U.S. stock markets opened lower on Tuesday, with heavy selling in Chinese markets, the start of the Federal Reserve's policy meeting and the prospect of earnings from megacap U.S. tech companies all arguing in favor of caution in the near term.
By 9:35 AM ET (1335 GMT), the Dow Jones Industrial Average was down 177 points, or 0.5% at 34,968 points. The S&P 500 was also down 0.5% and the Nasdaq Composite was down 0.4%. All three had finished at record highs on Monday, supported by an ongoing earnings season that is broadly living up to expectations.
Another marginal headwind came from June's durable goods orders, which rose by less than forecast at only 0.3%. That was their weakest performance in five months.
However, many of the industrials reporting earnings before the bell had positive stories to tell. General Electric (NYSE:GE) stock rose 3.3% after it raised its full-year outlook for industrial cash flow, the metric most closely tracked by the market. The report reflected improved conditions for its aviation division, as revenue from servicing aero engines picked up in line with the revival in air travel. The same factor also enabled Raytheon (NYSE:RTN) - the owner of Pratt & Whitney - to beat expectations with its earnings update. Raytheon stock rose 2.7%.
Tesla (NASDAQ:TSLA) stock opened lower despite posting gains in both after-market and premarket sessions on the back of its record sales and profit numbers released late Monday. Despite a best-ever operating performance, the company's guidance contained some disappointments, with fresh delays to the Semi and cybertruck projects, and CEO Elon Musk - currently on trial for defrauding investors with the acquisition of Solar City in 2016 - saying he will step back from future earnings calls.
Chinese ADRs were once again in the spotlight, after what amounted to panic selling in Chinese stock and bond markets overnight. Alibaba (NYSE:BABA) stock fell 2.7% and Tencent (OTC:TCEHY) stock fell 4.6% as U.S. investors continued to bail out against a backdrop of an ever-broader assault on the country's Internet giants by Chinese regulators. There was, however, some respite for educational technology names after a torrid couple of sessions. TAL Education (NYSE:TAL), New Oriental Education & Technology (NYSE:EDU) and GSX Techedu (NYSE:GOTU) all rose by between 12% and 17%, but have still lost more than half their value since news first leaked that the Chinese government wants them to restructure as not-for-profit operations.
Elsewhere, United Parcel Service (NYSE:UPS) stock fell 9.1% after it warned that margins may be squeezed over the rest of the year, despite CEO Carol Tomé’s “better not bigger" approach. That overshadowed a healthy rise in both earnings and revenue in the second quarter, thanks to sustained high demand for courier services during the pandemic. FedEx (NYSE:FDX) stock also fell 4.8% to a three-month low amid concerns it will suffer a similar fate.
The Federal Reserve begins a two-day policy meeting later, at a time when inflation-adjusted yields on U.S. bonds are at their lowest ever. Low real yields typically are an expression of doubt about future growth, and the current level is starkly at odds with markets that are as expensive now as at any time since the Internet bubble over 20 years ago.