Stocks experienced an upward trajectory on Tuesday, gaining momentum as the day progressed due to fresh data indicating a slowdown in the labor market. This occurred in anticipation of the August jobs report scheduled for Friday.
The S&P 500 index (^GSPC) recorded an increase of approximately 1.45%, while the Dow Jones Industrial Average (^DJI) saw a rise of 0.85%. This movement came in response to a drop in US job openings to a level below 9 million for the first time since March 2021. Additionally, consumer confidence, which had been on an upward trend during the summer, took a downturn. The Nasdaq Composite index (^IXIC) led the market gains, marking a rise of around 1.75%.
Tuesday’s performance stood out as the most impressive single-day showing for the S&P 500 index since May 5.
Earlier on Tuesday, the S&P Case-Shiller US National Composite home price index saw a 0.7% increase in June when compared to May on a seasonally adjusted basis. This growth mirrored the 0.7% uptick observed in the preceding month. Notably, the index is merely 0.02% shy of its record peak, which was achieved exactly one year ago.
These economic updates serve as an introductory preview for the significant PCE inflation and August payrolls reports scheduled for release on Thursday and Friday.
Given the ongoing concern among investors regarding the possibility of a recession, the strength of this data has the potential to influence investors’ outlooks on the likelihood of further interest rate hikes by the Federal Reserve. While the prudent tone of Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole conference last week has left some individuals skeptical about the central bank’s reluctance to take additional measures to curb inflation.
Stocks close higher after labor data shows signs of softening
Stocks surged on Tuesday in response to economic data indicating a slowdown in the labor market, thereby amplifying expectations for a smooth conclusion to the Federal Reserve’s campaign of raising interest rates.
The S&P 500 index (^GSPC) experienced a 1.45% increase, while the Dow Jones Industrial Average (^DJI) surged by 0.85%, equivalent to an almost 300-point gain. Leading the indices, the Nasdaq Composite index (^IXIC) exhibited a robust rise of approximately 1.75%.
Hollywood strikes to cost US economy $5 billion-plus
The ongoing dual strike in Hollywood reached an impasse in the past week as the Writers Guild of America (WGA) strongly criticized the studios’ counteroffer, expressing disappointment that the proposal fell far short of meeting the writers’ demands.
This breakdown in negotiations cast a negative atmosphere across Hollywood, especially as the writers’ strike approaches its fifth month and the actors’ strike enters its second month. Observers within the industry suggest that the combined impact of these work stoppages, often referred to as a “double whammy,” is already causing significant economic repercussions, as evidenced by the previous writers’ strike.
As per calculations from the Los Angeles County Economic Development Corp., the strike that occurred during 2007-2008 had a staggering $2.5 billion impact on the economy of Los Angeles County.
Kevin Klowden, the Chief Global Strategist at the Milken Institute, has revised his earlier estimate and now anticipates that the current strikes could result in a national economic loss exceeding $5 billion, up from his previous projection of $4 billion. Klowden emphasized that the work stoppage would not only affect the industries within California but also those in other production-friendly regions such as New York, Atlanta, Albuquerque, Pittsburgh, and more.
Klowden pointed out that apart from the obvious wage losses, the delayed release of films like the sequel to Warner Bros.’ “Dune” and the cancellation of programming like Amazon’s “A League of Their Own” would significantly contribute to the overall financial losses.
He highlighted that while major production companies like Disney, Warner Bros., Universal, Netflix, Amazon, and Apple are currently enduring the effects of the strike, the impact might not be as apparent on their immediate financial statements as it is on the well-being of their workers.
However, Klowden cautioned against assuming that these companies would remain unscathed in the long run, stating, “They can defer costs for now. The challenge arises when they delay movie releases because this delays their ability to regain revenue and recover their expenditures. The longer the strike persists, the harder it becomes for them to bounce back swiftly.”
Trending tickers in afternoon trade
Encouragement stemming from the Federal Reserve’s potential approach to the conclusion of its rate increase cycle, evident in the improved equilibrium of the labor market, propelled the Nasdaq index (^IXIC) to spearhead the upward trajectory among the three major stock indexes. Coinciding with Tuesday’s trading session, a judicial ruling provided a boost to the cryptocurrency sector.
Alphabet (GOOG, GOOGL) stock garnered the spotlight on Tuesday afternoon, emerging as a prominent feature on the Yahoo Finance trending tickers page. The company’s shares surged by over 2% as the tech giant unveiled an array of novel AI offerings for its Google Cloud and Workspace enterprise platforms. As part of these unveilings, Google disclosed its intention to levy a fee of $30 per user per month for access to its AI-powered Duet AI within the Workspace framework.
The realm of cryptocurrencies, as well as stocks interconnected with the crypto domain, experienced upward movement following a legal decision that overturned a prior ruling by the Securities and Exchange Commission (SEC). This development paved the way for the establishment of the inaugural Bitcoin exchange-traded fund (ETF) in the United States. Bitcoin (BTC-USD) witnessed a surge exceeding 6%, while Coinbase (COIN) observed a gain of 15%, and Marathon Digital Holdings (MARA) skyrocketed by nearly 30%.
Simultaneously, Tesla (TSLA) shares exhibited a rally surpassing 6%, joining the broader upswing observed in the technology sector.
Big lots stock soars on better than expected results
Shares of Big Lots (BIG) surged by nearly 30% as the company released quarterly results that outperformed initial concerns, despite a notable drop of nearly 15% in comparable sales. While grappling with this decline, Big Lots managed to unveil a quarterly loss that was smaller than anticipated. However, the company did sound a cautionary note, revealing that its customer base had been exercising caution when it came to investing in higher-priced items due to economic uncertainties.
Bruce Thorn, the CEO of Big Lots, addressed these matters during the company’s earnings call for the second quarter. He stated, “Our core lower-income customer remains under significant pressure and has limited capacity for higher-ticket discretionary purchases.”
In terms of comparable sales, the retailer witnessed a decrease of 14.6% during the second quarter. This decline was less severe than the 18.1% forecasted by analysts on Wall Street. Furthermore, Big Lots managed to narrow its adjusted loss per share to $3.24, which was a narrower loss than the expected $4.11.
For the ongoing quarter, the company anticipates a mid-teens percentage decline in comparable sales, a slight improvement over its second quarter results. Owing to the economic uncertainties prevailing, Big Lots refrained from providing full-year guidance. However, it does expect an increase of around 200 basis points in gross margins for the current quarter.
Thorn elaborated, “For the past year and a half, we’ve been playing defense as the consumer environment quickly and sharply deteriorated.” He noted that high inflation had disproportionately impacted lower-income customers, who had either postponed or scaled back their spending on discretionary items, particularly those falling in higher-priced categories like home and seasonal products.
Big Lots’ stock trajectory has been descending since reaching an all-time peak of $70 per share in March 2021. Over the course of this year, the stock has plummeted by 46%. This slide is attributed to a shift in consumer preferences towards services and experiences, coupled with a transition in spending towards lower-margin categories like consumables and food, all occurring in the backdrop of elevated inflation.
Best buy consumers struggling to pay credit cards, too
Following a quarterly report that exceeded expectations, shares of Best Buy surged by over 5%. However, despite this positive performance, the electronics retailer did highlight certain aspects of concern, signaling potential worries regarding consumer well-being.
Best Buy (BBY) has joined its counterparts in signaling concerns about the financial capability of its customers to meet their credit card obligations, akin to sending up a warning signal.
Matt Bilunas, the CFO of Best Buy, conveyed during a conference call with analysts on Tuesday that the net credit losses the company is observing are returning to a more standard level in comparison to the unusual circumstances of 2020.
However, Bilunas expressed apprehension about the possibility of this trend deteriorating further into the year 2024. He pointed to the challenging combination of persistent inflation and elevated interest rates, which consumers are currently grappling with. Notably, Best Buy is not alone in issuing such a cautionary message regarding credit card usage.
Last week, Macy’s (M) disclosed a substantial 36% decline in credit card sales for the second quarter, amounting to $150 million in comparison to the previous year. The root cause of this decline was attributed to ballooning balances on Macy’s Citibank-backed credit card, coinciding with a rising interest rate environment.
Consequently, consumers facing financial constraints, compounded by an annual percentage interest rate of nearly 32% on the Macy’s card, found it difficult to settle their outstanding bills. As a response, Macy’s made the decision to write off these outstanding balances.
Adrian Mitchell, the CFO of Macy’s, highlighted in a discussion with Wall Street analysts that while the company had observed revenue growth in tandem with rising interest rates, these gains were more than counteracted by higher assumptions for bad debt and subsequent write-offs. He clarified that these increased bad debt assumptions and write-offs are consequences of mounting delinquencies, ultimately leading to amplified net credit losses over time and contributing to the accumulation of problematic debt within the credit portfolio.
Stocks rally as job openings hit lowest level in more than 2 years
During Tuesday afternoon, all three major stock indices exhibited positive movement, buoyed by indications of a slowdown in the labor market.
The Nasdaq Composite, known for its strong presence of technology stocks, took the lead in the upward trajectory, marking an increase of approximately 1.5%. Notably, the Nasdaq had initially experienced a decline at the beginning of the day. The S&P 500 index (^GSPC) saw a notable rise of over 1.1%, while the Dow Jones Industrial Average also climbed, registering a 0.6% gain equivalent to 205 points.
Crypto stocks heat up
In the early hours of Tuesday, both cryptocurrencies and stocks heavily associated with the crypto domain experienced a notable surge. This followed a court decision that reversed a previous ruling by the Securities and Exchange Commission (SEC), thereby creating a pathway for the introduction of the inaugural Bitcoin exchange-traded fund (ETF) in the United States.
Following this legal ruling, Grayscale Investments is now in a position to finally launch its long-awaited Bitcoin ETF, a moment of anticipation within the cryptocurrency industry. In response to the news, Bitcoin (BTC-USD) witnessed an increase of over 5%. Moreover, Coinbase (COIN), Riot Platforms (RIOT), and Marathon Digital Holdings (MARA) all recorded gains surpassing 15%. Notably, the Grayscale Bitcoin Trust also observed a significant rise of approximately 16% during Tuesday morning.
The following is a snapshot of the price movements in the cryptocurrency market as of 11:15 a.m. ET.
Consumer confidence reverses summer gains in August
Following increases in both June and July, there was a decline in consumer confidence during August, as indicated by the latest data from The Conference Board, which was released on Tuesday.
The Consumer Confidence index from The Conference Board registered at 106.1, marking a decrease from July’s figure of 114. This also fell short of economists’ projections, which had anticipated a reading of 116.
Dana Peterson, Chief Economist at The Conference Board, commented on the lackluster headline number for August, noting that it was influenced by declines in both the current conditions and expectations indexes. She highlighted that feedback from respondents revealed their recurring concern about rising prices, particularly for essential items like groceries and gasoline.
In recent weeks, gas prices have surged, propelled by a 15% climb in oil prices during July, coupled with disruptions caused by natural disasters impacting energy markets. The escalation in diesel prices has contributed to apprehensions about the potential for inflation to re-accelerate, driven by pressures within the energy sector.
The data from The Conference Board also unveiled a diminishing sense of optimism among consumers regarding the labor market, a trend that aligns with the findings of the JOLTS (Job Openings and Labor Turnover Survey) report, which was coincidentally released on the same day.
Dana Peterson emphasized that the assessments of the present economic situation experienced a decline in August due to diminishing confidence in employment conditions. She noted that fewer consumers expressed the view that jobs were “plentiful,” while an increasing number indicated that jobs were “hard to get.”
She further stated, “Concrete data corroborates the fact that employment growth has decelerated, overall wage increments are less robust compared to the previous year, and the average duration of unemployment is gradually increasing.”
Job openings fall below 9 million for first time since March 2021
Indicators pointing toward a cooling in the labor market persisted on Tuesday, as recently published data highlighted that the US economy concluded the month of July with the fewest number of available job openings since March 2021.
The most recent release of the Job Opening and Labor Turnover Survey (JOLTS) report, unveiled on Tuesday, disclosed that by the close of July, there were 8.8 million job vacancies, indicating a reduction from the 9.16 million positions available in June. Notably, economists surveyed by Bloomberg had initially projected approximately 9.5 million job openings for the month of July.
The report also indicated a decline in the quits rate, which is a closely monitored metric for economists, as heightened rates of voluntary resignations often signal increased worker confidence. The quits rate dropped to 2.3% in July, marking its lowest point since January 2021.
Stocks open little changed
Stocks began the trading session with minimal changes on Tuesday, as investors held off in anticipation of forthcoming labor market information and a consumer confidence report later in the morning.
In the initial moments following the opening bell on Wall Street, both the S&P 500 index (^GSPC) and the Dow Jones Industrial Average (^DJI) showed slight fluctuations, hovering around the unchanged mark. Conversely, the Nasdaq Composite index (^IXIC) experienced a marginal decline of 0.1%.
Best Buy, Catalent and AT&T: Stocks trending in premarket trading
Best Buy (BBY): Stock prices of the US electronics retailer climbed by 2% subsequent to the company’s second-quarter earnings release, which exceeded expectations. The results included a smaller-than-anticipated decline in comparable sales.
Catalent (CTLT): The company’s shares advanced by 4% following an announcement that it had come to terms with activist investor Elliot Investment Management. The agreement involves the addition of four new directors to Catalent’s board and the initiation of a “strategic review.” Additionally, the contract drug manufacturer chose to delay its annual report.
AT&T (T): Shares of AT&T appreciated by 2% after Citi upgraded the telecommunications giant’s rating from “Neutral” to “Buy/High-Risk.”
PDD (PDD): The Chinese firm behind the shopping application Temu witnessed a substantial 12% surge in its New York-listed shares after reporting an increase in revenue.
Hawaiian Electric (HE): Following a 44% surge on Monday, shares of Hawaiian Electric continued their upward trajectory with a 2% gain. The utility company is responding to a lawsuit alleging its involvement in causing wildfires on Maui.
Stock futures little changed as investors brace for data
Following an uncommon day of gains, US stocks maintained stability on Tuesday. An upcoming report on consumer confidence was among the data scheduled for release, setting the stage for crucial inflation and jobs reports later in the week.
S&P 500 futures (^GSPC) showed a marginal increase of 0.05%, while Dow Jones Industrial Average futures (^DJI) rose by 0.04%, equivalent to 14 points. Simultaneously, the Nasdaq Composite futures (^IXIC) in the technology sector exhibited a corresponding uptick of 0.04%.
