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U.S. Stocks Come Under Pressure Amid Uncertainty About Stimulus Bill

wallstreet aug24 28jul20 lt

Stocks moved mostly lower over the course of the trading day on Tuesday, largely offsetting the upward move seen in the previous session. The tech-heavy Nasdaq posted a particularly steep loss after outperforming its counterparts on Monday.

The major averages saw further downside going into the close, ending the session near their worst levels of the day. The Dow slid 205.49 points or 0.8 percent to 26,379.28, the Nasdaq tumbled 134.18 points or 1.3 percent to 10,402.09 and the S&P 500 fell 20.97 points or 0.7 percent to 3,218.44.

The pullback by stocks came as traders kept an eye on developments in Washington after Republicans unveiled their version of a new coronavirus relief bill.

The GOP bill includes popular provisions like another $1,200 stimulus payment to American as well as more funding for the Paycheck Protection Program.

However, the legislation also slashes unemployment benefits and provides liability protections for businesses and doctors, which could lead to an impasse in negotiations with Democrats.

Senate Majority Leader Mitch McConnell told CNBC he will not bring up a bill in the Senate that does not include liability protections.

A negative reaction to earnings news from Dow components 3M (MMM) and McDonald's (MCD) also contributed to the weakness on Wall Street.

Shares of 3M tumbled by 4.8 percent after the diversified manufacturer reported second quarter results that missed analyst estimates on both the top and bottom lines.

McDonald's also slumped by 2.5 percent after the fast food giant reported weaker than expected second quarter earnings on a slightly bigger than expected drop in comparable-restaurant sales.

On the other hand, shares of Pfizer (PFE) jumped by 4 percent after the drug giant and Dow component reported better than expected second quarter results and raised its full-year guidance.

Negative sentiment was also generated by a report from the Conference Board showing consumer confidence deteriorated by more than expected in the month of July.

The Conference Board said its consumer confidence index slumped to 92.6 in July after jumping to an upwardly revised 98.3 in June.

Economists had expected the consumer confidence index to pull back to 95.7 from the 98.1 originally reported for the previous month.

The bigger than expected drop by the index came as consumers grew less optimistic about the short-term outlook for the economy.

"Large declines were experienced in Michigan, Florida, Texas and California, no doubt a result of the resurgence of COVID-19," said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

She added, "Such uncertainty about the short-term future does not bode well for the recovery, nor for consumer spending."

Meanwhile, traders were also looking ahead to the Federal Reserve's monetary policy announcement Wednesday afternoon.

While the Fed is widely expected to leave interest rates unchanged, traders may look to the accompanying statement for clues about future plans to provide additional economic stimulus.

Sector News

Oil service stocks moved sharply lower over the course of the session, dragging the Philadelphia Oil Service Index down by 3.9 percent. The index ended the previous session at its best closing level in well over a month.

The pullback by oil service stocks came amid a decrease by the price of crude oil, with crude for September delivery falling $0.56 to $41.04 a barrel.

Substantial weakness also emerged among housing stocks, as reflected by the 2.6 percent nosedive by the Philadelphia Housing Sector Index.

Computer hardware, networking and semiconductor stocks also saw considerable weakness, contributing to the steep drop by the tech-heavy Nasdaq.

Chemical, steel and biotechnology stocks also came under pressure on the day, while airline, commercial real estate and utilities stocks showed strong moves to the upside.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Tuesday. Japan's Nikkei 225 Index fell by 0.3 percent, while China's Shanghai Composite Index advanced by 0.7 percent.

The major European markets also ended the day mixed. While the U.K.'s FTSE 100 Index rose by 0.4 percent, the German DAX Index closed just below the unchanged line and the French CAC 40 Index dipped by 0.2 percent.

In the bond market, treasuries moved back to the upside after following the drop seen in the previous session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.8 basis points to 0.581 percent.

Looking Ahead

The Fed's monetary policy announcement is likely to be in the spotlight on Wednesday, overshadowing a report on pending home sales.

On the earnings front, Advanced Micro Devices (AMD), Amgen (AMGN), eBay (EBAY), Starbucks (SBUX) and Visa (V) are among the companies releasing their quarterly results after the close of today's trading.

Boeing (BA), General Electric (GE), General Motors (GM), and Spotify (SPOT) are also among the companies due to report their quarterly results before the start of trading on Wednesday.

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