Stocks Drop as Weak Earnings, China Hurt Sentiment: Markets Wrap

(Bloomberg) — Stocks dropped as a flurry of negative earnings updates tested the recent bullish mood among investors. The dollar gained.

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BMW AG fell more than 6% as auto stocks led declines in European equities, after the car maker warned of rising costs. Hedge fund firm Man Group Plc slumped as core net revenue missed estimates. Disappointing guidance dragged down logistics giant DHL Group, while miners fell on weak China data.

US equities futures were lower after the S&P 500 closed at a 16-month high on Monday, while the Nasdaq 100 notched its longest streak of monthly gains since August 2020. Zoominfo Technologies Inc. slumped 20% in premarket trading after the software company cut its revenue forecast.

HSBC Holdings Plc provided one of the bright spots in Tuesday’s company results, rising after the bank announced a new share repurchase program and earnings that outpaced estimates. BP Plc rose as its dividend and buyback outweighed disappointing profit.

There are signs of a pause in the upbeat tone that has boosted equities this year, as traders prepare for major risk events in the next few days, including a Bank of England interest rates decision on Thursday and US employment figures Friday. The line-up of blockbuster earnings still to come before the week is out includes tech heavyweights Apple Inc. and Amazon.com Inc.

“When we look forward from here, we feel that the drivers for the rally may become a little bit more mixed,” said Karim Chedid, head of EMEA iShares investment strategy at BlackRock International. “We still don’t feel that the trough in earnings has come yet. Whilst the macro picture has been stronger than expected, there is no doubt that the tightening from central bank policy is starting to come through.”

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While futures suggest a weaker open on Wall Street later, the buoyant mood of the past months has prompted a retreat among bears as market returns and economic data continue to challenge expectations. The S&P 500 on Tuesday received its most bullish outlook from Oppenheimer Asset Management, which predicts further strength in stocks as the Federal Reserve nears a pivot and the US economy stays resilient.

Strategists Scramble to Catch Up as S&P 500 Rally Rumbles On

Chief Investment Strategist John Stoltzfus raised his year-end price target on the index to 4,900, leaving room for a near 7% advance through the end of the year, the most bullish among Wall Street strategists tracked by Bloomberg. The S&P 500 would end the year about 28% higher if his forecast materializes, the best performance since 2019.

“A broadening of the rally across S&P 500 sectors suggests that the bull market that emerged from the October 2022 lows has legs to run higher into 2024,” Stoltzfus said.

Treasury 10-year yields traded near 3.96% while a gauge of dollar strength climbed by about 0.3%. The Australian dollar declined against the greenback after the nation’s central bank unexpectedly held interest rates unchanged and traders pared bets on further tightening.

In China, home sales plunged by the most in a year last month, underscoring why policymakers need to address faltering demand and a liquidity crunch in the sector. Caixin PMI figures showed factory activity contracted in July, missing economists’ estimates for a small expansion.

The yen traded weaker against the dollar, adding to Monday’s decline, amid sluggish demand at a 10-year bond auction. While investors had earlier anticipated that the Bank of Japan is moving toward letting yields rise after a tweak to its yield-curve control policy, it bought bonds on Monday to anchor rates.

Key events this week:

• Eurozone S&P Global Eurozone Manufacturing PMI, unemployment, Tuesday

• US construction spending, ISM Manufacturing, job openings, light vehicle sales, Tuesday

• China Caixin Services PMI, Thursday

• Eurozone S&P Global Eurozone Services PMI, PPI, Thursday

• Bank of England rate decision, Thursday

• US initial jobless claims, productivity, factory orders, ISM Services, Thursday

• Eurozone retail sales, Friday

• US unemployment rate, non-farm payrolls, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 0.7% as of 10:48 a.m. London time

• S&P 500 futures fell 0.3%

• Nasdaq 100 futures fell 0.4%

• Futures on the Dow Jones Industrial Average fell 0.3%

• The MSCI Asia Pacific Index fell 0.1%

• The MSCI Emerging Markets Index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%

• The euro fell 0.2% to $1.0972

• The Japanese yen fell 0.3% to 142.65 per dollar

• The offshore yuan fell 0.4% to 7.1724 per dollar

• The British pound fell 0.1% to $1.2820

Cryptocurrencies

• Bitcoin fell 1% to $28,921.11

• Ether fell 1.1% to $1,832.42

Bonds

• The yield on 10-year Treasuries was little changed at 3.96%

• Germany’s 10-year yield was little changed at 2.49%

• Britain’s 10-year yield was little changed at 4.31%

Commodities

• Brent crude fell 0.5% to $85.03 a barrel

• Spot gold fell 0.4% to $1,957.24 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson and Sujata Rao.

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