Overall, July was a good one for Wall Street with three major stock indexes moving northward sidelining the concerns over the resurgence of the Delta variant of COVID-19 and mounting inflation. In fact, the core PCE inflation — Fed’s favorite inflation gauge — in June was a tad below the consensus estimate despite recording its highest since July 1991.

Wall Street has entered August with a strong momentum. The S&P 500 registered a six-month winning streak, for the first time since 2018. The Dow Jones Industrial Average gained in five and the Nasdaq Composite rallied in six out of the first seven months of the year.

Meanwhile, this week has started with a plethora of news on mergers & acquisitions front. On Aug 1, digital payment giant Square Inc. (SQ) agreed to buy Australian buy-now, pay-later platform Afterpay Ltd. for $29 billion in an all-stock deal. The newly emerged buy-now, pay-later ecosystem that allows a person to buy products without a credit card, is immensely popular, especially among younger consumers.

Industrial products manufacturing bigwig Parker-Hannifin Corp. (PH) has agreed to buy British defense and aerospace company Meggitt for £6.3 billion ($8.8 billion). Apparel and shoes retailer Foot Locker Inc. (FL) will buy California-based shoe store chain WSS for $750 million and Japanese streetwear retailer Atmos for $360 million in cash.

Moreover, this week is a big one for the second-quarter earnings. More than 1,500 companies will report results this week. So far the earnings results are better than expected. As of Jul 30, 296 S&P 500 companies reported results. Total earnings of those companies increased 102% year over year on 26.8% higher revenues. Also, 89.2% of those companies beat their EPS estimates and a record 87.5% surpassed revenue estimates.

After the closing bell today, several big corporates will report their quarterly earnings results. Some of them are REIT Simon Property Group Inc. (SPG), energy bigwigs Pioneer Natural Resources Co. (PXD) and The Williams Co. Inc. (WMB), water supplier American Water Works Co. Inc. (AWK) and communication components developer Arista Networks Inc.(ANET). ​​​​​

Two important economic data will be released during today’s trading season. The ISM Manufacturing Index for July for which the consensus estimate is 60.8% slightly above June’s reading of 60.6%. Any reading above 50% means expansion in manufacturing activities. Moreover, Construction Spending data for June will also to be released. The consensus estimate indicates a gain 0f 0.4% in contrast to a drop of 0.3% in May.

​​​​​​How Did the Benchmarks Perform?

The Dow Jones Industrial Average (DJI) fell 149.06 points, or 0.4%, to close at 34,935.47. The blue-chip index touched an intraday high of 35,106.30. Among the Dow’s biggest decliners wereCaterpillar Inc. (CAT), The Boeing Company (BA) and The Walt Disney Company (DIS) that closed 2.7%, 2.2% and 1.3% lower on Friday. Caterpillar holds 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 fell 23.89 points, or 0.5%, to end the session at 4,395.26 on Friday. Of the 11 major sectors of the broader index, seven ended in the red with the consumer discretionary and energy sectors closing 2.8% and 1.8% lower, respectively for the session.

The Nasdaq Composite Index closed at 14,672.68, after declining 105.59 points, or 0.7%. Amazon and eBay Inc.’s (EBAY) more than 7% decline pushed the tech-laden index lower and overshadowed 21.9% gain in Atlassian Corporation Plc (TEAM) and 13% jump in DexCom, Inc. (DXCM). Other tech bigwigs like Facebook, Inc. (FB) and Microsoft Corporation (MSFT) also closed 0.6% lower for the session.

On Friday, the fear-gauge CBOE Volatility Index (VIX) increased 3.1%, to close at 18.24. Declining issues outnumbered advancing ones for 1.43-to-1 ratio on the NYSE, while a 1.58-to-1 ratio on the Nasdaq favored decliners. The S&P 500 posted 65 new 52-week highs and two new lows, while the Nasdaq Composite recorded 84 new highs and 98 new lows. A total of 8.86 billion shares were traded on the last trading session, lower than the last 20-session average of 9.74 billion.

Amazon Falls Short of Analysts’ Estimates

Amazon reported its first revenue miss in the last three years and also gave a weak third-quarter 2021 guidance. Amazon reported second-quarter 2021 earnings of $15.12 per share, beating the Zacks Consensus Estimate by 23.7%. However, it reported net sales of $113.1 billion, missing the Zacks Consensus Estimate of $115.1 billion. The guidance for the next quarter echoes deacceleration in revenue growth rates from pandemic highs.

Economic Data Log

On Jul 30, the government reported that personal income rose 0.1% in June, surpassing the consensus estimate of 0.3% loss and a rebound from May’s downwardly revised figure of 2.2% decline. While personal spending edged up 1%, beating the consensus estimate of a 0.8% rise in June. May’s figure was downwardly revised to a 0.1% decline. Disposable Personal Income (DPI) came in unchanged for June after being downwardly revised to a 2.7% decline in the prior month.

Key inflation indicator, personal consumption expenditures (PCE) price index rose 0.5% in June. Inflation has been rising sharply over the past year and remained at a 13-year high, raising the cost of living and overshadowing a strong economic recovery. Lack in business supplies especially computer chips has driven prices higher. The core PCE price index, which strips out volatile food and energy prices rose 0.4% in June, climbed to the highest level since 1992. PCE has now moved up to 3.5% over the past 12 months.

In a separate report, the University of Michigan reported that its consumer-sentiment index fell to 81.2 in July from a reading of 85.5 in June, however it exceeded the initial July figure of 80.8. Growing concerns over higher inflation and Delta variant spread weighed on sentiment in July. Consumers have shown pessimism over purchasing housing, vehicles, and other household durables due to higher prices.​​​​​​

Second Quarter Earnings Roll On

As of Jul 30, 296 S&P 500 members or 59.3% of the index’s total membership have reported second-quarter earnings. Total earnings for these companies are up 102% from the same period last year with 26.8% higher revenues, along with 89.2% beating EPS estimates and a record 87.5% beating revenue estimates.

On Friday, Exxon Mobil Corporation (XOM) reported second-quarter 2021 earnings per share of $1.10, beating the Zacks Consensus Estimate of $1.02. However, shares failed to move up and closed 2.3% lower instead. The strong quarterly results were due to improved realized oil and natural gas prices as well as higher chemical margins. But downstream business suffered due to planned maintenance and unfavorable foreign exchange. Exxon Mobil reaffirmed its expectation for 2021 capital spending at $16-$19 billion.

Another oil and gas giant, Chevron Corporation (CVX) reported second-quarter 2021 earnings. Chevron reported $1.71 earnings per share for the quarter, beating the Zacks Consensus Estimate of $1.54, owing to higher oil prices and production, plus increase in refined products sales.

Caterpillar also reported second-quarter 2021 earnings on Friday. An adjusted earnings per share of $2.60, which surpassed the Zacks Consensus Estimate of $2.38, due to higher demand in end markets and across all geographies, which in turn countered inflated input costs. The company’s second-quarter revenues of $12.9 billion surpassed the Zacks Consensus Estimate of $12.4 billion, a 29% improvement from the year-ago quarter.
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Monthly Roundup

For the month of July, the Dow, the S&P 500 and the Nasdaq rose 1.3%, 2.3% and 1.2 % respectively. The broader index notched its sixth consecutive monthly gain. Investors have been hooked on second quarter earnings report and kept a close watch on the rise in new coronavirus cases, due to the highly communicable delta strain, risking the reopening of the economy

Weekly Roundup

For the week ending Jul 30, the Dow, the S&P 500 and the Nasdaq closed 0.4%, 0.6% and 1.1% lower, respectively. A series of economic data, second-quarter earnings reports, and the Federal Reserve’s policy statement gave stocks a roller coaster ride last week.