Dow bounces back from record as US-China tensions mount, investors await Big Tech earnings

US equities lost ground in early trading Monday and retreated from records after China took a series of steps that pointed to further tensions between the world’s two largest economies.

Investors also prepared for a meeting of Federal Reserve policymakers. A flurry of corporate earnings reports, including results from Big Tech heavyweights, are also in the pipeline this week and could lead the way, analysts say.

What do large indexes do?
  • The Dow Jones Industrial Average DJIA,
    -0.15%
    fell by 64.10 points or 0.2% to 34,997.45.

  • The S&P 500 SPX,
    +0.01%
    fell 1.29 points, less than 0.1%, to 4,410.50.

  • The Nasdaq Composite COMP,
    +0.15%
    lost 10.68 points, or 0.1%, to trade at 14,826.31.

The drop came after a week in which the US benchmarks bounced sharply from a July 19 tumble to end in records on Friday. The S&P 500 rose 2% on Friday to end at the 2021 record 40, and the tech-heavy Nasdaq Composite was up 2.8%. The Dow also hit a record Friday, finishing above the 35,000 milestone for the first time.

What drives the market?

A softer tone in global equity markets has been linked to China as the Hang Seng HSI,
-4.13%
slipped more than 4%, following a crackdown on both Tencent’s music licenses and the entire tutoring industry. In premarket trading, Tencent Music Entertainment TME,
-1.90%
shares fell 14% after China ordered the company to end exclusive contracts with music copyright holders.

Hong Kong-listed education stocks have plunged after educational institutions were banned from raising money in the stock market and unable to invest foreign capital. The crackdown hit US-listed Chinese education stocks on Friday.

The crackdown came as China blamed the US for a stalemate in bilateral relations as high-level talks began in the Chinese city of Tianjin.

But gains may soon be back in the spotlight. with results expected this week from major tech companies, including: Alphabet Inc.
GOOG,
+0.56%

GOOGL,
+0.18%,
Amazon.com Inc.
AMZN,
+1.21%,
Apple Inc.
AAPL,
+0.74%,
Facebook Inc.
fb,
+0.39%
and Microsoft Corp.
MSFT,
-0.62%.

“The earnings season is now in full swing and continues to surprise positively so far as most companies report better-than-expected top and bottom-line results,” said Peter Cardillo, chief economist at Spartan Capital Securities, in a note. .

“Despite the ‘fear factor’ of the virus and ongoing inflation that can sometimes cause minor hiccups, we see the summer rally continuing with indices potentially up another 5%,” he said.

US earnings calendar includes electric vehicle manufacturer Tesla Inc.
TSLA,
+1.54%,
which reports Monday after closing time. This week will also see the Federal Reserve’s latest interest rate decision and its second-quarter gross domestic product report.

Bitcoin BTCUSD,
+11.55%
jumped Monday after Amazon placed an ad looking for a person to lead the retailer’s cryptocurrencies effort. A separate report said Amazon wanted to start accepting bitcoin for payment by the end of the year.

Which companies take center stage?
  • Shares of Hasbro Inc.
    HAS,
    +9.69%
    rose more than 9% after the toy maker reported second-quarter adjusted earnings that were more than double what was expected, with sales boosted by strength in franchise brands and Wizards of the Coast and digital gaming.

  • Any PLC
    AON,
    +6.28%
    and Willis Towers Watson PLC
    WLTW,
    -7.23%
    announced a reciprocal agreement on Monday to terminate their $30 billion merger agreement and end lawsuits with the US Department of Justice. Aon shares rose 6.5%, while Willis Towers Watson lost 5.5%.

  • Popular meme stock AMC Entertainment Holdings Inc.
    AMC,
    +5.31%
    rose 2.5%, while GameStop Corp.
    GME,
    +1.91%
    decreased by 0.6%.

What are other markets doing?
  • The return on the 10-year Treasury TMUBMUSD10Y,
    1.283%
    decreased by 1.2 basis points to 1.268%. Yields and bond prices move in opposite directions.

  • The ICE US Dollar Index DXY,
    -0.31%,
    a measure of the currency against a basket of six major rivals, fell 0.1%.

  • Oil futures traded lower, with US benchmark CL00,
    -0.43%
    down 0.7%, while gold futures GC00,
    +0.07%
    were slightly lower.

  • In European equities, the Stoxx Europe 600 SXXP,
    -0.10%
    and the London FTSE 100 UKX,
    -0.02%
    each decreased by 0.1%.

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