A wave of key earnings report out overnight and this morning swept Wall Street away on Tuesday. The full earnings calendar led to a choppy and unsettled session and pulled the Dow Jones Industrial Average and S&P 500 farther below record highs.
The S&P 500 was flat, the Dow Jones Industrial Average slid 0.16%, and the Nasdaq added 0.16%. Benchmark indexes bounced from positive to negative for much of the day.
Nearly one-third of S&P 500 companies have reported earnings so far this second-quarter reporting season. Of those that have reported, 69% have exceeded profit estimates, above the average 63% beat rate in a typical quarter. The blended estimate is for earnings to decline 3.5%, or 0.5% excluding energy, according to Thomson Reuters. While earnings will likely decline for another quarter, many economists believe this three-month period will act as a bottom for a rebound.
McDonald's (MCD) - Get Report was a major drag on the Dow, falling more than 4% after same-store sales missed estimates in the second quarter. The world's largest fast food chain reported quarterly same-store sales growth of 3.1%, lower than an expected 3.6%. Second-quarter earnings of $1.25 a share fell 1% from a year earlier and missed the mean estimate of $1.39.
In other earnings news, Verizon (VZ) - Get Report reported a drop in profit in its recent quarter as an April-May worker strike hit its bottom line. Texas Instruments (TXN) - Get Report reached a 16-year high on Tuesday after Bank of America issued an upgrade following positive earnings.
Caterpillar (CAT) - Get Report detailed more job cuts and a reduced second-half outlook as demand from the oil industry continues to wither. BP (BP) - Get Report fell as an improvement in oil prices failed to compensate for weaker earnings from its refining business.
Crude oil extended losses Tuesday after settling at a three-month low a day earlier. Prices were under pressure on an expected decline in U.S. refinery activity. Morgan Stanley cut its global refinery demand forecast for crude to 625,000 barrels a day, down from 800,000. U.S. crude inventory data will be released after the bell.
West Texas Intermediate crude oil fell 0.5% to $42.92 a barrel on Tuesday, closing below $43 for the first time since April.
New home sales increased 3.5% to a seasonally adjusted pace of 592,000 in June, according to the Commerce Department, their highest since February 2008. Home prices in 20 major U.S. cities advanced 1.2% in May, according to the Case-Shiller 20-city composite index. Prices have now risen 5% over the past 12 months. Growing prices and constrained inventory have driven the housing sector's growth in recent months.
Consumer confidence remained strong in July, supported by an uptick in positive attitudes over the labor market and general business conditions. The Conference Board's index fell only slightly to 97.3 in July from 97.4.
"Overall, the upbeat tone of these reports will offer further encouragement to the [Federal Reserve] as they meet this week to discuss the outlook for the U.S. economy," Millan Mulraine, deputy chief U.S. macro strategist at TD Securities, wrote in a note. "The resiliency in household sentiment will be a critical piece of evidence underscoring only a modest hit to consumer confidence."
Members of the Federal Open Market Committee grouped on Tuesday for a two-day meeting, followed by an announcement on Wednesday afternoon. A press conference won't be held afterward.
The likelihood of a move in July is low, though the Fed statement will be closely analyzed for hints as to when the central bank might adjust its monetary policy after initial liftoff last December. A rate hike in July currently has a 2.4% probability, according to CME Group Fed funds futures. A December rate hike is the most likely with a 40% chance.
"We expect the tone of the communique to be more upbeat, reflecting the better-than-expected economic data over the past six weeks as well as much more stimulative financial market conditions," Deutsche Bank analysts wrote in a note. "However, the Fed will not go as far as it did last October, when it strongly hinted at a rate hike at the ensuing meeting in December. This time, the Fed will be more careful to leave its options open, preferring to see how the data evolve between now and ... September."