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Wall Street indexes dropped on Wednesday because of worries about the earnings season

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Wall Street indexes dropped on Wednesday amid continuing tensions related to Sino-American trade war, as well as the development of the earnings season.

The blue-chip index Dow Jones Industrial Average declined by 115.78 points, or 0.42%, to 27,219.85 points, while the broader S&P 500 wiped out 0.65% of its value to 2,984.42 points. The technology Nasdaq Composite ended the trading session with a decline of 0.46% to 8,185.21 points.

The CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was up 8.63% to 13.97.

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The main indexes turned down after Wall Street Journal reported that negotiations on a US-China trade deal were halted due to the restrictions imposed on Huawei.

Meanwhile, the earnings season started with more than 7% of the S&P 500 companies published their financial results for the second quarter of the year. Of these, 85% posted better-than-expected profits. The reported overall average revenue growth of these companies is around 3.1%. The reporting season started with a bleak outlook as analysts expected S&P 500 earnings to shrink by 3% in the second quarter.

The markets were focused on US-China trade tensions after US President Donald Trump said the two countries still had to go a long way. Donald Trump also said that Washington may introduce additional duties on Chinese imports worth 325 billion USD.

Trump’s comments came at a time when the two sides agreed on a ceasefire in order to resume negotiations. Since last year, the two countries have enforced mutual tariffs affecting trade with an annual turnover of billions of dollars.

In economic news, housing starts slipped 0.9% to an annual pace of 1.25 million last month. Permits dropped 6.1% to a 1.22 million rate. Economists had expected housing starts to drop to a seasonally adjusted 1.24 million rate from a revised 1.27 million in the prior month.

Corporate stocks performance

The shares of Boeing rose by 1.83%, while Intel Corporation gained 0.45%, being the best performers into the blue-chip index.

The stocks of Bank of America rose by 0.7% after reporting better-than-expected earnings thanks to the strong performance of retail banking. However, the company’s chief financial officer warned that lower interest rates would affect net interest income growth.

The stocks of the railway operator CSX fell by more than 10%. The reason is the reported lower-than-expected financial results for the second quarter. The company also said that its revenue for the whole year will shrink by between 1 and 2%.

The stocks of Caterpillar declined by 2.4% after the glum earnings report from CSX.

United Airlines shares gained 0.9% after reporting earnings and revenues that exceeded analysts’ expectations. The share buyback program was increased by 3 billion USD.

Cannabis stocks were higher after Ladenburg Thalmann Analyst Glenn Mattson initiated coverage of Canopy Growth and Aurora at “Buy” and Tilray at “Neutral”.

Canopy rose 3%, Aurora climbed 3.3% and Acreage Holdings advanced 4.2%. Only Tilray dipped slightly.

Qualcomm came off its opening highs but was up 1.8% after the Justice Department weighed in with a “too big to fail” argument in an antitrust case brought against the company by the Federal Trade Commission.

After the bell, shares of Netflix fell sharply as the company reported weak subscriber growth.

The top performers on the S&P 500 were Cintas Corporation (+8.74%), Hershey Company (+3.77%) and Abbott Laboratories (+3.14%), while on the flipside were CSX Corporation (-10.27%), Textron (-9.53%) and Norfolk Southern Corporation (-7.43%).

Corporate earnings reports

Bank of America posted a profit that exceeded analysts’ expectations on strength in its sprawling retail bank. The lender said it generated 7.3 billion USD in second-quarter profit, an 8% increase from a year earlier, or 0.74 USD per share, compared with the 0.71 USD estimate of analysts surveyed by Refinitiv. It reported revenue of 23.2 billion USD, a 2.1% increase from a year earlier, matching analysts’ estimate. Further, Bank of America’s net interest margin, a key metric of profitability, declined 7 basis points from the first quarter to 2.44%, which is below the 2.47% estimate analysts had for the second quarter.

Netflix fell sharply after the bell, down by 10% in extended trading Wednesday after the company released its earnings report for the second quarter. The results showed a rare loss in US subscribers and a large miss on international subscriber adds. The earnings per share amounted to 0.60 USD on revenue of 4.92 billion USD versus 0.56 USD expected on revenue of 4.93 billion USD. Domestic paid subscriber additions report a loss of 126,000, while the international paid subscriber added 2.83 million. Global streaming paid memberships are 151.56 million, up 21.9% year over year. In addition to blaming its content slate for the quarter for weak subscriber growth, Netflix said its first-quarter subscriber growth was so strong that “there may have been more pull-forward effect than we realized”. The company also said in its letter to shareholders that the missed forecast was most pronounced in regions that saw price increases. However, Netflix is projecting a stronger third quarter on the heels of heavy viewership of the third season of “Stranger Things.” Netflix forecast 7 million global paid net adds for the next quarter and provided revenue guidance of 5.25 billion USD. The company expects subscriber numbers will be boosted by its strong content slate in the third quarter, including the final season of “Orange is the New Black” and a new season of “The Crown”.