Stocks Close Lower After July’s Gains Amid Economic Data….

U.S. stocks finished lower on the first trading day of August after July’s sharp rally, which was the S&P 500’s strongest monthly gain since late 2020, as the markets digested light earnings news and some economic data. The economic week kicked off with some reports on manufacturing activity for last month, with the ISM Manufacturing Index slowing to over a two-year low but growth was stronger than expected and inflation pressures eased decisively though remaining elevated. Another strong dose of earnings season looms this week, and the economic calendar will culminate with Friday’s key July nonfarm payroll report. In equity news, Dow member Boeing Company reportedly cleared the 787 Dreamliner for deliveries and temporarily averted a worker strike. Treasuries closed higher to apply some downside pressure on yields and the U.S. dollar fell. Crude oil prices dropped ahead of this week’s OPEC+ meeting, and gold ticked higher. Asia finished higher and Europe turned mostly lower at the end of the day, as the markets cautiously anticipated a host of looming monetary policy decisions, headlined by the Bank of England.

The Dow Jones Industrial Average declined 47 points (0.1%) to 32,798, the S&P 500 Index fell 12 points (0.3%) to 4,119, and the Nasdaq Composite decreased 22 points (0.2%) to 12,369. In moderate volume, 4.1 billion shares of NYSE-listed stocks were traded, and 4.3 billion shares changed hands on the Nasdaq. WTI crude oil dropped $4.73 to $93.89 per barrel. Elsewhere, the gold spot price increased $6.10 to $1,787.90 per ounce, while the Dollar Index decreased 0.5% to 105.42.

Equity news was relatively light today as the markets gear up for another heavy week of earnings reports and Friday’s key labor report. Q2 earnings season has shifted into high gear this week, and of the 282 S&P 500 companies that have reported thus far, roughly 61% have topped revenue forecasts and approximately 74% have bested profit projections, per data compiled by Bloomberg. Compared to last year, revenue growth is tracking to be up 13.7% and earnings are up 5.9% thus far.

July manufacturing growth slowed less than expected, and inflation pressures eased noticeably…..

The July Institute for Supply Management (ISM) Manufacturing Index(chart) showed manufacturing growth (a reading above 50) slowed less than expected but came in at the lowest level since June 2020. The index declined to 52.8 from June’s 53.0 level, and versus the consensus Bloomberg estimate of a decrease to 52.0. The stronger-than-expected report came even as new orders fell further into contraction, although production growth remained in expansion territory, and inventories expanded. The contraction in employment improved, and supplier delivery times shortened. Inflation pressures eased sharply but remained severely elevated, with the Prices Index falling to 60.0 from 78.5.

The ISM said, “The U.S. manufacturing sector continues expanding—though slightly less so in July—as new order rates continue to contract, supplier deliveries improve and prices soften to acceptable levels. According to Business Survey Committee respondents’ comments, companies continue to hire at strong rates, with few indications of layoffs, hiring freezes or headcount reduction through attrition. Panelists reported higher rates of quits, reversing June’s positive trend. Prices expansion eased dramatically in July, but instability in global energy markets continues. Sentiment remained optimistic regarding demand, with six positive growth comments for every cautious comment. Panelists are now expressing concern about a softening in the economy, as new order rates contracted for the second month amid developing anxiety about excess inventory in the supply chain.”

The final July S&P Global U.S. Manufacturing PMI Index was revised lower to 52.2, compared to estimates calling for an unrevised 52.3 level. The index was below June’s reading of 52.7, with a reading above 50 denoting expansion. S&P Global’s report differs from the ISM as it surveys a more diverse range of companies regarding size.

Construction spending fell 1.1% month-over-month (m/m) in June, versus projections of a 0.1% gain and compared to May’s upwardly-revised 0.1% rise. Residential spending dropped 1.6%, while non-residential spending decreased 0.5%.

Treasuries finished higher as yields fall, likely due to key reports which suggest inflation may be cooling, yet the inversion of the 2-year and 10-year notes remained intact. The markets continue to grapple with last week’s Fed monetary policy decision, where it raised its benchmark interest rate by 75 basis points (bps) for the second-straight meeting and the markets appeared to take comments from Chairman Jerome Powell as less hawkish.

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