US stocks advanced on the heels of the release of the July nonfarm payroll report that showed strong job growth, a dip in the unemployment rate and a rise in hourly wages. Financials led the ascent as Treasury yields also gained ground, while gold was lower and the US dollar and crude oil prices advanced. In equity news, a host of earnings reports flooded the Street and market participants continued to evaluate the lingering political uncertainty.
The Dow Jones Industrial Average on the NYSE and 1.9 billion shares changed hands on the NASDAQ. WTI crude oil gained $0.55 to $49.58 per barrel and wholesale gasoline was $0.02 higher at $1.65 per gallon. Elsewhere, the Bloomberg gold spot price was $9.45 lower at $1,259.16 per ounce, and the US Dollar Index—a comparison of the US dollar to six major world currencies—traded 0.7% higher at 93.47.
Kraft Heinz Co. (NASDAQ:KHC) reported Q2 earnings-per-share (EPS) of $0.94, or $0.98 ex-items, compared to the $0.95 FactSet estimate, with revenues declining 1.7% year-over-year (y/y) to $6.7 billion, roughly in line with expectations. Separately, the company raised its quarterly dividend by 4.2% to $0.625 per share. KHC traded modestly higher.
Viacom (NASDAQ:VIA) posted fiscal Q3 EPS of $1.69, or $1.17 ex-items, versus the projected $1.05, as revenues rose 8.0% y/y to $3.4 billion, above the expected $3.3 billion. Shares fell despite the results as the company offered a disappointing Q4 outlook for cable-TV networks subscribers and domestic advertising revenue.
Cigna Corp. (NYSE:CI $173) announced Q2 profits of $3.15 per share, or $2.91 ex-items, compared to the expected $2.48, with revenues rising 4.0% y/y to $10.3 billion, roughly in line with forecasts. CI raised its full-year EPS outlook and reaffirmed its revenue guidance. Shares traded lower as the insurer was the last of the big companies in the industry to post results, which were upbeat to bolster the group's sharp rally that began in Q4 of 2016.
Activision Blizzard Inc. (NASDAQ:ATVI $62) reported Q2 EPS of $0.32, or $0.43 ex-items, versus the projected $0.30, on revenues of $1.4 billion, above the estimated $1.2 billion. ATVI issued Q3 EPS guidance that was below forecasts, and raised its full-year earnings outlook though it remained south of expectations. Shares closed solidly lower.
Automatic Data Processing Inc. (NASDAQ:ADP $111) announced that activist investor Bill Ackman's Pershing Square Capital Management (NYSE:SQ) is seeking control of the company through five Board seats as well as a CEO change. Pershing is seeking this as it requested an extension of ADP's August 10 deadline for the nomination of directors. The company said that its Board has determined that it is not in the best interests of ADP or its other shareholders to accede to Pershing Square's last-minute request for an extension. ADP closed slightly lower, though initially shares were modestly higher after last week's pop on reports that Ackman built a stake in the company, while CNBC said today that Bill Ackman told the news outlet that he does not want to have a proxy fight and plans to propose a minority slate for the Board.
Yelp (NYSE:YELP) surged after announcing a long-term partnership with Grubhub Inc (NYSE:GRUB), including the sale of its Eat24 business to GRUB for about $288 million in cash and the integration of online ordering from all Grubhub restaurants onto its local goods and services platform. YELP also received a boost from its stronger-than-expected Q2 earnings report, which included an increased full-year outlook and a share repurchase program. GRUB rallied as well.
July Nonfarm Jobs Report tops forecasts, trade deficit narrows
Nonfarm payrolls rose by 209,000 jobs month-over-month (m/m) in July, compared to the Bloomberg forecast of a 180,000 increase. The rise of 222,000 seen in June was revised to a gain of 231,000 jobs. The total upward revision to the job gains in June and May was 2,000. Excluding government hiring and firing, private sector payrolls increased by 205,000, versus the forecasted gain of 180,000, after increasing by 194,000 in June, revised from the 187,000 rise that was initially reported.
The unemployment rate dipped to 4.3% from 4.4%, matching forecasts, while average hourly earnings rose 0.3% m/m, in line with projections and versus June's unrevised 0.2% increase. Y/Y, wage gains were 2.5%, matching June's pace and versus estimates of a 2.4% rise. Finally, average weekly hours remained at June's unrevised 34.5 rate, matching expectations.
Job gains were broad-based, led by gains in food services and drinking places, professional and business services, and health care. The unemployment rate dipped back to May's 16-year low and the labor force participation rate ticked higher to 62.9% from 62.8%. The wage growth rounded out the trifecta, likely preserving expectations of one more Fed rate hike this year, even as the Central Bank begins the process of reducing its gargantuan balance sheet.
The trade balance showed that the deficit came in at $43.6 billion in June, compared to estimates of $44.5 billion. May's deficit was downwardly revised at $46.4 billion. Exports rose 1.2% m/m to $194.4 billion, while imports ticked 0.2% higher to $238.0 billion.
Treasuries fell, with the yield on the 2-Year note rising 1 basis point (bp) to 1.35% and the yields on the 10-Year note and the 30-Year bond gaining 4 bps to 2.26% and 2.84%, respectively.
Europe higher on data, Asia finished mixed ahead of US jobs report release
European equities moved to the upside, with the euro and British pound dropping versus the US dollar in the wake of the upbeat US July nonfarm payroll report, which helped offset exacerbated political concerns in the world's largest economy. Also, the markets digested a plethora of mixed earnings reports which hamstrung insurance companies. In economic news, German factory orders rose more than expected in June, while U.K. new car registrations fell in July. Bond yields in the region finished mostly higher.
Stocks in Asia finished mixed amid a flood of earnings reports and some apparent caution toward the US ahead of today's July employment report and as political uneasiness was exacerbated by reports that the Russia investigation was intensifying. Japanese equities declined as the yen gained ground and a report showed the nation's wages unexpectedly fell. Mainland Chinese shares declined, while stocks in Hong Kong ticked higher in choppy action as some earnings results in the region came in mixed. Australian securities decreased with financial shares finding pressure after regulators sued a lender they allege failed to report potential money laundering transactions properly. Traders also digested the Reserve Bank of Australia's monetary policy statement, which showed the central bank was a bit more optimistic about economic growth.
South Korean equities rose to rebound somewhat from yesterday's drop from all-time highs that came in the wake of this week's tax reform plan that included tax hikes on corporations and individuals. Indian stocks advanced to remain near record highs.
Stocks mixed on data and uncertainties
Stocks posted another mixed week as the global markets grappled with festering political and geopolitical concerns, along with lingering global monetary policy uncertainty, which continued to stymie the US dollar. Earnings season continued with upbeat results from Apple Inc. (NASDAQ:AAPL $156) helping to bolster the Dow to record highs and above the 22,000 mark for the first time.
Energy issues lagged amid pressure on commodity-related issues, a dip in crude oil prices, and as earnings from the sector were scrutinized against lofty expectations. Thus far, of the 419 members of the S&P 500 that have reported results, about 68% have topped sales forecasts and roughly 77% have bested earnings estimates, with energy the lone major sector running at a negative earnings surprise rate, per data compiled by Bloomberg. The technology sector continued to face volatility amid valuation concerns, which hamstrung the Nasdaq. Financials continued to run, aided by Friday's rally in Treasury yields on the strong July nonfarm payroll report, which also helped the US Dollar Index bounce off May 2016 lows. Leading up to the jobs report, however, data was mixed as monthly auto sales and the ISM non-Manufacturing Index raised some concerns, offsetting another solid read in the ISM Manufacturing Index, which joined similar reads out of the sector in Europe and Asia.
Next week, the economic calendar will begin to regain some of the markets attention as earnings season winds down, headlined by the releases of the Producer Price Index (PPI) and the Consumer Price Index (CPI). Inflation is the other side of the Fed's dual mandate and has remained subdued to foster some uncertainty regarding if the Central Bank has one more rate hike in it this year. The PPI and CPI will be accompanied by the releases of the NFIB Small Business Optimism Index, preliminary Q2 nonfarm productivity and unit labor costs, and the JOLTS Job Openings report.
International reports to look out for next week include: Australia—consumer confidence. China—trade balance and CPI and PPI. Japan—trade balance and machine orders. Eurozone—investor confidence, along with German industrial production, trade balance and CPI. U.K.—trade balance and industrial/manufacturing production.