The US markets ended Tuesday trading session with more significant declines due to the strong depreciation of technology stocks. Markets were also influenced by comments of a high-ranking Federal Reserve bankers, which cooled the enthusiasm for an interest rate hike next month. However, in a speech, the central bank governor Jerome Powell confirmed expectations that interest rates will be cut.
The blue-chip index Dow Jones Industrial Average wiped out almost 180 points (0.67%) to 26,548.22 points, which is the biggest one-day drop since the beginning of the month. On the other hand, the broader S&P 500 shrunk by 0.95% to 2,917.38 points, while the technology benchmark Nasdaq Composite fell by 1.5% to 7,884.72 points.
The technology sector of the S&P 500 shrank by 1.8%, with Microsoft’s stock down more than 3%.
The CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was up 6.68% to 16.28.
Earlier today, Federal Reserve Governor Jerome Powell said the bank is assessing whether current economic uncertainty requires a cut in interest rates.
“Since the beginning of the year, we had been taking a patience stance toward assessing the need for any policy change. We now state that the [Federal Open Market] Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate the sustain the expansion”, said the Fed governor. Powell asserted that the Fed’s policy on interest rates won’t be driven by the US stock market or political pressure. “Many FOMC participants judge that the case for somewhat more accommodative policy has strengthened. But we are also mindful that monetary policy should not overreact to any individual data point or short-term swing in sentiment”, added he.
Earlier, James Bullard, president of the St. Louis Fed, poured cold water over the idea of a half-point rate cut prior to Powell’s remarks.
“Just sitting here today I think 50 basis points would be overdone”, said James Bullard, the only FOMC member to dissent on the Fed’s decision last week to keep rates unchanged. “I don’t think the situation really calls for that but I would be willing to go to 25. I hate to pre-judge meetings – things can change by the time you get there – but if I was just going today that’s what I would do”, added he.
Market expectations for interest rate slump in July are 100%, according to the CME Group – FedWatch.
Meanwhile, the US consumer confidence tumbled to a 21-month low in June as households grew a bit more pessimistic about business and labor market conditions amid concerns about a recent escalation in trade tensions between the United States and China. The Conference Board said its consumer confidence index dropped 9.8 points to a reading of 121.5 this month, the lowest since September 2017, from a downwardly revised 131.3 in May.
This month’s drop in the index was the largest since July 2015. The index, which was previously reported at 134.1 in May, still remains at lofty levels, suggesting consumer spending remains supported.
Corporate stocks performance
AbbVie said it will buy Botox-maker Allergan for 63 billion USD, a move designed to diversify AbbVie’s drug lineup before Humira, its blockbuster immune disorder treatment, loses patent protection. AbbVie said Tuesday it will pay 120.30 USD in cash and a portion of its stock for each Allergan share. That amounts to 188.24 USD per share or a 45% premium to Allergan’s closing price Monday. Following the news, the stocks of Allergan rose by 25.40%, while those of AbbVie Inc sank by 16.37%.
Walgreens Boots Alliance and McDonald’s Corporation were the best performers among the blue-chip stocks.
However, Microsoft fell by over 3% after Jefferies analysts raised the worries of cloud services of the company and their competition against Amazon.
Nike was also sharply down ahead of the company’s financial report at the end of the week.
The stocks of FedEx fell by 3% amid negative earnings and guidance.
Shares of memory and storage company Micron rose as much as 10% after-hours Tuesday after the company beat analysts’ expectations for the third quarter of its 2019 fiscal year, which ended on May 30.
The top performers on the S&P 500 were Allergan PLC (+25.40%), Mylan NV (+3.84%) and Patterson Companies Inc (+3.15%), while on the flipside were AbbVie Inc (-16.37%), Brighthouse Financial Inc (-11.70% ) and EQT Corporation (-6.47%) which was down 6.47% to 14.38 at the close.
Corporate earnings report
DescriptionFedEx Corporation reported fourth-quarter net losses of 1.97 billion USD, or 7.56 USD per share, compared with net income of 1.13 billion USD, or 4.15 USD per share, in the year-ago period. Adjusted for items such as retirement-plan accounting and business integration costs, among other things, earnings were 5.01 USD per share. The company’s revenue rose to 17.8 billion USD from 17.3 billion USD in the year-ago period. Analysts surveyed by FactSet had estimated adjusted earnings of 4.85 USD per share on revenue of 17.8 billion USD. For the first quarter, analysts expect adjusted earnings of 3.47 USD on revenue of 17.3 billion USD. FedEx said that it is unable to forecast retirement-plan accounting adjustments and thus cannot provide guidance for fiscal 2020 earnings-per-share.
The memory and storage company Micron Technology beat analysts’ expectations for the third quarter of its 2019 fiscal year. The company’s revenue declined almost 39% YoY to 4.79 billion USD in the quarter, but beat market expectations, which supported the company’s stocks. The earnings per share amounted to 1.05 USD, excluding certain items, versus 0.79 USD per share as expected by analysts. Sales of DRAM and NAND products were both hit by the Huawei restrictions in the quarter. With respect to guidance, Micron expects 0.45 USD in earnings per share, plus or minus 7 cents, excluding certain items, in the fiscal fourth quarter. Analysts had been expecting 0.61 USD per share, excluding certain items.