Weaker GDP Pushes Equities Lower

After a week's worth of mixed economic data, all eyes were squarely fixated on the second quarter GDP report. Ahead of the official release, uncertainty had manifested in advancing Treasuries and falling equity markets. U.S. equity futures were indicating a lower open on the heels of declines in Asia overnight and a weak session in Europe.

The primary concern was the report would prove to be the culmination of the underperformance we've seen in the recent monthly data. Global market participants are concerned an economic slowdown in the U.S. will dampen the global recovery. Those fears proved accurate.  The Advance Q2 GDP figure of 2.4% came up shy of the Briefing.com consensus forecast of 2.5%.

The chain deflator rose 1.8% compared to estimates of 1.1%. The pull-forward effect from fiscal stimulus programs came through as Q1 GDP was revised a full percentage point from 2.7% to 3.7%.

The market is turning lower in the aftermath. Our feeling is the market is likely divorcing itself from the Q1 revision and instead focusing on the 2.4% figure to which inventories and government spending together added 1.9%. This indicates just how much the government has its hand in GDP remaining positive. Moreover, final sales only contributed a modest 1.3%. The sluggish nature of the recovery could keep businesses conservative in hiring and investment, which will only put further strain on end demand.

Also out today will be July Chicago PMI at 9:45 a.m. ET, where the consensus sits at 56.3, down from the prior reading of 59.1. The final Michigan Sentiment reading hits the wires at 9:55 a.m. ET, where the consensus is 67.5, up from the prior at 66.5.

In the Treasury market, yields on the 2-year have backed up to record all time lows at 0.55% (last hit on July 21). The reaction in the Treasury market following the GDP release was notable, with 10-year yields moving lower to 2.92%. Ahead of the report, copper and crude were lower, while gold crept higher. Crude is now heading into the $77/bl level.

The yen strengthened to its strongest level in eight months. The net affect was heavy selling in the Nikkei as traders and investors alike took profits ahead of the GDP report in the U.S. Also making an impact was weaker industrial production and employment data in Japan, heightening calls for fiscal policies aimed at growth rather than restraint.

After posting its strongest gains in month, the euro is holding steady at the 1.30 level against the dollar.

The S&P 500 has advanced nearly 7% in the month of July -- the largest monthly gain in more than a year. The prime catalyst, earnings, with nearly 80% of companies reporting surpassing expectations.

The health care sector was in focus today with beats from McKesson (MCK), Merck (MRK), and Coventry Health (CVH). Disney (DIS) announced the sale of Miramax Films to an investor group for $660 mln.  The sale is hardly surprising, despite its Oscar-laden inventory of films, as Miramax is the odd ball in Disney's family franchise.

The Nasdaq has declined for three consecutive days on weaker-than-expected reports and guidance from semis, storage, and component industries. To wit, Samsung Electric's tone for the second half was quite cautious, warning memory prices would fall. Semi-equipment giant KLA-Tencor's (KLAC) upside result and earnings will lend support.

The news has been incrementally better for telecoms and telecom equipment. The exception is Alcatel-Lucent (ALU), which posted a net loss per share of $0.08.

There are also several reports out from the REIT industry providing insight into a struggling commercial real estate sector.

The market will once again have a full week of earnings and economic data to digest. The results thus far have been unequivocally strong, which is likely to force Wall Street analysts to raise estimates for the quarters ahead.

--Kimberly DuBord, Briefing.com

Kimberly DuBord is the Director of Research for Briefing Research, Briefing.com's new strategic investment research service. To request a free trial please email researchsales@briefing.com.