[New York Stock Market] Mixed Close on First Trading Day of August... Focus on Corporate Earnings and Indicators

The three major indices of the U.S. New York stock market closed mixed near the flat line on August 1 (local time), the first trading day of the month, as investors monitored corporate earnings and key indicators. While expectations for a soft landing that can reduce inflation without a recession continue, profit-taking movements following the July rally were also observed. The benchmark 10-year U.S. Treasury yield surpassed 4%.

On the day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average closed at 35,630.68, up 71.15 points (0.20%) from the previous session. In contrast, the large-cap-focused S&P 500 index fell 12.23 points (0.27%) to 4,576.73, and the tech-heavy Nasdaq index dropped 62.11 points (0.43%) to 14,283.91.

Among the S&P 500 sectors, all nine sectors except industrials and technology declined. Uber, a ride-sharing company that released earnings before the market opened, turned a profit but fell more than 5% from the previous session due to sales below expectations. JetBlue dropped more than 8% after lowering its annual guidance. Coinbase fell about 4% following a ruling by the New York Manhattan Federal Court that cryptocurrencies are securities. On the other hand, Caterpillar surged nearly 9% on better-than-expected earnings. Apparel company Gap rose over 3% after Barclays upgraded its investment rating. Toyota Motor increased 2% on stronger-than-expected results. Tupperware soared by as much as 26%.

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Investors focused on corporate earnings and key indicators. More than 160 companies listed on the S&P 500 are scheduled to report earnings this week. According to FactSet, over half of the listed companies have reported so far, with 82% beating expectations. Earnings exceeding expectations further support the recently spreading soft landing hopes. However, FactSet estimates that the net income of S&P 500 companies will decline by 7.1% year-over-year this year, marking the third consecutive quarter of net income decline.

Starbucks, which released its earnings after the market close, reported a second-quarter earnings per share of $1, surpassing market expectations of 95 cents. However, revenue was $9.2 billion, slightly below the forecast of $9.29 billion. Major big tech companies such as Apple and Amazon are also scheduled to report earnings this week.

Currently, some caution and profit-taking movements following the recent rally are also being observed in the market. Tim Lesko of Mariner Wealth Advisors told CNBC, "The recent rally has been driven by relief that there is no recession," adding, "Since the earnings season has generally been strong, the current decline can be seen as a result of an overbought market." Scott Leavner of Goldman Sachs also predicted in an investor memo the previous day that "a slight market correction is expected in August."

The Dow, which recorded a 13-day consecutive rally, rose 3% in July. The S&P 500 and Nasdaq indices increased 2.9% and 3.8% respectively over the month, marking five consecutive months of gains. However, historically, August and September are considered months when the New York stock market tends to underperform. According to the Stock Traders Almanac, the S&P 500 has averaged only a 0.1% increase in August, ranking as the third worst month on average annually. The Nasdaq rose just 0.5%, making it the second worst month of the year. As a result, caution over the July rally has intensified as soon as the first trading day of August began.

The U.S. manufacturing indicators released on the day were weak. The Institute for Supply Management (ISM) reported the July manufacturing Purchasing Managers' Index (PMI) at 46.4, below market expectations of 46.9. Remaining below the baseline of 50, it marked the ninth consecutive month of contraction. The S&P Global July manufacturing PMI was 49, an improvement from 46.3 the previous month but still below 50. Chris Williamson, chief economist at S&P Global, said, "Manufacturing is holding back the U.S. economy."

U.S. job openings in June also fell to the lowest level in over two years. According to the Job Openings and Labor Turnover Survey (JOLTs) released by the U.S. Department of Labor, job postings in June totaled 9.58 million, slightly down from 9.61 million in the previous month. This is the lowest level since April 2021 (9.29 million) and below FactSet's estimate of 9.7 million. These indicators suggest that the cumulative tightening by the Federal Reserve is gradually cooling the U.S. labor market. However, historically, the level remains high. Steven Stanley, chief economist at Santander Bank, told the Wall Street Journal (WSJ), "What we are seeing is not a dramatic collapse in the labor market but a pattern of ‘gradual slowing.’"

The Labor Department's employment report will be released later this week. Wall Street expects an increase of 200,000 jobs. Austan Goolsbee, president of the Chicago Federal Reserve Bank and a prominent dove within the Fed, emphasized in interviews with foreign media on consecutive days that "no decision has been made on what to do in September," and that he will watch additional indicators such as the employment report and Consumer Price Index (CPI). He also stated that a "golden path" to reduce inflation without a recession is possible.

Currently, the market largely expects the Fed to hold rates steady in September, supported by recent soft landing hopes. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market reflected more than an 82% probability that the Fed will keep rates unchanged at the upcoming September FOMC meeting. Although the Fed's June dot plot suggested one more rate hike this year, the market currently favors a hold scenario through the end of the year.

On the day in the New York bond market, the 10-year U.S. Treasury yield surpassed 4.0%. It briefly rose to 4.057% during the session before easing gains. The 2-year Treasury yield, sensitive to monetary policy, hovered around 4.9%. The dollar index, which measures the dollar's value against six major currencies, rose about 0.4% to 102.2 compared to the previous session.

Oil prices fell due to profit-taking pressure and weak indicators from China and the U.S. On the New York Mercantile Exchange, September delivery West Texas Intermediate (WTI) crude oil closed at $81.37 per barrel, down 43 cents (0.53%) from the previous session.