By William Watts, MarketWatch , Andrea Riquier
Bank of America tops earnings expectations
Stocks opened lower Wednesday, as tensions between the U.S. and
China over Hong Kong protests weighed on efforts to complete a
trade deal, and after a weak retail sales report offset
better-than-expected corporate earnings reports.
What are major indexes doing?
The Dow Jones Industrial Average was about 58 points, 0.2%,
lower, in mid-morning trading, at 26,966, while the S&P 500 was
off about 6 points, 0.2% lower, to start trading at 2,989.70. The
Nasdaq was down 25 points, 0.3%, lower, at 8,123.
On Tuesday, the Dow rose 237.44 points, or 0.9%, to end at
27,024.80, while the S&P 500 advanced 29.53 points, or 1%, to
close at 2,995.68, leaving it 1% away from its all-time closing
high of 3,025.86 set on July 26. The Nasdaq Composite finished at
8,148.71 after gaining 100.06 points, or 1.2%.
What's driving the market?
China threatened to retaliate over a series of bills backing
pro-democracy protesters
(http://www.marketwatch.com/story/house-backs-3-bills-to-support-pro-democracy-protesters-in-hong-kong-2019-10-15)
in Hong Kong that unanimously passed the House of Representatives
late Tuesday. A spokesman for China's foreign ministry said that if
the legislation were to become law "it wouldn't only harm China's
interest in China-U. S. relations, but would also seriously damage
U.S. interests."
"We think it's possible this bill will push China into a public
show of defiance against U.S. 'interference,'" which could mean a
crackdown on Hong Kong protesters, said Jasper Lawler, head of
research at London Capital Group, in a note.
"Under that scenario, markets would be relieved if China's
retaliation kept the trade pact intact. However, higher political
uncertainty in Hong Kong would be a sizable downside risk," Lawler
said.
See:China vows 'strong countermeasures' in wake of U.S. bill
supporting Hong Kong protesters
(http://www.marketwatch.com/story/china-vows-strong-countermeasures-in-wake-of-us-bill-supporting-hong-kong-protesters-2019-10-16)
(http://www.marketwatch.com/tools/calendars/economic)The Wall
Street Journal reported
(https://www.wsj.com/articles/doubts-persist-over-chinas-commitment-to-u-s-farm-purchases-11571218201)
there are questions about the amount of U.S. agricultural products
China will actually buy as part of the tentative trade deal
announced last week.
In economic data, a report on U.S. September retail sales
(http://www.marketwatch.com/story/us-retail-sales-snap-6-month-winning-streak-in-september-as-receipts-fall-03-2019-10-16)
missed expectations, falling for the first time in seven months.
Sales fell 0.3%, while economists surveyed by MarketWatch, had
looked for a 0.3% increase. Shortly after that release, Fed Funds
Futures showed a 90% likelihood that the central bank would cut
interest rates
(http://www.marketwatch.com/story/probability-of-an-october-fed-rate-cut-soars-after-disappointing-retail-sales-data-2019-10-16)
at its October meeting, up sharply from 78% on Tuesday.
"Today's retail sales miss pretty much seals a 25-basis point
rate cut at the end of the month," said Edward Moya, OANDA senior
market analyst.
"This is a major release and when we take a look at U.S. data
leading up to the Fed meeting, there's not a whole lot more that's
going to move them," Moya told MarketWatch. His own forecast is for
three-four more rate cuts and an expansion of Fed bond-buying over
the next 12 months or so.
That's in large part because investors have mostly decided
there's no broad China trade deal coming soon, Moya said. At best,
there may be some temporary measures and a "de-escalation" of the
tariffs, but if the Fed doesn't deliver rate cuts, there's likely
to be some pushback from markets, he thinks.
The weak U.S. retail sales data added to concerns over the
potential for a recession while the IMF warned
(http://www.marketwatch.com/story/us-stock-market-is-overvalued-imf-says-2019-10-16)
that the U.S. stock market was overvalued as belief in a Federal
Reserve rescue for the economy is allowing investors to ignore
tensions over international trade policy.
Separately, a reading on U.S. home-builder confidence, often
seen as a precursor to stronger construction activity, hit a
20-month high.
Which stocks are in focus?
Shares of Bank of America Corp.(BAC) were higher after the
company reported third-quarter profit that topped Wall Street
expectations.
Other earnings expected ahead of the bell Wednesday include
Abbott Laboratories(ABT). After the close, results are expected
from streaming-video company Netflix Inc.(NFLX), computing giant
International Business Machines Corp.(IBM), metals maker Alcoa
Corp.(AA) and railroad CSX Corp.(CSX).
Shares of United Airlines Holdings Inc.(UAL) were higher after
third-quarter profit reported after Tuesday's close topped
expectations and the company raised guidance for the year
(http://www.marketwatch.com/story/united-airlines-stock-higher-after-company-raises-guidance-tops-profit-views-2019-10-15).
Shares of MGM Resorts International(MGM) may be in focus after
it announced late Tuesday that it would
(http://www.marketwatch.com/story/mgm-selling-circus-circus-huge-stake-in-bellagio-2019-10-15)sell
its Circus Circus casino resort in Las Vegas and a huge interest in
its Bellagio resort.
Three major drug distributors are in talks to pay $18 billion to
settle litigation brought by state and local governments blaming
them for fueling the opioid crisis, The Wall Street Journal
reported
(http://www.marketwatch.com/story/major-drug-distributors-in-talks-to-settle-opioid-lawsuits-for-18-billion-2019-10-15),
potentially offering a resolution to lawsuits that have shaken the
pharmaceutical industry.
That report said that three distributors -- McKesson Corp.(MCK),
AmerisourceBergen Corp.(ABC), and Cardinal Health Inc.(CAH) would
collectively pay $18 billion over 18 years according to the deal
currently on the table. Johnson & Johnson(JNJ) is also involved
in the talks to contribute additional funds, the report said.
How are other markets trading?
In commodities, crude oil prices were fractionally higher,
trading at $53 a barrel on the New York Mercantile Exchange. Gold
futures ticked up $6.70, or 0.4%, to $1,488.60. The dollar was
0.16% lower than a basket of other currencies. The U.S. 10-year
Treasury note was one basis point lower to 1.76.
(END) Dow Jones Newswires
October 16, 2019 10:30 ET (14:30 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.