In a nearly hour-long speech to America’s Congress, Binyamin Netanyahu, Israel’s prime minister, forcefully defended his country’s war in Gaza. He blamed Hamas for denying Palestinians food aid (in fact Israel is also responsible), rejected allegations that Israel had targeted civilians and sketched out a post-war vision that did not include a Palestinian state. He also thanked Presidents Joe Biden and Donald Trump for their support of Israel and told lawmakers that “our enemies are your enemies” and “our victory will be your victory”. Republicans in the chamber reacted enthusiastically. About half of Democrats in Congress boycotted the speech.
The nasdaq and the s&p 500, two American stockmarket indices, recorded their worst daily percentage declines since 2022 as investors sold off tech stocks after disappointing second-quarter earnings. Tesla’s shares fell by over 12% on Wednesday. On Tuesday the electric-vehicle firm reported net income of $1.5bn—a 45% drop, year on year—missing analysts’ expectations. Alphabet’s advertising revenue from YouTube also underperformed estimates.
Profits at Santander, a Spanish bank, rose by 20% year on year during the second quarter. The quarter’s earnings were the bank’s highest ever. The bank’s retail division benefitted from high interest rates in the euro zone, while a new technology platform helped lower costs across all units. Meanwhile bnp Paribas, a French bank, also performed well, as revenue from equity trading soared.
Britain and Germany signed a defence pact, pledging to strengthen their defence industries, improve cybersecurity and boost the effectiveness of joint operations. Keir Starmer, Britain’s newly appointed prime minister, wants to reset relations between Britain and Europe. Meanwhile, with Donald Trump musing about withdrawing support, European countries are ramping up defence spending.
A public inquiry found that 200,000 people in the care of state and religious institutions in New Zealand were abused between 1950 and 2019. The report found that sexual and physical abuse were “commonplace”, affecting nearly one in three people in care. Those from the indigenous Maori community and with mental health problems were most likely to be abused. Christopher Luxon, the prime minister, apologised and promised reforms.
Taiwan battened down the hatches ahead of the arrival of Gaemi, its first typhoon of the season. Residents of Taipei, the capital, were told to stay at home, while flights were cancelled, financial markets were shut and the army was put on high alert. Meanwhile flooding was reported in Manila, the Philippines’ capital, as Gaemi intensified the monsoon.
Profits from the British monarchy’s land and other property assets more than doubled last year to reach a record £1.1bn ($1.4bn), largely thanks to its investments in offshore wind farms. The Crown Estate, which is worth £16bn, owns seabed surrounding England, Wales and Northern Ireland as well as large tracts of land. Britain’s offshore-wind sector generated 17% of its electricity in 2023.
Figure of the day: 60%, turnout in Britain’s latest general election, the second-lowest in a century. Read the full story.
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Even with the spotlight now on Vice President Harris as Democrats’ likely presidential nominee, Biden sought to show how he’ll be engaged until his term ends.
Updated July 24, 2024 at 9:49 p.m. EDT|Published July 24, 2024 at 4:41 p.m. EDT
President Biden delivered a somber, reflective address from the Oval Office on Wednesday evening, extolling democracy and decrying dictators during his first remarks to the nation since his monumental decision to end both his reelection campaign and political career.
“The defense of democracy, which is at stake, is more important than any title,” Biden said in remarks that were designed to have the gravitas of a presidential farewell speech. “I draw strength, and find joy, in working for the American people. But this sacred task of perfecting our union is not about me. It’s about you. Your families. Your futures. It’s about ‘We the People.’”
With less than six months left in his presidency, Biden used the prime-time address to defend his record, define his legacy and describe his vision for the rest of his term. He repeatedly called on Americans to take up the mantle of safeguarding the nation’s principles, asserting that as he prepares to exit public life, he was passing the baton to the public.
“The American people will choose the course of America’s future,” he said at one point.
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“Whether we keep our republic is now in your hands,” he said at another.
With much of the country’s focus shifted to Vice President Harris’s rapid ascent as the Democrats’ likely presidential nominee, Biden cast himself as a bridge to the next generation of leadership.
“There is a time and place for long years of experience in public life,” Biden said, as family members listened quietly off camera.“There’s also a time and place for new voices, fresh voices, yes, younger voices. And that time and place is now.”
President Biden plans to address the nation Wednesday from the Oval Office on his decision to exit the presidential race and endorse Vice President Harris as the Democratic nominee. Follow live updates on the 2024 election.
Biden talked for just over 10 minutes. The speech was his first opportunity to more fully explain why he decided to drop out of the race, a move that made him the first president since 1968 to voluntarily opt against seeking another term.
“There’s been a feeling that Joe Biden has disappeared from the scene and everybody is doing a eulogy for him,” presidential historian Douglas Brinkley noted before the address. “Yet he’s still our president all the way until January. He wants to use the prime-time television address to remind people that our country is still in good stead under his leadership.”
In a letter making his campaign announcement on Sunday, Biden offered few details on his thought process.
“And while it has been my intention to seek reelection, I believe it is in the best interest of my party and the country for me to stand down and to focus solely on fulfilling my duties as President for the remainder of my term,” he wrote.
Previously, the 81-year-old Biden had dismissed questions about his advanced age and sluggish poll numbers, defiantly rejecting calls for him to step aside. His abrupt reversal upended an already turbulent campaign against Republican nominee Donald Trump, elevating Harris into the role of Democrats’ de facto leader.
He reached into history in explaining his decision, using John F. Kennedy’s famous turn of phrase to then pivot forward. “I have decided the best way forward is to pass the torch to a new generation,” he said. “That’s the best way to unite our nation.”
Biden didn’t mention Trump by name, though he used a line of attack he has previously lobbed against the former president.
“Does character in public life still matter?” he asked at one point, signaling his answer throughout the address.
“The great thing about America is here, kings and dictators do not rule,” Biden said toward the end of his remarks. “The people do. History is in your hands. The power is in your hands. The idea of America — lies in your hands.”
As he adjusts to his new role as a lame-duck, one-term president, there are signs that Biden is hoping to ramp up his presidential activity even as he prepares for the close of his half-century career in Washington.
“He is a lame-duck president legislatively, but he can still sign executive orders and be a world leader in trying to seek a cease-fire in the Middle East and continue funding to achieve liberation for Ukraine,” Brinkley noted. “He may have lost some stature here at home, but in the world of foreign policy, he’s more important than ever.”
In his remarks, Biden said he would spend the rest of his term pushing initiatives to combat gun violence, overhaul the Supreme Court and advance cancer research. He also called out foreign policy objectives he will pursue, including ending the war in Gaza, building up NATO and bringing home Americans unjustly detained overseas.
He has focused this week on Israel’s ongoing war in Gaza, where his administration has been pushing for a cease-fire agreement that would result in the release of hostages held by Hamas since last October. Efforts to secure such a deal have intensified in recent days, coinciding with Israeli Prime Minister Benjamin Netanyahu’s visit to Washington on Wednesday.
Biden has signaled that a hostage release — which would include several Americans — was on the “verge” of being a reality. He plans to meet with Netanyahu on Thursday to discuss the cease-fire agreement, a sign of the key role he will still play in world affairs.
“We’re still fighting in this fight together,” he told campaign staffers Monday. “I’m not going anywhere.”
It is not clear how much his decision to bow out of the presidential race will change his schedule going forward. Biden, who was out of sight for five days as he recovered from covid, has continued to maintain a relatively light schedule. He had been set to travel to Texas, California and Colorado this week for campaigning and fundraising but canceled all of that travel. He plans to spend the weekend at Camp David, and aides said some of the canceled events would be rescheduled.
Republicans have responded to Biden’s exit from the race by saying he should resign from the presidency altogether, suggesting that if he is not capable of running a reelection race, he should not remain in the White House. Some amplified conspiracy theories that he had died or was gravely ill.
Trump took to social media Tuesday to question whether Biden “is fit to run the U.S.A. for the next six months?”
Biden and his aides have forcefully pushed back on the idea that the president has been sidelined or otherwise diminished. The prime-time Oval Office address, the fourth of his presidency, was designed to give the president a national platform to frame his time in office and tout his long list of accomplishments while also offering a boost to the woman who is now Democrats’ likely nominee.
“She’s experienced. She’s tough. She’s capable,” Biden said of Harris, who watched the speech from Houston, where she plans to speak to the American Federation of Teachers on Thursday.
Biden’s low profile of late has had the effect of ceding the spotlight to Harris, who has been traveling the country to jump-start her presidential campaign. She used a keynote speech to more than 6,000 Black women on Wednesday to offer gratitude for his endorsement.
“Joe Biden is a leader with bold vision,” Harris told a gathering of the Zeta Phi Beta sorority in Indianapolis. “He cares about the future. He thinks about the future.”
While the success or failure of Harris’s candidacy against Trump could determine the durability of Biden’s legacy and legislative record — much of which Trump has vowed to overturn in a second term — hemust also grapple with the idea that his vice president has suddenly become a more influential figure in the Democratic Party.
But Biden’s decision to speak from behind the Resolute Desk, where presidents have often announced consequential developments on matters of domestic or global significance, highlighted the importance of the moment for a man coming to grips with the impending sunset of a lengthy career in public life.
“My fellow Americans, it’s been the privilege of my life to serve this nation for over 50 years,” Biden said. “Nowhere else on earth could a kid with a stutter, from modest beginnings in Scranton, Pennsylvania, and Claymont, Delaware, one day sit behind the Resolute Desk in the Oval Office as president of the United States. But here I am.”
The S&P 500 and Nasdaq closed at multiweek lows Wednesday, as lackluster earnings from Tesla and Alphabet undermined investor confidence in megacap tech names that had previously driven 2024’s equity rally.
As the first of the Magnificent Seven stocks reported quarterly numbers, investors had been awaiting new data to see if lofty valuations were justified. With these seven companies having such sway over markets, their performance was bound to have wider repercussions.
Investor reactions pushed both the benchmark S&P 500 and the Nasdaq composite to their lowest finishes since June. Meanwhile, the Dow Jones Industrial Average closed below 40,000 points for the first time in two weeks.
Dave Grecsek, managing director in investment strategy and research at Aspiriant, noted the upward momentum of the first two weeks of July in equity markets had disappeared over the last week.
“There’s a little bit of profit-taking, and then people are a little apprehensive about earnings announcements upcoming,” he said.
Tesla weighed heavily Wednesday, slumping after the electric-vehicle maker reported its lowest profit margin in more than five years and missed second-quarter earnings estimates.
Google parent Alphabet dropped despite a second-quarter earnings beat, as investors focused on an advertising-growth slowdown and the company flagged high capital expenses for the year.
Tesla and Alphabet dragged the S&P 500 Communication Services and Consumer Discretionary sector indexes down, with Information Technology also among the weakest performers of the 11 S&P sectors.
Alphabet’s losses underscored the high earnings bar for the so-called Magnificent Seven, a set of megacap tech stocks that have notched double- and triple-digit percentage gains in 2024, riding on optimism around AI adoption and expectations of an early start to the Federal Reserve’s interest-rate cuts.
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“When you put everything in an earnings context, you can really understand why those Mag 7 stocks have been performing so great because the earnings have been there,” said Grecsek.
Any doubts, however, about the stocks meeting expectations will induce selling pressure. The other megacaps, Apple, Microsoft, Amazon.com, Meta Platforms, and Nvidia, all closed down.
Meanwhile, the blue-chip Dow, did not escape the negativity. Visa was among the stocks that weighed on it, dropping after its third-quarter revenue growth fell short of expectations.
According to preliminary data, the S&P 500, lost 128.10 points, or 2.31%, to end at 5,427.64 points, while the Nasdaq composite lost 654.94 points, or 3.64%, to 17,342.41. The Dow Jones Industrial Average fell 499.21 points, or 1.24%, to 39,858.88.
Chary of the high valuation of these companies, market participants started shifting to underperforming sectors in mid-July.
S&P 500 stocks, on average, are trading at a 21.4 price-to-earnings ratio, compared with the historical average of 15.9, LSEG data showed. Of the index companies that have reported second-quarter earnings to date, 78.9% have beaten results estimates.
A rotation into smaller-cap stocks has also been eyed, although they did not escape the ripples the megacaps caused: the Russell 2000 finished down.
In economic data, S&P Global’s flash U.S. Composite PMI Output Index showed business activity climbed to a 27-month high in July.
Among others, AT&T gained after beating forecasts for wireless subscriber additions, while solar inverter maker Enphase Energy jumped after reporting a second-quarter operating profit beat.
Meanwhile, Roper Technologies dropped after it signaled third-quarter profit would fall below estimates. Boston Scientific traded down, despite lifting its 2024 profit target and beating second-quarter earnings estimates.
Brand new Tesla cars sit parked at a Tesla dealership on May 31, 2024 in Corte Madera, California. Justin Sullivan/Getty Images/FileNew YorkCNN —
Tech shares led a selloff Wednesday after lackluster earnings reports from two of the market’s most prominent heavyweights.
The Nasdaq Composite declined 3.6% and the S&P 500 fell 2.3%, both notching their worst daily percentage declines since 2022. The Dow lost 504 points, or 1.3%.
Big Tech’s decline comes after Tesla’s second-quarter results released Tuesday evening showed a second-straight decline in quarterly profit and that its profits plunged more than 40% from a year ago. The electric vehicle maker faces growing competition from established automakers domestically and internationally and a slowdown in EV sales growth.
Tesla shares fell 12.3% on Wednesday. The EV-maker didn’t give a new sales forecast for the year but warned that its vehicle volume growth rate this year could be substantially lower than that of 2023.
Elsewhere, Alphabet shares slid 5% after reporting a miss on expectations for YouTube advertising revenue.
“The flight to quality of Mega Tech is becoming vulnerable to earnings that cannot have even minor disappointments,” wrote Louis Navellier, chairman of Navellier & Associates, in a Wednesday note, adding that “the AI narrative isn’t broken.”
Wednesday’s tumble extends the decline in tech stocks seen during the past week after a cool inflation report and resilient economic data led investors to bet that the Federal Reserve will cut interest rates in September.
Wall Street has rotated out of the tech bigwigs that led stocks higher over the past year in favor of smaller stocks that have been beaten down by sky-high rates. The Russell 2000, which tracks the performance of US small-cap stocks, is up 7.6% for the month, outperforming the S&P 500’s 0.6% loss. Still, small-caps fell on Wednesday.
A confluence of other factors has also battered the tech sector recently. Investors have contended with an ongoing global tech outage that has left travelers stranded at airports, consumers at risk of getting duped by cybercriminals and brought computer systems across health care and government sectors to a halt.
The Nasdaq last week had its worst day since 2022, after the selloff in tech was worsened by a report from Bloomberg that the Biden administration is mulling plans to impose more sanctions on Chinese tech firms and to heighten semiconductor trade restrictions between the US and China.
As stocks settle after the trading day, levels might change slightly.
Airline passengers around the world were caught up in Friday’s mass IT outage.
Liv McMahon, Graham Fraser & Natalie Sherman
BBC News
CrowdStrike has promised to improve its software tests after a faulty content update for Windows systems caused a global IT outage on Friday.
The cybersecurity company’s mistake resulted in problems for banks, hospitals and airlines as millions of PCs displayed “blue screens of death”.
In a detailed review of the incident published on Wednesday, CrowdStrike said there was a “bug” in a system designed to ensure software updates work properly.
The review comes as the company faces a backlash for giving $10 Uber Eats vouchers to the “teammates and partners” who dealt with the crisis.
Crowdstrike said the glitch meant “problematic content data” in a file went undetected.
The company said it could prevent the incident from happening again with better software testing and checks, including more scrutiny from developers.
The faulty update crashed 8.5 million Microsoft Windows computers around the world and George Kurtz, Crowdstrike’s boss, has apologised for the impact of the outage.
But cybersecurity experts told BBC News that the review revealed the firm made “major mistakes”.
“What’s clear from the post mortem is they didn’t seem to have the right guardrails in place to prevent this type of incident or to reduce the risk of it occurring,” said cyber-security consultant Daniel Card.
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Travellers around the world were affected by the outage causing thousands of flights to be cancelled
His thoughts were echoed by cybersecurity researcher Kevin Beaumont, who said the key lesson from CrowdStrike’s review was that the firm doesn’t “test in waves”.
“They just deploy to all customers at once in a so called ‘rapid response update’ which was obviously a huge mistake,” he said.
But Sam Kirkman from cybersecurity firm NetSPI told the BBC the review showed CrowdStrike “took steps” to prevent the outages.
He said these steps “have likely been effective to prevent incidents on countless occasions prior to last week”.
Meanwhile, social media users claiming to be CrowdStrike employees have mocked the company for its decision to hand out $10 Uber Eats vouchers as a thank you for their work.
“I literally wanted to drive my car off a bridge this weekend and they bought me coffee. Nice,” said one Reddit user.
“Biggest IT outage ever, here’s $10, go buy some coffee or something. Absolute clownshow. This is worse than doing nothing,” another added.
CrowdStrike told the BBC it sent these vouchers “to our teammates and partners who have been helping customers through this situation”.
Congress calls
According to insurance firm Parametrix, the top 500 US companies by revenue, excluding Microsoft, had faced some $5.4bn (£4.1bn) in financial losses from the outage.
It said that only $540m (£418m) to $1.08bn (£840m) of these losses were insured.
Delta chief executive Ed Bastian said in a letter to customers on Wednesday that “the worst impacts of the CrowdStrike-caused outage are clearly behind us” and it expects the airline to make a full recovery on Thursday.
Meanwhile, Mr Kurtz has been called to testify in front of Congress about the outage.
“This incident must serve as a broader warning about the national security risks associated with network dependency,” wrote the House Committee on Homeland Security.
It has given the cybersecurity company until Wednesday evening to respond by scheduling a hearing.
It was wipeout Wednesday on Wall Street, as a long-anticipated summer squall finally arrived to buffet stocks.
By the time the dust had settled after the closing bell, the S&P 500
SPX-2.31% had shed 2.3% — its first pullback of 2% or more in 356 trading days. That ended the index’s longest such stretch since 2007, according to Dow Jones Market Data
fared even worse, falling 3.6% for its worst day since October 2022 and ending a stretch of more than 400 days without a decline of 3% or greater.
Both the Nasdaq and S&P 500 are now on track to log a second straight week of declines, FactSet data show. The two indexes have faced headwinds since a June inflation report released July 11 sparked a rotation into lagging corners of the market.
. The “Magnificent Seven” stocks fell 4.6%, based on a capitalization-weighted gauge of their performance from Dow Jones Market Data. But by the end of the session, even recent outperformers like small-cap stocks had succumbed.
Notably, the pain wasn’t limited to stocks. Yields on longer-dated Treasurys climbed while yields on shorter-dated notes fell, causing the yield curve to re-steepen. Bond prices move inversely to yields.
Investors said weak data on the housing market and alarming comments from former New York Fed chief Bill Dudley — who called for the Federal Reserve to cut interest rates next week to stave off a potential recession — were partly to blame for the market pain.
Dudley’s warning about the economy appeared to resonate, according to Kristina Hooper, chief global markets strategist at Invesco.
“I think there is a little more to this. More cracks are appearing in the economy and investors are becoming a bit more jittery,” Hooper said during an interview with MarketWatch.
But Dudley’s commentary were not the only catalyst. Earnings from a trio of key U.S. companies also contributed to the selloff, as Visa Inc.
results fueled concerns about its aggressive investment in artificial-intelligence-related infrastructure, according to Kim Caughey Forrest, founder and chief investment officer at Bokeh Capital Partners.
also reported a 40% drop in profits, causing the stock to fall more than 12% in its worst day since 2020 — though the company’s results had little relevance for the broader market, Forrest and Hooper both said.
But both Tesla and Alphabet contributed to the extreme weakness in shares of the Magnificent Seven stocks, a group of megacap companies seen as most likely to benefit from the artificial-intelligence revolution. The companies shed a combined $768 billion in market value — their biggest daily drop on record, according to Dow Jones Market Data.
Meanwhile, two of the three sectors where Magnificent Seven members are most heavily represented — information technology
off by 504 points, or 1.3%, sliding back below 40,000.
The question now plaguing investors is how much longer the selloff can continue. Gene Goldman, chief investment officer at Cetera, said the pullback had been widely anticipated, and could even be construed as healthy for markets given large-cap stocks’ lofty valuations.
Furthermore, the rotation away from megacap names and into more affordable corners of the market could help to ease concerns about market concentration. However long it lasts, the selloff will ultimately present another opportunity for investors to buy.
“I was telling our advisors that the market was due for a pullback — look at the combination of high valuations of the stock market, high expectations and high concentration,” Goldman told MarketWatch over the phone on Wednesday.
He said he expected a repeat of a similar pullback that happened last year, which saw the S&P 500 briefly fall into correction territory in October after peaking in late July.
Between now and the fall, plenty of risks remain. Many of the largest U.S. companies are due to report earnings this week and next. But perhaps the biggest focus for investors will be a meeting of the Federal Reserve next week; many are hoping to hear Fed Chair Jerome Powell offer some indication that the central bank will start cutting rates in September.
If he does, it could help assuage investors’ concerns, Hooper said — although she added that the market is still ripe for a pullback.
“I think it’s more of a summer selloff because frankly we’re due for one,” she said. “We’ve had a really strong rally, and we’ve barely had any kind of significant drop in a long time.
“We have this catalyst on the horizon, and it’s the start of Fed rate cuts,” Hooper added. “I think it’ll be very supportive of stocks, and I would anticipate that we get messaging in advance of the September cut.”
But Powell has demurred during recent opportunities to more strongly signal that a rate cut is imminent, even as other senior Fed officials have started to call for one more forcefully.
More losses could be in store if investors aren’t satisfied with the Fed chair’s messaging next week, according to Mohannad Aama, a portfolio manager at Beam Capital Management.
“If the Fed statement isn’t really indicative of a cut in September, I think we’ll see a continuation of the selloff,” he told MarketWatch on Wednesday.
The S&P 500 has now erased all of its gains from earlier in July, though it remains up 13.8% this year to date. The Nasdaq is now off 2.2% this month, but is still up 15.5% on the year.
For now, there are signs that traders are bracing for more pain in the near term. The Cboe Volatility Index
Wall St ends lower in aftermath of global tech outage
Summary
Companies
Cybersecurity stocks rise after outage
Intuitive hits record high after quarterly results beat
Travelers Companies weighs on Dow
Indexes down: Dow 0.93%, S&P 0.71%, Nasdaq 0.81%
NEW YORK, July 19 (Reuters) – U.S. stocks extended their slump on Friday as lingering chaos related to a global technical outage caused by a software glitch added uncertainty to an already-anxious market.
While the flaw was identified and fixes deployed, technical issues continue to affect some services.
Crowdstrike shares slid 11.1%, while rival cybersecurity firms Palo Alto Networks (PANW.O), opens new tab and SentinelOne (S.N), opens new tab advanced 2.2% and 7.8%, respectively.
All three major U.S. stock indexes ended in negative territory, with the Dow Jones Industrial average suffering the worst of it.
On a weekly basis, both the Nasdaq and the S&P 500 logged their worst week since April, while the Dow, having reached a series of all-time closing highs earlier in the week, posted a Friday-to-Friday gain.
“This tech outage adds some uncertainty and puts pressure on the overall Nasdaq,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut. “But it won’t have much of an overall impact. Some buying will be delayed. Not only is it a summer Friday but because of the outage (investors) are in wait-and-see mode.”
“They’re sitting on the sidelines,” Pavlik added. “That’s what happens to the stock market when volatility rules the day.”
RUT vs SPX YTD
The CBOE Market volatility index (.VIX), opens new tab, considered a gauge of investor anxiety, touched its highest level since late April.
The smallcap Russell 2000 (.RUT), opens new tab – a beneficiary of a recent pivot away from megacap growth stocks – ended modestly lower.
Elsewhere, Federal Reserve Bank of New York President John Williams reiterated the central bank’s commitment to bringing inflation down to its 2% target.
Item 1 of 2 Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., July 3, 2024. REUTERS/Brendan McDermid/File Photo
[1/2]Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., July 3, 2024. REUTERS/Brendan McDermid/File Photo Purchase Licensing Rights, opens new tab
Financial markets have priced in a 93.5% likelihood that the Fed will enter a rate-cutting phase at the conclusion of its September meeting, according to CME’s FedWatch tool.
The Dow Jones Industrial Average (.DJI), opens new tab fell 377.49 points, or 0.93%, to 40,287.53, the S&P 500 (.SPX), opens new tab lost 39.59 points, or 0.71%, to 5,505 and the Nasdaq Composite (.IXIC), opens new tab dropped 144.28 points, or 0.81%, to 17,726.94.
Second-quarter earnings season ended its first full week, with 70 of the companies in the S&P 500 having reported. Of those, 83% have beaten consensus, according to LSEG.
Analysts now see aggregate year-on-year S&P 500 earnings growth of 11.1%, an improvement over the 10.6% estimate as of July 1.
“It’s early in earns season, but things have been impressive,” said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. “But the big boys are starting to report next week and what we want to hear is how strong the consumer is and what’s the outlook for future economic growth.”
Netflix(NFLX.O), opens new tab fell 1.5% in choppy trading after the streaming giant cautioned third-quarter subscriber additions would be lower than a year earlier.
Declining issues outnumbered advancing ones on the NYSE by a 2.11-to-1 ratio; on Nasdaq, a 1.91-to-1 ratio favored decliners.
The S&P 500 posted 27 new 52-week highs and 4 new lows; the Nasdaq Composite recorded 50 new highs and 99 new lows.
Volume on U.S. exchanges was 10.54 billion shares, compared with the 11.72 billion average for the full session over the last 20 trading days.
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Reporting by Stephen Culp in New York Additional reporting by Lisa Pauline Mattackal and Ankika Biswas in Bengaluru Editing by Devika Syamnath and Matthew Lewis
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KEY POINTS
Wall Street’s favorite recession signal started flashing red in 2022 and hasn’t stopped — and thus far has been wrong every step of the way.
Depending on which duration point you think is most relevant, the yield curve has been inverted either since July 2022 or October of the same year. An inverted curve has signaled nearly every U.S. recession.
“I just don’t see how a curve can be this wrong for this long. I’m leaning toward it being broken, but I haven’t fully capitulated yet,” said Joseph LaVorgna, chief economist SMBC Nikko Securities.
The Commerce Department on Thursday is expected to report that GDP accelerated 2.1% in the second quarter of 2024.
Pedestrians walk along Wall Street near the New York Stock Exchange (NYSE) in New York, US, on Thursday, May 16, 2024.
Alex Kent | Bloomberg | Getty Images
Wall Street’s favorite recession signal started flashing red in 2022 and hasn’t stopped — and thus far has been wrong every step of the way.
The yield on the 10-year Treasury note has been lower than most of its shorter-dated counterparts since that time — a phenomenon known as an inverted yield curve which has preceded nearly every recession going back to the 1950s.
However, while conventional thinking holds that a downturn is supposed to occur within a year, or at most two years, of an inverted curve, not only did one not occur but there’s also nary a red number in sight for U.S. economic growth.
The situation has many on Wall Street scratching their heads about why the inverted curve — both a signal and, in some respects, a cause of recessions — has been so wrong this time, and whether it’s a continuing sign of economic danger.
“So far, yeah, it’s been a bald-faced liar,” Mark Zandi, chief economist at Moody’s Analytics, said half-jokingly. “It’s the first time it’s inverted and a recession didn’t follow. But having said that, I don’t think we can feel very comfortable with the continued inversion. It’s been wrong so far, but that doesn’t mean it’s going to be wrong forever.”
Depending on which duration point you think is most relevant, the curve has been inverted either since July 2022, as gauged against the 2-year yield, or October of the same year, as measured against the 3-month note. Some even prefer to use the federal funds rate, which banks charge each other for overnight lending. That would take the inversion to November 2022.
Whichever point you pick, a recession should have arrived by now. The inversion had been wrong only once, in the mid-1960s, and has foretold every retrenchment since.
According to the New York Federal Reserve, which uses the 10-year/3-month curve, a recession should happen about 12 months later. In fact, the central bank still assigns about a 56% probability of a recession by June 2025 as indicated by the current gap.
“It’s been such a long time, you have to start to wonder about its usefulness,” said Joseph LaVorgna, chief economist SMBC Nikko Securities. “I just don’t see how a curve can be this wrong for this long. I’m leaning toward it being broken, but I haven’t fully capitulated yet.”
The inversion is not alone
Making the situation even more complicated is that the yield curve isn’t the only indicator showing reason for caution about how long the post-Covid recovery can last.
Gross domestic product, a tally of all the goods and services produced across the sprawling U.S. economy, has averaged about 2.7% annualized real quarterly growth since the third quarter of 2022, a fairly robust pace well above what is considered trend gains of around 2%.
Prior to that, GDP was negative for two straight quarters, meeting a technical definition though few expect the National Bureau of Economic Research to declare an official recession.
The Commerce Department on Thursday is expected to report that GDP accelerated 2.1% in the second quarter of 2024.
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A normalized yield curve eventually is very good for banks, says Gabelli Funds’ Macrae Sykes
However, economists have been watching several negative trends.
The so-called Sahm Rule, a fail-safe gauge that posits that recessions happen when the unemployment rate averaged across three months is half a percentage point higher than its 12-month low, is close to being triggered. On top of that, money supply has been on a steady downward trajectory since peaking in April 2022, and the Conference Board’s index of leading economic indicators has long been negative, suggesting substantial headwinds to growth.
“So many of these measures are being questioned,” said Quincy Krosby, chief global strategist at LPL Financial. “At some point, we’re going to be in recession.”
Yet no recession has appeared on the horizon.
What’s different this time
“We’ve got a number of different indicators that just haven’t panned out,” said Jim Paulsen, a veteran economist and strategist who has worked at Wells Fargo among other firms. “We’ve had a number of things that were recession-like.”
Paulsen, who now writes a Substack blog called Paulsen Perspectives, points out some anomalous occurrences over the past few years that could account for the disparities.
For one, he and others note that the economy actually experienced that technical recession prior to the inversion. For another, he cites the unusual behavior by the Federal Reserve during the current cycle.
Faced with runaway inflation at its highest rate in more than 40 years, the Fed started raising rates gradually in March 2022, then much more aggressively by the middle part of that year — after the inflation peak of June 2022. That’s counter to the way central banks have operated in the past. Historically, the Fed has raised rates early in the inflation cycle then started cutting later.
“They waited until inflation peaked, and then they tightened all the way down. So the Fed’s been completely out of synch,” Paulsen said.
But the rate dynamics have helped companies escape what usually happens in an inverted curve.
One reason why inverted curves can contribute to a recession as well as signal that one is occurring is that they make shorter-term money more expensive. That’s hard on banks, for instance, that borrow short and lend long. With an inverted curve hitting their net interest margins, banks may opt to lend less, causing a pullback in consumer spending that can lead to recession.
But companies this time around were able to lock in at low long-term rates before the central bank starting hiking, providing a buffer against the higher short-term rates.
However, the trend raises the stakes for the Fed, as much of that financing is about to come due.
Companies needing to roll over their debt could face a much harder time if the prevailing high rates stay in effect. This could provide something of a self-fulfilling prophecy for the yield curve. The Fed has been on hold for a year, with its benchmark rate at a 23-year high.
“So it could very well be the case that the curve’s been lying to us up until now. But it could decide to start telling the truth here pretty soon,” said Zandi, the Moody’s economist. “It makes me really uncomfortable that the curve is inverted. This is one more reason why the Fed should be lowering interest rates. They’re taking a chance here.”
Temperature-controlled storage and logistics giant Lineage Inc. raised about $4.4 billion in an enlarged initial public offering, landing the year’s biggest first-time share sale. Novi, Michigan-based Lineage sold nearly 57 million shares Wednesday for $78 each, near the top of the price range, according to a statement confirming an earlier report by Bloomberg News. The company had marketed 47 million shares for $70 to $82 apiece. With the upsize, Lineage has a market value of about $19 billion, based on the number of outstanding shares in its filings with the US Securities and Exchange Commission. The Bay Grove Capital-backed REIT’s IPO is the largest in the US since ARM Holdings Plc’s offering in September, and a rare sizable listing in the summer months. Aside from a handful in 2020 and 2021 when the pandemic disrupted travel, only three companies in the past decade raised more than $1 billion on US exchanges in July, data compiled by Bloomberg show. Read More: IPOs Finally Bring Summer Heat With $5.5 Billion in Deals on Tap Norway’s $1.7 trillion sovereign wealth fund has indicated an interest in buying as much as $900 million worth of Lineage shares at the IPO price, according to the filings.
Lineage’s listing is good news for the 20 underwriters and other financial institutions named in its filings. US IPO volume has recovered this year from a relatively quiet period, with companies raising more than $22 billion according to data compiled by Bloomberg. That’s nearly two-thirds higher than the corresponding period last year, but below the average in the decade before the pandemic, the data show.
Other companies that have launched US first-time share sales this week include KKR & Co.-backed software company OneStream Inc., whose IPO raised about $490 million on Tuesday. Read More: KKR-Backed OneStream Shares Climb 34% After $490 Million IPO Lineage, led by Chief Executive Officer Greg Lehmkuhl, had 482 warehouses in 19 countries with 3 billion cubic feet of capacity as of March 31, the filings show. Bay Grove will continue to have a majority of the voting power following the IPO. The company had a historical net loss of $96.2 million on revenue of $5.3 billion in 2023, compared with a net loss of $76 million on revenue of $4.9 billion a year earlier, according to the filings. The joint bookrunning managers include Morgan Stanley, Goldman Sachs Group Inc., Bank of America Corp., JPMorgan Chase & Co. and Wells Fargo & Co. KKR is its lead financial adviser. Lineage is expected to begin trading Thursday on the Nasdaq Global Select Market under the symbol LINE.
The new government plans a partnership between Great British Energy and the Crown Estate to build more wind turbinesJOHN KEEBLE/GETTY IMAGES
Ed Miliband will say the state should “own and build things again” on behalf of the public as he announces plans for thousands of offshore wind turbines on sea bed owned by the Crown Estate.
The energy security and net-zero secretary is to announce plans for Great British Energy (GBE), Labour’s publicly owned energy company, to form a partnership with the Crown Estate, which owns swathes of Britain’s sea bed.
Under the plans, which represent an explicitly interventionist approach to encouraging economic growth and hitting net-zero targets, GBE will develop offshore wind farms with private companies and help push them through the planning process.
The Crown Estate said that it would lease enough land for development to eventually produce 30GW of energy, sufficient to power 20 million homes. The UK currently produces less than half that amount, 14GW, through offshore wind.
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Labour’s offshore wind drive is likely to lead to a significant rise in revenues for the Crown Estate, which is in turn used to fund the sovereign grant that supports the official duties of the King and the royal family.
The monarchy receives 12 per cent of the profits of the Crown Estate with the rest given to the Treasury. The Crown Estate this week disclosed that it made record profits of £1.1 billion, leading to a 50 per cent rise in the sovereign grant from £86 million to £132 million.
Ed Miliband said: “Other countries have also grasped the opportunities of investing in clean energy, but Britain is being left behind”
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Miliband said: “We already have public ownership of energy in this country, by foreign governments. The policy of this government is that it is time for the British people to also own things again and build things again.
“Other countries have also grasped the opportunities of investing in clean energy, but Britain is being left behind. We have tremendous advantages: from our long coastlines and shallow waters to our skilled energy workforce, with deep experience in offshore industries and cutting-edge technologies. The only thing that’s missing is a long-term plan to harness these significant assets.”
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On Thursday Labour will table two pieces of legislation to push through its green energy plans. The first will establish GBE, which will receive £8.3 billion of funding over the course of this parliament and be headquartered in Scotland. The second will give the Crown Estate new borrowing powers to help it invest more in preparing sea beds for companies to build offshore turbines.
Starmer said: “This innovative partnership between Great British Energy and the Crown Estate is an important step toward our mission for clean energy by 2030, and bringing down energy bills for good.
“This agreement will drive up to £60 billion in investment into the sector, turbocharging our country toward energy security, the next generation of skilled jobs, and lowering bills for families and business.”
GBE will attempt to attract significant levels of private investment by reducing the risk for businesses. It will make joint investments in green projects and lead them through the early stages of development.
The government believes that the partnership could halve the amount of time between an offshore wind turbine being built and delivering electricity to homes. The process currently takes between ten and 15 years. Under the plans GBE and the Crown Estate will lead projects through the planning process before construction starts. They will work with the electricity systems operator, which manages the country’s electricity system, to secure connections and conduct technical and environmental surveys to speed up the development and approval processes.
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Officials will also look at how GBE could join forces with Great British Nuclear, a public body that helps bring forward new nuclear energy projects, and support local energy generation projects through partnerships with local councils.
Miliband is also expected to press ahead with a new generation of mini nuclear power plants, with plans to unveil reactor designs by September. Advocates of the technology say that factory-made standard designs will be far easier and cheaper to build than conventional plants. Given lower cooling demands, reactors which produce a third to a half as much power as large-scale plants may also be able to be built inland, using rivers and lakes or even cooling towers instead of sea water.
But the smaller prefabricated reactors are yet to be commercially deployed. Five companies submitted bids last week to a government competition aiming to get the technology operational by the end of the decade.
Global Market Research Data by Media Air Base, LLC a Media Press Entertainment Production
