model S failed to get the IIHS' top safety rating. Tesla stock tumbled nearly 15% for the week through Thursday
Auto Sales Fall Again
U.S. auto sales fell 2.9% in June to a 16.4 million rate and are now down 2.1% so far this year. General Motors (GM), Ford Motor (F) and Fiat Chrysler (FCAU) saw sales drop 5%, 5% and 7% respectively year over year, while Toyota Motor (TM), Nissan (NSANY) and Honda Motor (HMC) grew sales modestly. Overall, the industry posted its sixth straight month of falling or flat sales for the industry, despite higher use of incentives. Consumers continued to spurn the car segment for SUVs, crossovers and trucks. Sales of new vehicles have slowed this year as freshly off-lease vehicles have flooded the market. Even the red-hot SUV segment is starting to show softness. June sales came in at a seasonally adjusted annual rate of 16.4 million, the lowest rate of the year.
Crude Oil Stockpiles Fall, But So Prices
An eight-day win streak came to sharp end on Wednesday, while even a sharp drop in U.S. crude and gasoline inventories couldn't give prices much of a boost. With futures down early Friday, U.S. crude was down more than 3% for the week, back below $45 a barrel. The Energy Information Administration said U.S. crude stockpiles fell by 6.3 million barrels last week vs. analyst expectations for a 2.3 million barrel draw. Gasoline supplies dropped by 3.7 million barrels, also more than expected. But domestic crude production bounced back to 9.34 million barrels per day after falling to 9.25 million BPD in the prior week. Russia reportedly said it wouldn't agree to any further production cuts when a committee of top OPEC and non-producers meets in St. Petersburg on July 24.
Microsoft Cuts Thousands Of Jobs In Cloud Shift
Microsoft (MSFT) plans to lay off up to 3,000 workers as part of a reorganization to focus on cloud-computing services. The layoffs are mostly in sales and amount to less than 10% of the Microsoft's sales force. About 75% of the layoffs will be outside the U.S. Microsoft is shifting its business from on-premises software for PCs and servers to cloud-based software subscriptions for products like Office 365 and Azure. Microsoft said the reorganization is more about better using its resources than about cost-cutting.
Samsung, Alibaba Enter Smart Speaker Field
Samsung and Alibaba (BABA) are the latest companies entering the increasingly crowded market for voice-activated smart speakers, which is now led by Amazon.com's Echo devices. Chinese e-commerce leader Alibaba announced its Tmall Genie X1, which has voice controls for online shopping, playing music, getting news and weather, and other functions. The Mandarin-language Genie will be much cheaper than the Amazon Echo and especially the upcoming Apple HomePod. Alibaba rival JD.com (JD) already has a smart speaker on the market. Samsung is working on a device code-named Vega. Other Chinese firms entering the space include search engine Baidu (BIDU) as well as gaming and messaging giant Tencent (TCEHY).
Samsung announced huge preliminary second-quarter profit Friday, predicting operating earnings of $12.1 billion, which suggests the Korean electronics giant will top Apple's quarterly profit. That's was likely largely due to booming memory chips, but also possibly good sales for the Samsung Galaxy 8 smartphone.
Yum China Touts Mobile Moves, But Stock Dives
Yum China (YUMC) topped earnings but fell short on sales. The spin-off and China licensee of Yum Brands (YUM), which owns KFC, Pizza Hut and Taco Bell, highlighted its mobile and delivery sales, which have become more important to attracting tech-savvy, convenience-seeking diners. Mobile payments surpassed 40% of sales during the quarter; delivery made up 13%. Yum China also said it had acquired a controlling interest in the holding company of the delivery service Daojia. But Yum China shares tumbled 12.91% on Thursday.
Delta Weathers Atlanta Storm
Delta Air Lines (DAL) said Q2 unit revenue would land in the upper range of its outlook and tweaked higher its operating-margin forecast. The carrier said "an improving revenue environment" helped counterbalance the scores of cancellations it suffered in April because of powerful thunderstorms in the Atlanta area.
Weak Macau Revenue Sinks Casino Stocks
Casino stocks pulled back on softer-than-expected Macau gaming revenue for June. Gross gaming revenue rose 25.9% to 20 billion patacas ($2.49 billion), short of the midpoint of forecasts for 23%-33%, according to Reuters, marking the 11th consecutive month of casino revenue growth in the wake of the Chinese government's corruption crackdown. MGM Resorts International (MGM) lost 2.19% through Thursday after tumbling nearly 5% on June 30. Las Vegas Sands (LVS) dropped 1.94%, Wynn Resorts (WYNN) fell 1.14% and Melco Resorts (MLCO) sank 0.97%.
Vantiv Bests JPMorgan For Worldpay
Vantiv (VNTV), a credit-card and payment-processing company, will buy British payment-processing company Worldpay Group in a stock-and-cash deal worth about $10 billion. Worldpay said it selected the Vantiv offer over one from by JPMorgan Chase (JPM), which said it did not intend to make a counteroffer. Vantiv generates the bulk of its revenue from fees associated with payment-processing services for merchants. Clients include Wal-Mart (WMT), Target (TGT) and Macy's (M).
News In Brief
Bankrate (RATE) shares jumped after the online provider of financial services for consumers agreed to be acquired for $1.4 billion by Red Ventures, a privately held internet advertising and media company.
General Electric tumbled 3.8% on Thursday to a 21-month low after JPMorgan saw an uncertain and limited outlook for the industrial giant, while the European Union accused GE of not disclosing information during a merger review.
Shares of O'Reilly Automotive (ORLY) plunged 19% to 178.77 Wednesday after the retailer announced same-store sales grew 1.7% in the second quarter, well short of expectations. Peers Advance Auto Parts (AAP) and AutoZone (AZO) tumbled in sympathy to multiyear lows.
Volvo, owned by a Chinese billionaire, vowed a "historic" shift to all-electric or hybrid vehicles by 2019. It will end production of cars powered solely by the traditional combustion engine. China is becoming the biggest market for electric cars.