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US stocks trade higher, GE weighs on industrials

July 22,2016 17:10

The expectations of a rate hike from the Federal Reserve have increased on the back of recent strong U.S. jobs reports. The Federal Open Market Committee meets next week, and recent Fed funds futures rates showed an uptick in investors' rate hike ...and more »


U.S. stocks were little changed Friday as investors wade through mixed earnings reports.

The Dow Jones industrial average was flat in early afternoon trading as Boeing had the most negative impact and IBM added the most gains. The S&P was up with telecom and utilities leading eight sectors higher. The Nasdaq composite rose slightly.

American Airlines was among the biggest gainers on the S&P, leading transports higher after meeting second-quarter estimates. GE beat estimates but shares fell roughly 2 percent, sending the industrials sector lower.

General Electric posted earnings five cents a share above estimates, helped by its aviation, health care and power businesses, the company said. Revenue was up 15 percent over a year ago, although GE said the current business environment is being affected by a "volatile and slow growth economy."

Honeywell, Stanley Black & Decker, and Whirlpool also topped estimates, while Starbucks, Chipotle, and Skechers were among the misses.

"Earnings are coming in better than people expected," said Peter Cardillo, chief market economist at First Standard Financial. "But it's the no-alternative factor that continues to aid equities domestically."

Investors are searching for an alternative, pouring into U.S. stocks as global interest rates hover at record lows, Cardillo said. The threat of European economic contraction and continued monetary easing has also upped the appeal for U.S. stocks.

Data out of the United Kingdom Friday showed a significant slowdown in the services sector.

The services and manufacturing composite index in the U.K. fell to its weakest level since early 2009, to 47.7 from 52.4 in June. The PMI decline adds to expectations that the Bank of England will up stimulus when policymakers meet next month.

The British pound fell to $1.31 against the dollar after the release.

But data was slightly more positive out of the eurozone. The preliminary reading of manufacturing and services activity showed business activity in the eurozone fell less than expected in July. Eurozone PMI rose to 52.9 in July, above expectations of 52.5 according to analysts polled by Reuters.

Today's eurozone data and recent U.S. data are lifting investor sentiment and U.S. markets, said Art Hogan, chief market strategist at Wunderlich Securities.

"To me the macro picture is improving here and in Europe," Hogan said, adding that low global yields helped this week's rally. "That whole conception that Brexit's going to happen and we have to go into recession is disappearing."

The expectations of a rate hike from the Federal Reserve have increased on the back of recent strong U.S. jobs reports. The Federal Open Market Committee meets next week, and recent Fed funds futures rates showed an uptick in investors' rate hike expectations, according to the CME Group's FedWatch tool.

"We're back to a coin toss for the Fed," said David Rosenberg, chief economist and strategist at Gluskin Sheff. "The markets are priced almost 50-50."

Rosenberg pointed to some evidence in S&P sectors.

"You've seen this move out of sectors like utilities and telecom, and a move into into areas that would benefit from an interest rates, like financials and the tech space," he said.

Financials was one of the worst performing sectors of the year, but is trending positive for the week and up 3 percent month to date after increased rate expectations and strong bank earnings.

Morgan Stanley joined Goldman Sachs, Citigroup, JPMorgan Chase, and Bank of America on the list of U.S. financial institutions topping second-quarter profit forecasts this week.

The pan-European STOXX 600 index fell a quarter of a percent Friday after the European data. Sectors were mostly in negative but telecoms posted solid gains. London's FTSE fell 0.4 percent and France's CAC was down 0.07 percent. Meanwhile, Germany's DAX fluctuated, falling 0.17 percent.

In Asia, Japan's Nikkei closed 1.09 percent lower on Friday and China's Shanghai Composite closed 0.87 percent lower.

The dollar was stronger against a basket of currencies. The euro traded at $1.10 while the yen traded at 105.95 yen.

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