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Briefing.com Summary:
*Sandisk and Western Digital are down sharply after their earnings reports and are weighing on the momentum trade.
*The market continues to wait for news of an official peace agreement between the U.S. and Iran.
*Initial jobless claims remain below 200,000, reflecting a reluctance to cut staff.
The Dow Jones Industrial Average kept on keepin' on yesterday with its record run, but the rest of the market took a breather, which was understandable. The S&P 500 had risen nearly 6.0% in just four sessions.
The state of things this morning is mixed. Currently, the S&P 500 futures are up two points and are trading 0.2% below fair value, the Nasdaq 100 futures are down 232 points and are trading 1.0% below fair value, and the Dow Jones Industrial Average futures are up 94 points and are trading 0.1% above fair value.
The market is taking time to collect itself, combing through a huge slate of earnings results since yesterday's close that featured reports from Sandisk (SNDK) and Western Digital (WDC), which are down 10% and 15%, respectively, in pre-market trading.
That weakness isn't owed to fundamental shortcomings. Rather, it is owed mostly to hitting a wall of exceedingly high expectations. In any case, the weakness in these stocks has cast a pall over the momentum trade that has created a holdback for the equity futures market.
Market participants are also still waiting anxiously for an official announcement that the U.S. and Iran have struck some kind of peace deal and that the Strait of Hormuz is open for free and full passage. That should be happening soon, according to leading commentary from President Trump.
WTI crude futures are up 1.4% to $76.29/bbl, with Treasury yields coming along for the ride. The 2-yr note yield is up three basis points to 4.21%, and the 10-yr note yield is up two basis points to 4.64%.
Fed Governor Cook (FOMC voter) said that she is prepared to vote for a rate hike if inflation doesn't improve soon. She'll get a glimpse of things when the July Consumer Price Index is released next week.
In the meantime, the market is digesting some economic data this morning that was relatively good.
Nonfarm business sector labor productivity increased 1.4% in the second quarter (Briefing.com consensus: 0.8%) following an upwardly revised 0.8% increase (from 0.3%) in the first quarter. Unit labor costs were up 1.3% (Briefing.com consensus: 1.7%) following a downwardly revised 1.3% increase (from 1.8%) in the first quarter.
The key takeaway from the report is that rising productivity helped keep labor costs in check.
Initial jobless claims for the week ending August 1 increased by 1,000 to 199,000 (Briefing.com consensus: 200,000). Continuing jobless claims for the week ending July 25 increase by 24,000 to 1.801 million.
The key takeaway from the report, once again, is the extraordinarily low level of initial jobless claims, which reflects an environment in which employers are still reluctant to cut staff. That will be read as a good sign for economic demand.
