Broader Averages Fall as Oil Sees Worst Month Since '08
U.S. equity markets were mostly flat on Friday as the energy sector dragged on the broader averages, though major indexes were on track to notch gains for the week and the month.
The Dow Jones Industrial Average closed 55 points lower, or 0.31% to 17690. The S&P 500 futures added shed 4.7 points, or 0.22% to 2103, while the Nasdaq Composite climbed half a point, or 0.01% to 5128.
Today’s Markets
It was a rough morning for two of the nation’s energy companies as second-quarter earnings came in much weaker than expected.
Exxon (NYSE:XOM) revealed adjusted earnings of $1 per share, widely missing expectations for $1.11. Revenue of $74.1 billion topped views for $72.48 billion. The company noted on an adjusted basis, earnings dropped 51% from the year-ago period, while capital spending and exploration came in at $8.3 billion, a 16% decrease from the second quarter of last year.
Exxon shares sank 4.5%.
A year of low oil prices slammed Chevron (NSYE:CVX) in the second quarter. The oil producer booked a 90% plunge in profit. Results came in at 30 cents a share on a diluted basis, compared to $2.98 in the year-ago period. Wall Street was expecting earnings of $1.16 a share.
Chevron shares dropped 5.2%.
All eyes have been on the U.S. economy this week as investors tried to gather more clues about when the Federal Reserve is most likely to begin raising interest rates. After a day to digest the first reading on second-quarter GDP, which came in slightly below expectations, but still showed 2.3% growth for the quarter, traders got a look at other parts of the economy Friday.
The Labor Department’s employment cost index, a broad measure of labor costs, showed the slowest-ever pace of increase with a 0.2% gain in the second quarter. Economists on average had expected a 0.6% increase. Wages and salaries during the quarter also rose 0.2%, a significant slowdown from the first quarter’s 0.7% growth.
IHS U.S. economist Ozlem Yaylaci wondered whether the unexpected and sharp decline in wages and salaries could stop the Fed in its rate-hike tracks.
“This report was a bit of a shock since it is not what is expected in a gradually tightening labor market,” he wrote in a note. “The central question is whether this very sharp and unexpected decline in wages and salaries will trigger alarm bells at the Fed…considering wage inflation is one of the main predictors of core inflation, this report is likely to diminish the Fed’s confidence.”
Meanwhile, a gauge of consumer sentiment from Thomson Reuters and the University of Michigan fell to 93.1 in July from a preliminary reading two weeks ago of 93.3. The reading was lower than the increase to 94 economists had expected.
Factory activity in the Midwest region flipped back into expansion territory in July. A gauge from the Institute for Supply Management-Chicago rose to 54.7 in July, the highest level since January, from 49.4 the month prior. The reading beat Wall Street expectations for a rise to 50.5. Readings above 50 indicate expansion, while those below point to contraction.
Elsewhere in corporate news, fitness chain SoulCycle filed for an initial public offering, but didn’t disclose how much it plans to raise, or on what exchange it expects to list. The company said in the filing it earned $25.3 million in 2014, up from $17.8 million the year prior. Last year’s revenue of $112 million was up from $75.3 million in 2013, SoulCycle said.
In commodities, after a tumultuous week, crude oil prices came under pressure again on Friday as the dollar strengthened. U.S. crude settled down 2.89% to $47.12 a barrel, the biggest monthly drop since October 2008. For the month of July, U.S. crude plunged 20.8%.
Brent, the international benchmark, fell 2.7% to $51.87 a barrel.
Gold prices turned higher, rising 0.5% to $1,094 a troy ounce. Though gold this week snapped a five-week losing streak, for the month, it saw the biggest percentage decline in two years. Gold has lost ground in five of the last six months.
In currencies, the euro traded 0.47% higher against the U.S. dollar. The yield on the benchmark 10-year U.S. Treasury fell 0.063 of a percentage point to 2.21%. Bond yields move in the opposite direction of prices.
Trading was relatively calm in overseas markets as traders looked ahead to the weekend.
“U.S. traders, much like their counterparts in London, will be forgiven for looking to start the weekend early, especially as Monday will bring a plethora of manufacturing PMI data to absorb,” IG market analyst Alastair McCaig wrote in a note. “Hopefully that should add a touch of adrenaline to these lackluster markets.”
European markets were mostly flat in the last trading day of the week. The Euro Stoxx 50, which tracks large-cap companies in the eurozone, rose 0.39%. The German Dax climbed 0.46%, the French CAC 40 rose 0.72%, while the UK’s FTSE 100 was up 0.41%.
Meanwhile, China’s Shanghai Composite index fell 1.13%, while Hong Kong’s Hang Seng rose 0.56%, and Japan’s Nikkei rose 0.30%.