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Dow Sees Further Upside But Nasdaq Pulls Back Sharply

wallstreet aug31 20apr22 lt

After moving sharply higher over the course of the previous session, the major U.S. stock indexes turned in a starkly mixed performance during trading on Wednesday.

While the Dow added to the strong gain posted on Tuesday, the tech-heavy Nasdaq pulled back sharply. The S&P 500 spent the day bouncing back and forth across the unchanged line.

The major averages finished the day on opposite sides of the unchanged line. The Dow climbed 249.59 points or 0.7 percent to 35,160.79, while the Nasdaq tumbled 166.59 points or 1.2 percent to 13,453.07 and the S&P 500 edged down 2.76 points or 0.1 percent to 4,459.45.

A steep drop by shares of Netflix (NFLX) weighed on the Nasdaq, with the streaming giant plummeting by 35.1 percent to its lowest closing level in four years.

The sell-off by Netflix came after the company reported the loss of 200,000 subscribers during the first quarter, making the first decrease in subscribers in over a decade.

On the other hand, the continued advance by the Dow reflected strong gains by IBM Corp. (IBM) and Procter & Gamble (PG).

Shares of IBM spiked by 7.1 percent after the tech giant reported first quarter results that exceeded analyst estimates on both the top and bottom lines.

Consumer products giant Procter & Gamble also jumped by 2.7percent after reporting better than expected first quarter results and raising its full-year sales guidance.

Late in the trading day, the Federal Reserve released its Beige Book, which said U.S. economic activity has expanded at a moderate pace since mid-February.

The Fed noted consumer spending accelerated among retail and non-financial service firms, as Covid-19 cases tapered across the country.

Manufacturing activity was also described as "solid overall," although the Fed said labor market tightness and elevated input costs continued to pose challenges on firms' abilities to meet demand.

The elevated input costs came as inflationary pressures remained strong, with firms continuing to swiftly pass rising costs on to customers.

While firms were generally allowed to pass through higher input cost to customers due to strong demand, the Fed noted some districts saw negative sales impacts from rising prices.

In other U.S. economic news, the National Association of Realtors released a report showing existing home sales saw further downside in the month of March.

NAR said existing home sales slumped by 2.7 percent to an annual rate of 5.77 million in March after plunging by 8.6 percent to a downwardly revised rate of 5.93 million in February.

Economists had expected existing home sales to tumble by 3.7 percent to a rate of 5.80 million from the 6.02 million originally reported for the previous month.

With the continued decrease, existing home sales continued to give back ground after reaching their highest rate in a year in January.

Sector News

Transportation stocks extended the rally seen in the previous session, driving the Dow Jones Transportation Average up by 1.7 percent.

Significant strength was also visible among commercial real estate stocks, as reflected by the 1.7 percent gain posted by the Dow Jones U.S. Real Estate Index.

Natural gas, healthcare and housing stocks also turned in strong performances on the day, moving higher along with a majority of the other major sectors.

On the other hand, retail stocks showed a notable move to the downside, dragging the Dow Jones U.S. Retail Index down by 1.9 percent.

Oil service stocks also came under pressure, with Baker Hughes (BKR) leading the way lower after reporting first quarter earnings that missed analyst estimates

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Wednesday. Japan's Nikkei 225 Index advanced by 0.9 percent, while China's Shanghai Composite Index slumped by 1.4 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the U.K.'s FTSE 100 Index rose by 0.4 percent, the French CAC 40 Index and the German DAX Index jumped by 1.4 percent and 1.5 percent, respectively.

In the bond market, treasuries regained ground after moving sharply lower over the past few sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 7.3 basis points to 2.840 percent.

Looking Ahead

Reaction to the latest earnings news may continue to drive trading on Thursday, with Tesla (TSLA), United Airlines (UAL), Tenet Healthcare (THC) and CSX Corp. (CSX) among the companies releasing their quarterly results after the close of today's trading.

American Airlines (AAL), AT&T (T), Dow (DOW), and Quest Diagnostics (DGX) are also among the companies due to report their results before the start of trading on Thursday.

Reports on weekly jobless claims and leading economic indicators may also attract attention along with remarks by Fed Chair Jerome Powell.

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