Top 5 Things to Know in the Market on Wednesday, July 22nd

  • Economy News
Top 5 Things to Know in the Market on Wednesday, July 22nd
Credit: © Reuters.

By Geoffrey Smith -- Tesla publishes hotly-awaited results for the second quarter, with its legions of fan-investors betting heavily that another quarterly profit will lead to its inclusion in the S&P 500. Talks over the next stimulus package in Congress are struggling due to differences of opinion between the administration and Senate Republicans, as well as between Republicans and Democrats. Gold looks set to test its all-time high from nine years ago, while silver is also breaking out. Stocks are set to open mixed and weekly U.S. inventories data are weighing on oil prices. Here’s what you need to know in financial markets on Wednesday, July 22nd.

1. Showtime for Tesla 

The moment of truth for Tesla (NASDAQ: TSLA ) is about to arrive. Or rather, the company will publish its second-quarter results after the closing bell, at a time when its valuation is, more than ever, anchored in faith rather than rational economic analysis.

Analysts expect the company to have lost 19 cents a share on revenue of $5 billion in the quarter, but bulls have been sustained by surprisingly strong delivery numbers and by the leak of internal memos from CEO Musk suggesting that the company may break even.

Another quarterly profit would be a necessary – but not sufficient – condition for inclusion in the S&P 500, forcing a multitude of passively-managed funds to hold the stock. Speculation on S&P 500 inclusion has been a major factor behind the stock’s 60% rally since late June.

2. Stimulus negotiations making slow progress

Negotiations on the latest U.S. stimulus package are set to continue, with only nine days left before many of the current support mechanisms expire.

Senate Leader Mitch McConnell said on Tuesday that he would propose a new round of direct payments to those below a certain earnings threshold, similar to the $1,200 checks issued earlier in the year. However, the $1 trillion price tag mooted by Republicans is far from the $3 trillion package being prepared by House Democrats.

In addition to sparring with the Dems, it isn’t clear whether Senate Republicans are in agreement with President Trump’s desire to see a payroll tax cut included in the bill.

3. Stocks set to open mixed. Microsoft (NASDAQ: MSFT ), CSX (NASDAQ: CSX ), Chipotle earnings due later

U.S. stock markets are set to open mixed, with the Dow and S&P 500 down but the Nasdaq stabilizing after Tuesday’s retracement from its latest all-time high.

By 6:30 AM ET (1030 GMT), the Dow futures contract was down 120 points or 0.4%, while the S&P 500 futures contract was down 0.4% and the Nasdaq 100 futures contract was essentially flat.

Among the early reporters, Thermo Fisher (NYSE: TMO ) and Check Point Software (NASDAQ: CHKP ) both exceeded expectations for earnings in the three months through June. However, the big releases of the day come after the close, with Microsoft, CSX, Chipotle Mexican Grill (NYSE: CMG ) and Las Vegas Sands (NYSE: LVS ) all joining Tesla in reporting.

4. Gold, Silver rally continues

Gold and silver futures continued to surge after breaking out to historic highs on expectations that low or negative real interest rates will be a fact of life for years to come. By 6:30, gold futures were up 0.8% at $1,857.80 a troy ounce, while silver futures were up 3.9% at $22.40.

Gold's rally comes at a time when the Senate is poised to approve the appointment of Judy Shelton to the Federal Reserve's Board of Governors. Shelton has advocated in the past for a return to the gold standard, a policy that would have powerfully deflationary consequences if reintroduced today. 

Gold now looks set to test the $1,900/oz level for the first time since September 2011, while silver is at its highest since 2013.

5. Oil dips after API stock build

Crude oil prices have retraced from four-month highs after the American Petroleum Institute reported a 7.54 million-barrel rise in U.S. crude stocks last week, almost entirely reversing the previous week’s withdrawal.

The numbers raise fresh doubts about whether U.S. fuel demand can recover sustainably as long as the south and west of the country continue to report rising numbers of deaths and new infections from the coronavirus.

U.S. Crude futures were down 1.1% at $41.45 a barrel, while the international benchmark Brent was down 1.0% at $43.88 a barrel.

The government’s inventory data for last week are due at 10:30 AM ET.

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