Stocks traded lower Friday amid more geopolitical tensions with Iran. Oil prices jumped after Iran’s Revolutionary Guard Corps captured a British oil tanker in the Strait of Hormuz, a major thoroughfare for global oil shipments.
Geopolitical tensions, however fleeting, often prompt traders to move into safer assets, such as the dollar or U.S. government bonds, pressuring riskier assets, like stocks, along the way.
To close the week, the Nasdaq Composite fell 0.74% while the S&P 500 lost 0.62%. The Dow Jones Industrial Average declined by 0.25% with fewer than a third of its 30 members trading higher on Friday.
In more encouraging geopolitical news, President Donald Trump said U.S. Treasury Secretary Steve Mnuchin had a positive conversation with his Chinese counterpart.
“U.S. and Chinese officials spoke by phone on Thursday as the world’s two largest economies seek to end a yearlong trade war, with Mnuchin suggesting in-person talks could follow,” according to Reuters.
We mentioned here yesterday that Microsoft (NASDAQ:MSFT) had the potential to be a big mover today following its Thursday earnings report. While the stock rose just 0.15% today, the report was spectacular. Microsoft said it earned $1.37 a share on revenue of $33.72 billion. Analysts were expecting earnings per share of $1.21 on revenue of $32.77 billion.
A slew of positive analyst chatter on Microsoft ensued due in large part to the company’s encouraging commentary on Azure, its cloud computing business. If Azure can steal some market share from Amazon Web Services (AWS), Microsoft can add to its $1 trillion-plus market value.
Boeing: When Bad News Is Good News
Boeing (NYSE:BA), the largest component in the Dow, surged 4.48% after the company said it’s going to take a $5 billion after-tax charge to compensate airline customers related to the grounding of the 737 MAX jet.
“For purposes of the second-quarter financial results, the company has assumed that regulatory approval of 737 MAX return to service in the U.S. and other jurisdictions begins early in the fourth quarter 2019,” according to a Boeing statement.
Doling out $5 billion for a situation that could have been avoided would appear to be bad news, but Boeing’s Friday price action suggests investors like the effort by the company to start putting this situation in the rear view mirror.
When Rewards Aren’t Rewarding
American Express (NYSE:AXP) slid 2.79%, good for one of its worst intraday performances this year. The problem wasn’t earnings. It was rising expenses tied to cardholder rewards. Those expenses checked in at $2.65 billion for the second quarter, above the Wall Street estimate of $2.64 billion. There is, however, some good news.
“American Express revenue may rise 7-8% long term, our scenario analysis shows, driven by high-spending U.S. consumers and the ability to use its position as the dominant business-card issuer to boost B2B payments,” according to Bloomberg Intelligence.
Bottom Line: All About Earnings Next Week
While chatter about Fed rate cuts and geopolitical events will remain in the picture, next week brings a tidal wave of earnings reports. Let’s get into some of those numbers by pointing out that about 32% of the S&P 500 reports earnings the week starting July 22.
At the sector level, that works out to be over 16% of technology companies, more than 30% of healthcare firms and over 22% of the financial services sector reporting next week. Those three sectors are the largest sectors to weight in the S&P 500.
We’d be remiss if we did not point out that more than 60% of the communication services sector, half the industrial sector and more than 47% of the consumer discretionary group are delivering results for the week commencing July 22. In other words, we should be treated to plenty of action next week.
Todd Shriber does not own any of the aforementioned securities.