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Mixed day on Wall Street with McDonald's sparking Dow Jones dip

Published 26/07/2016

It was a mixed day for traders on Wall Street
It was a mixed day for traders on Wall Street

Stocks had a muddled session on Tuesday, as investors worked through a large batch of corporate earnings from a range of companies including Gilead Sciences, McDonald's and Texas Instruments.

McDonald's shares had their biggest one-day percentage decline since the financial crisis, weighing heavily on the Dow Jones industrial average.

The Dow closed down 19.31 points, or 0.1%, to 18,473.75. The Standard & Poor's 500 index was effectively flat, rising 0.7 of a point, or 0.03%, to 2,169.18 and the Nasdaq composite rose 12.42 points, or 0.2%, to 5,110.05.

The decline in the Dow was due to McDonald's, which fell 5.69 US dollars, or 4.5%, to 121.71 dollars. Because the Dow is price-weighted and McDonald's is among the most expensive of the 30 stocks that make it up, the company's shares have an outsized influence on the index.

McDonald's reported disappointing growth in the US sales rose a meagre 1.8% from a year ago, even with the restaurant chain rolling out an all-day breakfast menu.

Wall Street is in the midst of its busiest week for corporate earnings, with 203 members of the S&P 500 reporting their results. So far, earnings have been better than what analysts had anticipated. Roughly 68% of all companies who have reported their results have beaten expectations, according to FactSet.

"You've seen better earnings, especially from companies that do a lot of business internationally," said Kate Warne, investment strategist for Edward Jones. "It is part of what's powered the market higher in July."

In particular, this week is a big one for tech earnings. Apple and Twitter report after the closing bell Tuesday and Google, Amazon and Facebook release their results later this week.

The market's rally this month has given some investors pause. After an initial wobble in the days following Britain's vote in late June to leave the European Union, the S&P 500 has surged 3.3%. Now the index is trading at 19 times expected earnings, which is historically high compared to the 14 to 16 times the index typically trades at.

"We have moved very far, very fast after the UK vote," said David Lebovitz, a global market strategist at JP Morgan Asset Management. "We are going to need a bit of time to find the market's new neutral spot after this run-up."

The Federal Reserve started two-day policy meeting on Tuesday. Economists do not expect the nation's central bank to raise interest rates from their current rate of 0.25% to 0.5%, but will be looking for any signals that policymakers are looking to raise rates later this year.

An interest rate decision is expected on Wednesday afternoon.

In other company earnings, Texas Instruments rose 5.20 US dollars, or 8%, to 71.42 dollars after the technology company's quarterly results were better than anticipated. The company also issued a strong forecast for the third quarter.

Consumer and industrial products manufacturer 3M fell 1.97 dollars, or 1.1%, to 177.66 dollars after the maker of Post-Its and Scotch Tape said it was trimming its sales forecast for the year.

Drugmaker Gilead Sciences fell 7.50 dollars, or 8.5%, to 81.05 dollars after the company cut its full-year sales. While the company saw sales gains in its HIV drugs, the company said it was facing pricing pressure and slower-than-expected demand for its most important drug Harvoni, which cures Hepatitis C, and its other Hep-C drugs like Solvaldi.

Benchmark US crude fell 21 cents to close at 42.92 dollars a barrel on the New York Mercantile Exchange. Brent crude, used to price international oils, rose 15 cents to close at 44.87 dollars a barrel in London.

In other energy commodities, heating oil rose less than one cent to 1.33 dollars a gallon, wholesale petrol futures rose 1 cent to 1.35 dollars a gallon and natural gas fell four cents to 2.71 dollars per 1,000 cubic feet.

Bond prices rose. The yield on the 10-year U.S. Treasury note fell to 1.56% from 1.57%. The dollar declined to 104.62 yen from 105.85. The euro edged up to 1.0987 from 1.0989 dollars.

Gold rose 1.30 dollars to 1,320.80 dollars an ounce, silver rose four cents to 19.68 dollars an ounce and copper rose less than a penny to 2.23 dollars a pound.


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