U.S. stocks closed lower Friday, with the Dow pressured by a plunge in the shares of Boeing and Johnson and Johnson, after a good start to the third quarter corporate earnings season, despite worries about global economic growth.
After a report that Boeing failed to turn over communications between its employees during the certification of the grounded 737 Max jet, Boeing (NYS:BA) shares plunged, accounting for about 60 percent of the fall in the price-weighted Dow Jones Industrial Average, erasing its gains for the week.
How did the major indexes do?
The Dow Jones Industrial Average (DOW:DJIA) shed 255.68 points, or 0.95%, at 26,770.2, while the S&P 500 index (S&P:SPX) lost 11.75 points or 0.39% at 2,986.2 and the Nasdaq Composite Index (AMERICAN:COMP) fell 67.31 points or 0.83% to 8,089.54. All told, stocks ended the week less than 3% from their record closes, according to Dow Jones Market Data.
Stocks ended with small gains Thursday, with the Dow up 23.9 points, or 0.1%, at 27,025.88 after flipping between positive and negative territory. The S&P 500 gained 8.26 points, or 0.3%, to close at 2,997.95, while the Nasdaq Composite advanced 32.67 points, or 0.4%, to finish at 8,156.85.
What drove the market?
Shares of Boeing Co. (NYS:BA) fell to a two month low after a report said that internal messages suggest the company misled federal aviation authorities about the safety of the 737 Max jet.
The 737 Max jets have been grounded worldwide since March following two fatal crashes less than five months apart. Their return to service date, pending a fix Boeing has been working on for months, keeps being pushed back. The jets are expected to return to the skies by early 2020.
Johnson & Johnson (NYS:JNJ) fell sharply after the consumer products and drug company said it was recalling “a single lot” of Johnson’s Baby Powder after tests revealed traces of chrysotile asbestos.
However, to date, 15% of S&P 500 index companies have reported actual results for third quarter and 84% have reported earnings per share is above forecasts while 64% have reported sales above estimates, according to Factset, despite ongoing concerns about global economic growth.
China reported growth of the world’s second-largest economy slowed to 6% in the third quarter from a 6.2% pace in the second quarter, and the slowest pace since the early 1990s, as business investment weakened.
“Friday’s data shows that the decline is accelerating and that trade-war frictions are taking their toll faster than expected,” said Fiona Cincotta, senior market analyst at City Index, in a note.
In U.S economic data, the Conference Board’s index of leading indicators fell for a second month, suggesting the economy grew more slowly in September.
“It is the China thing, but with the start of the earnings season, you always get the good numbers first,” said Maris Ogg, president of Tower Bridge Advisors, in an interview with MarketWatch. “For banks, it’s been a mixed-picture on loan growth,” she said. “We are going to be on the edge of our seats” while wait to hear what more earnings reveal about the health of the U.S. consumer.
Stocks were initially buoyed after U.K. and European Union leaders announced a tentative agreement on Brexit, but the agreement still faces a significant hurdle in the U.K. Parliament with a debate and vote set for Saturday.
“We have a Brexit vote on Saturday and short-term money may not want to be long going into the weekend,” said Jim McDonald, chief investment strategist at Northern Trust, in a interview with MarketWatch.
Investors are also aware that Federal Reserve officials are meeting in two weeks and are expected to cut interest rates again, while debating whether they have done enough for now to vaccinate the economy against growing risks of a sharper slowdown.
Federal Reserve Vice Chairman Richard Clarida on Friday said the economy is facing “evident” risks, while inflation remains muted. The Fed has already cut interest rates twice this year “to provide a somewhat more accommodative policy in response to muted inflation pressures and the risks to the outlook,” he noted. Clarida’s comments represent the last public word from the Fed leadership ahead of the Oct. 29-30 meeting.
The IMF and World Bank host annual meetings of global finance chiefs in Washington D.C. Friday and Saturday.
<STRONG>Other stocks in focus</STRONG>
American Express (NYS:AXP) earned $2.08 per share for the third quarter, 5 cents a share above estimates and revenue also came in above analysts’ forecast.
Coca-Cola (NYS:KO) reported adjusted quarterly profit of 56 cents per share, in line with forecasts but revenue was higher than expected. Coca-Cola also reported organic sales growth of 5%, beating forecasts, and also raised its full-year guidance for revenue and operating income.
Schlumberger (NYS:SLB) , the oil field services company beat forecasts by 3 cents with adjusted quarterly profit of 43 cents per share and revenue was above forecasts.
E*Trade Financial (NAS:ETFC) , reported quarterly earnings of $1.08 per share, 7 cents a share above estimates and revenue beat forecasts.
<STRONG>How did other markets perform?</STRONG>
U.S. Treasury yields were mostly lower on Friday as investors eyed developments on Brexit ahead of Parliament’s vote on the weekend. The 10-year Treasury note yield (XTUP:BX:TMUBMUSD10Y) fell a basis points at 1.747%.
Oil futures finished lower on Friday, giving up earlier gains to build a loss for the week, as data showing slower Chinese economic growth fed worries about weaker demand for oil and a recent report revealed a fifth consecutive weekly rise in U.S. crude inventories. West Texas Intermediate crude for November delivery ended 15 cents lower, or 0.3%, at $53.78 a barrel on the New York Mercantile Exchange.
Gold settled lower on Friday, failing to get a lift from a round of weak economic data out of China or a softer U.S. dollar, as bears look for the precious metal to continue its retreat from more-than-six-year highs set last month. Gold for December delivery on Comex closed down $4.20, or 0.3%, at $1,494.10 an ounce, according to FactSet data.
The ICE U.S. dollar index (IFUS:DXY) fell 0.3% to 97.35 Friday, pressured by strength in sterling (XTUP:GBPUSD) and the euro (XTUP:EURUSD) after news of a new Brexit agreement this week.