Mixed Earnings Send S&P 500, Nasdaq to Record Highs, Dow Tumbling 79 Points

The Dow and broader U.S. stock market diverged on Wednesday, as investors dissected mixed earnings reports from corporate America’s biggest companies.

Dow Diverges from Broader Market

The Dow Jones Industrial Average lagged behind the broader U.S. stock market midweek amid sharp declines for Caterpillar Inc. (NYSE:CAT) and The Boeing Company (NYSE:BA). The blue-chip index fell 79.22 points, or 0.3%, to 27,269.97. It was down by as much as 158 points earlier in the day.

Stronger than expected earnings from the likes of Texas Instruments Inc. (NASDAQ:TXN) propelled the Nasdaq Composite Index to fresh record highs. The tech-driven index surged 0.9% to 8,321.50.

The broad S&P 500 Index of large-cap stocks also set new all-time highs, gaining 0.5% to 3,019.56. Eight of 11 primary sectors reported gains, with financials leading the pack. Communication services and information technology companies also outperformed.

On the opposite side of the ledger, consumer staples declined sharply.

All Eyes on Earnings

Shares of Texas Instruments surged to all-time highs Wednesday after the semiconductor company reported better than expected earnings and boosted its guidance for the third quarter. Texas Instruments generated per-share earnings of $1.36 on revenues of $3.67 billion in the second quarter. Both figures represented year-over-year declines, but were well above the consensus forecast.

Third-quarter earnings are expected to be anywhere between $1.31 to $153 a share on sales of between $3.67 billion to $3.95 billion.

Boeing’s stock declined after the aerospace contractor reported a $2.9 billion quarterly loss, its worst ever, amid ongoing setbacks tied to its troubled 737 MAX aircraft. The company announced last week it would pay out $4.9 billion to airlines affected by the 737 groundings.

Compared with last year, Boeing’s aircraft shipments declined by 104 in the second quarter.

U.S Manufacturing Sector Narrowly Avoids Contraction

The U.S. manufacturing sector is on track for its worst month in ten years, as production volumes and employment continued to fall.

The IHS Markit manufacturing purchasing managers’ index (PMI) weakened to 50.0 in July from 50.6 in June on a scale where anything below that level signals contraction. It was the worst reading in 118 months.

Markit’s U.S. manufacturing output index fell to 48.9, which was the lowest in 119 months.

Meanwhile, the much larger U.S. services sector rose faster than expected in July. The services PMI gauge improved to 52.2 from 51.5 in June.

Combined, the Composite PMI improved slightly to 51.6 from 51.5. Taken together, the two indicators suggest the U.S. economy is on track to expand just 1.6% annually in the third quarter, according to Chris Williamson, Markit’s chief business economist.

Williamson commented on America’s seemingly two-speed recovery in the official news release:

“The overall picture of modest growth conceals a two-speed economy, with steady service sector growth masking a deepening downturn in the manufacturing sector. The survey’s gauge of factory production has slumped to its lowest since August 2009, and indicates that manufacturing output is falling at a quarterly rate of over 1%, led by an increasing rate of loss of export sales.”

If we take Markit’s data at face value, July was likely one of the worst months for hiring since the financial crisis.

Featured image courtesy of Shutterstock. Chart via Stockcharts.com. 

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi