Archives: Reuters Articles

Aug 1 (Reuters) – Wall Street ended lower after a choppy session on Monday, with declines in Exxon Mobil (XOM) and other energy companies weighing against gains in Boeing (BA) as investors digested the US stock market’s biggest monthly gains in two years.

Stocks gave up some of a strong rally from last week that was driven by bets the Federal Reserve may not need to be as aggressive with interest rate hikes as some had feared.

Also helped by stronger-than-expected second-quarter results, the S&P 500 and the Nasdaq in July posted their biggest monthly percentage gains since 2020.

The S&P 500 bounced between gains and declines on Monday as some investors became more cautious in the wake of that recent rally.

The Federal Reserve says it aims to tame inflation and cool down demand with the interest rate hikes, but some investors and analysts worry that its aggressive moves could drive up unemployment and cripple the economy.

“There are still a lot of questions about whether we are really out of the woods economically, and we probably aren’t,” said Tom Martin, senior portfolio manager at GLOBALT Investments in Atlanta. “We’re not even close on the (economic) effects of the Fed raising interest rates.”

US manufacturing activity slowed-less-than-expected in July, with signs that supply constraints are easing, a report showed.

That data came on the heels of surveys indicating factories across Asia and Europe struggled for momentum in July as flagging global demand and China’s strict COVID-19 curbs slowed production.

Oil prices fell on demand concerns, which in turn weighed on the energy sector. The S&P 500 energy index tumbled and was the deepest decliner among 11 sectors.

Exxon Mobil slid 2.5% and was among the stocks contributing the most to the S&P 500’s decline.

A monthly US jobs report on Friday will be parsed for clues about the Fed’s next moves in its fight against decades-high inflation.

The US central bank has raised interest rates by 2.25 percentage points so far this year and has vowed to be data-driven in its approach toward future hikes.

Boeing Co. (BA) gained 6.1% after Reuters reported the US aviation regulator approved the planemaker’s inspection and modification plan to resume deliveries of 787 Dreamliners.

The S&P 500 is down about 14% in 2022. However, recent quarterly reports have shown companies’ profits were far more resilient than estimated. Of 283 S&P 500 companies that have reported results, 78% have topped profit estimates, as per Refinitiv data. The long-term average is 66%.

The S&P 500 declined 0.28% to end the session at 4,118.59 points.

The Nasdaq declined 0.18% to 12,368.98 points, while Dow Jones Industrial Average declined 0.14% to 32,798.60 points.

US House of Representatives Speaker Nancy Pelosi was set to visit Taiwan on Tuesday. China warned that its military would never “sit idly by” if she visited the self-ruled island claimed by Beijing.

PerkinElmer Inc. (PKI) jumped after the medical diagnostic firm said it will sell some of its businesses along with the brand name to private equity firm New Mountain Capital for up to USD 2.45 billion in cash.

Across the US stock market, declining stocks outnumbered rising ones by a 1.1-to-one ratio.

The S&P 500 posted 5 new highs and 31 new lows; the Nasdaq recorded 68 new highs and 98 new lows.

Volume on US exchanges was relatively light, with 10.3 billion shares traded, compared to an average of 10.8 billion shares over the previous 20 sessions.

(Reporting by Aniruddha Ghosh, Devik Jain and Bansari Mayur Kamdar in Bengaluru, and by Noel Randewich in Oakland, Calif.; Editing by Aurora Ellis)

NEW YORK, July 29 (Reuters) – Shares of smaller US companies are outpacing a rally in the broader equity market as they draw investors looking to scoop up cheaply valued stocks and those betting the group has already priced in an economic slowdown.

The small-cap Russell 2000 jumped 10.4% in July against a 9.1% gain for the benchmark S&P 500, its biggest percentage-point outperformance on a monthly basis since February.

Small caps tend to be more domestically oriented, less profitable and carry a heavier debt load than their larger counterparts, often putting them in the firing line when worries over the economy take hold and markets become volatile.

This year was no exception: the Russell 2000 has fallen 16% in 2022 despite July’s rebound, compared with the S&P 500’s 13.3% drop, as the Federal Reserve tightened monetary policy faster than expected to fight red-hot inflation and sapped appetite for risk across markets.

The small-cap index is now at its cheapest versus the large- cap Russell 1000 since March 2020, according to Jefferies data, catching the eye of some bargain-hunting investors.

“There was an enormous amount of damage in the small-cap space,” said Francis Gannon, co-chief investment officer at Royce Investment Partners. “This is among the cheapest segments of the US market.”

Gannon has been increasing positions in small caps, focusing on industrials, materials and technology companies in the space.

Some investors also believe that prices for small caps – which are viewed as more attuned to the economy’s fluctuations – may already be reflecting a potential recession, limiting their downside if predictions of one come to pass.

Data this week showed US gross domestic product contracted for a second straight quarter, fulfilling an often-cited definition of a recession. However, the National Bureau of Economic Research, which is the official arbiter of business cycles, has yet to declare a recession and Fed Chair Jerome Powell said this week it was unlikely the economy was in one, citing a strong employment backdrop.

Small caps appear to be “baking in a lot of economic pain already,” RBC Capital Markets analysts said in report earlier in July.

“Recessions have tended to be good buying opportunities for Small Caps,” they added.

The bank also noted that the Russell 2000’s forward price-to-earnings ratio has been trading in the 11-13 times range, “which tends to mark its bottom.”

Citi US equity strategists earlier this week wrote “stocks down the market cap spectrum appear closer to pricing in recession than their Large Cap peers.”

Not everyone is convinced it is time to buy small caps. Appetite for shares of smaller companies could quickly sour if inflation remains persistent and the Fed is forced to raise rates more aggressively than expected, inflicting more pain on the economy.

The central bank hiked interest rates by 2.25 percentage points already this year as it fights the worst inflation in four decades, but Powell offered little specific guidance about what to expect next during his news conference following Wednesday’s Fed meeting.

“There might be some more disappointing economic news to come even though the market is (already) pricing in somewhat of a mild recession,” said Angelo Kourkafas, an investment strategist at Edward Jones, which recommends clients “underweight” small caps for now.

The economy’s strength faces a key test next week, when the monthly US jobs report for July is released. Economic data is expected to be especially important for market sentiment in the next two months to give cues for the Fed’s next moves.

Analysts at the Wells Fargo Investment Institute said smaller companies will be challenged to maintain profitability and healthy cash positions as the economy slows. The firm projects the US economy will be in a recession in the second half of 2022 and into early 2023.

“We don’t think this move in small caps has legs,” said Sameer Samana, senior global market strategist at the Wells institute.

(Reporting by Lewis Krauskopf and David Randall in New York; Editing by Matthew Lewis)