After The Close - A choppy week of trading, which at times saw both the bulls and the bears making attempts to take control, ended with a big statement by the latter. Indeed, the Dow Jones Industrial Average, the NASDAQ, the S&P 500 Index, and the Russell 2000 were all markedly lower. As was the case throughout the week, trading was driven by second-quarter earnings news. Today, the market reacted negatively to reports from two industry heavyweights, one of which is a member of the Dow 30 and the other is a major player in the technology and consumer sectors. Selling was broadbased, with both large and small cap issues notably weaker. Overall, declining issues led advancers by a sizeable margin on both the Big Board and the NASDAQ.
There were few places for investors to hide today. Nearly all of the major sectors were in the red, with the biggest laggards being the consumer (both cyclical and noncyclical), energy, and industrial stocks. Even the more-defensive groups, most notably the utilities, felt the wrath of the investment community. Investors seemed to be a bit concerned that the market is too frothy right now. Thus, we are seeing an unbalanced effect on trading from the latest round of positive and negative earnings news. The good earnings reports seemed to be already baked into the market’s lofty valuations and are not providing much of a pop to equities, while investors are punishing the stocks of those companies that are reporting disappointing quarterly results and, may be more so, guidance. To this end …
The latest batch of earnings news unnerved investors, especially those looking for an excuse to take some profits off the table in a market that is clearly overextended. The major culprits today were unsatisfactory quarterly showings from Amazon.com (AMZN) and Visa (V - Free Visa Stock Report). Amazon reported another quarterly loss, but investors were most disappointed to learn that there is more red ink ahead for the company. In particular, the expected size of the likely third-quarter deficit roiled investors. The drop in the shares of Amazon weighed on the technology and consumer sectors, as well as on the performance of the NASDAQ. Likewise, investors were unnerved by Visa’s weaker-than-expected guidance. The financial services giant blamed the ongoing trade sanctions against Russia for its cloudier near-term outlook. The decline in Visa stock today was a big reason for the Dow’s weak showing.
Meantime, we did get some mostly positive economic news to end the week. Specifically, the Commerce Department reported that durable goods orders rose 0.7% in June after declining in May. It marked the fourth time in the last five months that orders for long-lasting goods increased, and is a sign that business investment will probably continue to grow at a decent clip in the second half of the year. However, the report, along with yesterday’s weak data on new home sales, may be an indication that the economy did not rebound as much as many were anticipating. Still, it was clear that the investment community did not give much attention to report amid the continued strong flow of earnings data. That said,
Even though earnings will remain heavy next week—six Dow-30 components, including two major drugmakers and two giant oil companies, on the docket—the economy should have a big say in what direction the stock market takes over the next five trading days. Next week we will get data on consumer confidence, June-quarter GDP (first estimate), manufacturing activity, vehicle sales, personal income and spending, and employment. The Federal Open Market Committee will also begin its two-day monetary policy meeting on Tuesday. The subsequent Federal Reserve’s statement on Wednesday afternoon and the employment data on Friday have the potential to be game changers for the market. - William G. Ferguson
12:00 PM EDT - The U.S. stock market opened sharply lower this morning, and after an earlier attempt to stabilize, has been unable to meaningfully pare its losses. At just past noon in New York, the Dow Jones Industrial Average is off 135 points; the broader S&P 500 Index is down 11 points; and the NASDAQ is lower by 33 points. Market breadth is quite negative, as declining issues are outnumbering advancers by roughly two to one on the NYSE. Further, essentially all of the market sectors are trading lower, with pronounced losses in the technology space. The energy group is also an area of weakness, as the exploration and production names are slipping today. In contrast, the basic materials issues are bucking the downtrend, helped by gains in the metals names and in some chemical issues.
Stocks have spent most of July moving within a narrow trading range. Moreover, breaking out of this area seems to be difficult, suggesting that further consolidation may be in order. This may be due to the fact that equities are trading at elevated price-to-earnings multiples, and while second-quarter earnings results have been decent, expectations have been running quite high. For now, the broader S&P 500 Index is not too far from the 2,000 mark. However, it seems it will take a concerted effort on the part of the bulls to push through this psychologically important figure.
Meanwhile, there was some economic news released this morning. Specifically, durable goods orders rose 0.7% in the month of June. This figure was just a bit better than analysts had anticipated. Next week will commence on a busier note, with a few key reports due out on Monday. These will include the pending home sales figures for May, and a report on the economy in the greater Chicago region.
Finally, corporate profit reports continue to be the main area of concentration. Today, we heard from a few industry leaders. It should be noted that Amazon.com (AMZN) issued disappointing results, and also tempered its outlook. The widely-held stock is trading sharply lower, and is likely exerting pressure on the overall technology sector today. - Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
11:25 AM EDT - The stock market opened notably lower this morning on reaction to several weaker-than-expected quarterly sales and bottom-line results. But after that disquieting start, the market seemed to stabilize for the next 90 minutes, or so. However, in the past few minutes, the bottom has fallen out of the market, and the averages are again reeling.
Indeed, as we close in on the two-hour mark, we find that the Dow Jones Industrial Average is now off by 155 points and the NASDAQ is lower by more than 32 points.
Losing stocks, meantime, are swamping gainers to the tune of some two to one on the Big Board, and this sharp reversal is carrying just about all of the top 10 sectors into the minus column. It is not pretty out there for the bulls, and we caution that if sentiment weakens further in the afternoon, a sharper drop could ensue, as volume would figure to be light on a Friday during the summer. – Harvey S. Katz
At the time of this article's posting, the author did not have positions in any of the companies mentioned.
Stocks to Watch from The Survey – Earnings news continues to dominate the headlines, with the most recent batch of reports bringing the technology sector into the spotlight, and not in a positive way. Indeed, although sales figures from Amazon.com (AMZN) were in line with expectations, investors were taken aback by the wider-than-expected loss posted by the online retailer, and are bidding its stock sharply lower in the premarket, as a result. A similar story is playing out with shares of Pandora Media (P), as the Internet radio operator also fell deeper into the red than Wall Street was anticipating in the June interim, causing its stock to tumble ahead of the bell, as well. Bucking the trend is China-based Internet company Baidu (BIDU), which pleased investors with its most recent results. The stock is indicating a nicely higher opening this morning, as a result.
It was not just the tech sector that disappointed investors, however. To wit, shares of coffee shop operator Starbucks (SBUX), credit card processor and Dow-30 component Visa (V – Free Visa Stock Report), mattress manufacturer Tempur Sealy International (TPX), and office equipment maker Xerox Corp. (XRX) are all down ahead of the bell on earnings news.
Of course, there were pockets of good news, and one of the most upbeat reports came from Deckers Outdoor (DECK). The owner of UGG boots and Teva sandals delivered June-period results that were not as bad as feared, and DECK stock is surging in the premarket, in response. Other equities moving higher ahead of the bell on earnings news include wireless networking company RF Micro Devices (RFMD) and automotive parts supplier Lear Corp. (LEA). – Matthew E. Spencer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The stock market moved into the late stages of the week on a mixed note, with some early losses sprinkled in with some minor wins among the major equity averages. However, after the first 90 minutes, or so, of the penultimate trading day of the week, equities were back in the black across the board for a brief span, albeit modestly so.
This pattern followed an up-and-down first three days of the week, as earnings news--rather than global events--seemed to be back on the front burner. Of course, such geopolitical happenings are never very far from the minds of investors. But for now, at least, the fundamentals appear to be in vogue again to an extent.
And that is good news for traders and investors alike, as the data from Corporate America have generally been welcoming, with more companies beating their forecasts than not. True, there have been some celebrated profit and revenue misses, and in many of those cases, corporations have seen their stocks punished--in some cases rather severely. And yesterday was no exception, as wireless-tech stalwart Qualcomm (QCOM) disappointed investors, as it noted some worries about licensees in China, even as it raised its full-year earnings outlook. That stock gave back more than 6% on the day, after having been trading at close to its highs before yesterday.
As to the market, after this late morning comeback, which commenced in spite of a dour report on new home sales for June, stocks proceeded to go back and forth for several hours, entering lunch time and beyond. As to that report, not only were such sales off sharply last month, but estimates for both April and May were revised notably lower. To be sure, we do not yet think that a serious reversal in this critical economic sector is at hand, but at least a soft spot has developed. At any rate, upcoming housing data points will need to be watched closely to see whether or not a major trend reversal is evolving. Meanwhile, countering those ill tidings to a degree was a better-than-expected report on initial jobless claims. Those filings fell to a multi-year low in the latest week.
Meantime, after this pause by the market, Wall Street appeared to get a second wind, and by 2:00 (EDT), the green arrows had reappeared, although various individual sectors and stocks continued to struggle, including heavy machinery manufacturer and Dow-30 component Caterpillar (CAT - Free Caterpillar Stock Report), which did not overwhelm investors with its second-quarter results. Indeed, the shares fell some 3% on the day, although the issue remains much nearer to its 52-week high than its low. Overall, though, the positive profit trends continued. Even so, that brief mid-afternoon spurt proved short-lived, and as the session wound down, more red arrows were seen. In some respects, it seems as though the good profit news is already baked into the market given the elevated capitalization levels now in place.
So, as the final hour approached, we were largely back on neutral ground. From there, stocks vacillated as no clear-cut trend took hold into the close. As trading came to an end, the market was divided, with the Dow and the NASDAQ slightly below the neutral line, while the Standard and Poor's 500 Index was marginally on the plus side of the ledger. The small-cap Russell 2000 Index was off by two points, while the S&P Mid-Cap 400 was in the black by a like amount. It was that sort of a day.
Now, looking to a new day, we find that stocks in Asia were generally higher overnight, led by Japan's Nikkei, while the bourses in Europe are moving modestly higher ahead of our market's opening. On these shores, meantime, the futures are suggesting a softer opening when trading commences in less than an hour from now, being led into the minus column by a sharp drop in the shares of online retailer Amazon.com Inc. (AMZN) on disappointing quarterly results. Finally, in the news, the government has just reported that orders for durable goods--those long-lived items, which include jet airplanes, washing machines, and computers--increased by 0.7% in June. This gain, the fourth in the past five months--a decrease of 1.0% had been booked in May--was slightly better than the 0.5% rise generally forecast. Machinery orders, up 2.4% last month, led the way higher for this volatile series. The good news, however, was shrugged off by the equity market futures, which continue to point to a weaker opening at 9:30 (EDT).