The stock market is going to open lower today and one doesn't have to dig too deep to understand why. Amazon.com (AMZN) fell shy of some very lofty second quarter earnings expectations and its stock is trading 3.4% lower following the report.
With Amazon, though, it is difficult to determine if the drop in its stock price is a reflection of genuine disappointment or simply a case of selling the news after a huge run in the stock. To wit, AMZN is up 39% year-to-date, and at its high on Thursday, it was up 14% from its close on July 3. With those huge moves, we suspect AMZN would be down a lot more than 3.4% if its investor base was truly disappointed in its report and outlook.
Nevertheless, the weakness in this favorite momentum stock is weighing on the broader market along with the weaker than expected results from ExxonMobil (XOM) and the disappointing guidance from Starbucks (SBUX).
The expected weakness at the start of trading, however, could be about more than what meets today's headline eye.
The sharp reversal in the Nasdaq yesterday on no news, and the beating the Dow Jones Transportation Average took (-3.1%), likely has a number of participants thinking that this latest leg up to new record highs for the major indices has run its course.
That thinking could apply more to the Nasdaq Composite, which led the race, rallying 3.9% this month on the coattails of its biggest components, versus a 2.2% run for the S&P 500 and a 2.1% gain for the Dow Jones Industrial Average.
At the moment, the Nasdaq 100 futures are down 27 points and are trading 0.6% below fair value. The S&P futures are down six points and are trading 0.3% below fair value while the Dow Jones Industrial Average futures are down 32 points and are trading 0.2% below fair value.
Like the response to Amazon's report, the advance estimate for Q2 GDP was less than thrilling. Real GDP was estimated to have increased at a seasonally adjusted annual rate of 2.6% (Briefing.com consensus 2.8%) following a downwardly revised 1.2% increase (from 1.4%) for the first quarter. Real final sales, which exclude the change in private inventories, were also up 2.6%.
The GDP Price Deflator was up 1.0% (Briefing.com consensus 1.3%) following an upwardly revised 2.0% (from 1.9%) for the first quarter.
The largest contributors to the increase in Q2 GDP were personal consumption expenditures (1.93 percentage points), gross private domestic investment (+0.34 percentage points), and net exports (+0.18 percentage points).
In conjunction with the Q2 GDP report, the BEA released annual benchmark revisions for 2014 through the first quarter of 2017. With the revisions, it was said that real GDP from 2013 to 2016 increased at an average annual rate of 2.3% versus 2.2% with the previously published estimates. From the fourth quarter of 2013 to the first quarter of 2017, real GDP increased at an average annual rate of 2.1%, which was unchanged from previously published estimates.
The key takeaway from the Q2 GDP report, then, is that the average for the first half of 2017 was subpar at 1.9%, which should continue to keep any concerns about the prospect of a near-term rate hike from the Fed under wraps.
Separately, the second quarter Employment Cost Index revealed compensation costs for civilian workers increased 0.5% (Briefing.com consensus 0.6%), seasonally adjusted, on the heels of an unrevised 0.8% increase for the first quarter. Wages and salaries, which make up about 70% of compensation costs, increased 0.5% while benefits, which make up the remaining portion, jumped 0.6%.
The indexes that are going to be more closely watched today, however, are the equity price indexes. They are indicated to open lower, partly because the earnings news since yesterday's close hasn't been above reproach, but mostly because of some valuation concerns and exhausted buying power.