Dow Drops, Peloton Gains—and What Else Happened in the Stock Market Today

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Stocks rallied at the start of July, but have slipped back this week.

Angela Weiss/AFP via Getty Images

The stock market dropped Tuesday as the dollar rose to new heights, amid more concern about the health of the global economy.

The Dow Jones Industrial Average dropped 193 points, or 0.6%. The S&P 500 and the Nasdaq Composite fell 0.9% and 1%, respectively.

The U.S. Dollar Index (DXY) rose 0.1% to just over 108. That is a new multidecade high. The greenback is now up about 17% in the past year and it is up double digits in percentage terms for 2022. 

That is not only a sign that investors are seeking the safety of the dollar, but it also threatens to dent U.S. companies’ earnings. That is because sales made overseas translate into fewer dollars when the dollar strengthens. Historically, every percentage point gain in the dollar year-over-year translates into a half percentage point drop in S&P 500 earnings per share growth, according to Morgan Stanley .  

“The strong dollar will be seen in the upcoming earnings reports as it will haircut foreign revenues and earnings for companies with significant international exposure,” wrote Louis Navellier, founder of Navellier & Associates.

The dollar’s recent strength comes as Germany’s ZEW Economic Sentiment Index fell to -53.8 in July, down from -20.8 in June, hitting its lowest level since 2011. The European economy has struggled this year, as soaring inflation, made worse by Western countries’ restrictions on oil from Russia, has dented demand. Now global investors are rushing into safe assets like the dollar.

“Rising recession concerns in the EU…continue to drive the dollar relentlessly higher vs. the euro, pound and yen,” wrote Tom Essaye, founder of Sevens Report Research.

All of these fears are sending investors into government bonds, too. The 10-year Treasury yield dipped to 2.96% from a Monday close of 2.99%, as bond prices rose. 

The move into safety—and out of riskier assets—was also sending the price of oil lower. WTI crude oil was down more than 8% to $95 a barrel. A stronger dollar also makes buying oil more expensive, reducing demand for barrels.

The decline in oil prices sent the Energy Select Sector SPDR Exchange-Traded Fund (XLE) falling 1.9%.

All of that aside, Wednesday will be crucial for markets for the near-term. The consumer price index will be released and economists expect the second consecutive reading of more than 8% annualized growth in prices. If markets see the result as far too high, it will spur bets that the Federal Reserve isn’t yet close to slowing down the pace of interest rate hikes. That could stoke a stock market selloff. If inflation comes in lighter than expected, especially with oil prices down, stocks could rally. 

The good news is that the stock market has already reflected much of the high inflation — and the aggressive rate hiking path that has resulted. The S&P 500 is down just over 20% from its all-time high, hit in January. 

“We expect equities to have another near-term pop (risk-on rally) if headline CPI is in-line with, slightly above, or well below the consensus,” wrote Chris Harvey, equity strategist at Wells Fargo. 

Overseas, the pan-European Stoxx 600 rose 0.5%, and Hong Kong’s Hang Seng Index fell 1.3%, with Asian indexes broadly in the red amid a renewed surge of Covid-19 cases in China and the prospect of fresh lockdowns.

Here are some stocks on the move Tuesday:

Peloton Interactive (ticker: PTON) stock rose 3.7% after the company said it would stop making its own bikes and instead it will have Taiwanese manufacturer Rexon Industrial Corp. produce them. 

PepsiCo (PEP) stock fell 0.6% after the company reported a profit of $1.86 a share, beating estimates of $1.74 a share, on sales of $20.2 billion, above expectations for $19.5 billion. 

Southwest Airlines (LUV) stock gained 4.7% after getting upgraded to Positive from Neutral at Susquehanna.

Sherwin-Williams (SHW) stock rose 1.9% after getting upgraded to Buy from Neutral at Northcoast. 

United Parcel Service (UPS) stock fell 2.8% after getting downgraded to Under Perform from Peer Perform at Wolfe Research. 

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com and Jack Denton at jack.denton@dowjones.com