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Stocks pull back from July rally on weak earnings

Pedestrians walk on a foot bridge as the Oriental Pearl Tower is seen in Pudong's Lujiazui Financial District in Shanghai, China on June 21.  (Raul Ariano/Bloomberg)
By John Viljoen Bloomberg

The stock rally that catapulted the S&P 500 to a 16-month high lost momentum after a flurry of companies reported disappointing earnings.

JetBlue sank after slashing its full-year profit forecast and saying it would earn less than analysts expected this quarter. Pfizer slipped after the drugmaker reduced its sales outlook.

Cruise operators fell as Norwegian Cruise Holdings gave an earnings guidance that trailed the average analyst estimate.

BMW dropped after warning about higher costs for developing electric cars, while logistics giant DHL Group gave a profit guidance that missed analyst estimates.

The results highlight growing concern about the durability of corporate earnings and questions about whether stocks can keep gaining.

With the S&P 500 now less than 5% away from an all-time high, there are signs that investors are taking a pause before U.S. employment figures and earnings from giants Apple and

“When we look forward from here, we feel that the drivers for the rally may become a little bit more mixed,” said Karim Chedid, head of EMEA iShares investment strategy at BlackRock International.

“We still don’t feel that the trough in earnings has come yet. Whilst the macro picture has been stronger than expected, there is no doubt that the tightening from central bank policy is starting to come through.”

The S&P 500 halted a two-day advance. The dollar rose against all of its Group-of-10 counterparts. Treasury yields climbed across the curve.

The S&P 500 on Tuesday received its most bullish outlook from Oppenheimer Asset Management, which predicts further strength in stocks as the Federal Reserve nears a pivot and the U.S. economy stays resilient.

Chief Investment Strategist John Stoltzfus raised his year-end price target on the index to 4,900, leaving room for a near 7% advance through the end of the year, the most bullish among Wall Street strategists tracked by Bloomberg.

The S&P 500 would end the year about 28% higher at a record if his forecast materializes, the best performance since 2019.

“A broadening of the rally across S&P 500 sectors suggests that the bull market that emerged from the October 2022 lows has legs to run higher into 2024,” Stoltzfus said.

In other individual stock moves Tuesday, Uber Technologies climbed after the ride-hailing company reported better-than-expected net income.

JetBlue fell after slashing its profit forecast. Caterpillar gained as profit from the maker of yellow bulldozers and excavators beat expectations.

In China, home sales plunged by the most in a year last month, underscoring why policymakers need to address faltering demand and a liquidity crunch in the sector.

Caixin PMI figures showed factory activity contracted in July, missing economists’ estimates for a small expansion.

The yen traded weaker against the dollar, adding to Monday’s decline, amid sluggish demand at a 10-year bond auction.

While investors had earlier anticipated that the Bank of Japan is moving toward letting yields rise after a tweak to its yield-curve control policy, it bought bonds on Monday to anchor rates.

The Australian dollar declined against the greenback after the nation’s central bank unexpectedly held interest rates unchanged and traders pared bets on further tightening.