Dow Jones Industrial Average fell Thursday even as second-quarter earnings results continued to beat expectations.
The Dow shed about 98 points, or 0.28%. The S&P 500 lost around 0.5%. The Nasdaq Composite dipped about 0.4%.
The slight pullback came with all major stock benchmarks about 1% or less from record highs. The S&P 500 is already up 16% this year in anticipation of a big profit comeback.
“The market did as well as it did in the past year because it was in anticipation of the improvement in earnings that we’re seeing right now,” Liz Ann Sonders, chief investment strategist at Charles Schwab, said. “A lot of news has been priced in.”
Shares of Morgan Stanley dipped even after the company’s second-quarter earnings report Thursday morning topped analysts’ expectations with strong equities trading and investment banking results. Morgan Stanley were up 35% this year into the results and the stock may be reacting more to the outlook for yields than its actual results.
Initial jobless claims for the week ending July 10 totaled 360,000, a new pandemic-era low, as expected by economists.
Investors also await a Congressional testimony from Federal Reserve Chair Jerome Powell set for 9:30 a.m. ET.
Powell in a testimony to the House Committee on Financial Services on Wednesday — quelled investors’ fears about a rollback of the central bank’s easy policies anytime soon, even in the face of inflation. The producer prices from June showed higher than expected inflation on Wednesday while the consumer price index in June showed the greatest year-over-year jump since 2008.
A rollover in bond yields raised questions about the global economic recovery as variants of Covid-19 spread. The 10-year Treasury yield shed 3 basis points to 1.326%. It ended June at 1.45% and was above 1.70% back in March. China also reported GDP overnight that was less than expected.
The move lower in yields dampened enthusiasm for the cyclical trade with shares of Caterpillar, General Electric and Boeing lower. Cyclical stocks are those closely linked to a recovering economy.
Bank shares, including Wells Fargo and Bank of America, were lower in premarket, despite posting better-than-expected results earlier in the week, as the falling yields pinch their profitability.
Delta shares bucked the trend, however, gaining after an upgrade from Raymond James.
Netflix shares also rose after it hired a veteran video-game executive as it pushes deeper into gaming. Other large tech shares were higher in premarket trading, continuing a trend this week. Apple and Alphabet gained in premarket trading.
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