Loading...

After The Close - The first trading day of September—a month that historically has been tough for equities—was a volatile one for investors. The bears were active at the opening bell and selling intensified after the release of some disappointing reports on the U.S. economy this morning. However, as the day progressed, the bulls regrouped and fought back, with most of the earlier losses and, in a few cases, then some, retraced by the closing bell. The tech-heavy NASDAQ finished higher, helped by shares of Apple (AAPL), which rose on rumors that the latest version of its iPhone may be launched next week. The Dow Jones Industrial Average—hurt by weak showings from Caterpillar (CAT - Free Caterpillar Stock Report) and United Technologies (UTX - Free United Technologies Stock Report)—finished lower and the broader S&P 500 Index was off slightly. It is also worth noting that there was an appetite for riskier equities today, as evidenced by the more than 1% jump in both the small-cap Russell 2000 and the S&P Mid-Cap 400 Index. Overall, we have to say that there was a positive tone to trading, with advancing issues comfortably ahead of decliners on both the Big Board and the NASDAQ.    

As noted, disquieting economic news on the homeland was the primary culprit behind the initial selling. In particular, the Institute for Supply Management reported at 10:00 A.M. (EDT) that its August survey of manufacturing activity came in at 49.6, its third consecutive monthly contraction. We also learned that July construction spending fell 0.9% month-to-month, against the expected increase of 0.5%. The disappointing economic data weighed on the performance of the basic materials, industrial, and energy sectors. Within the materials space, the stocks of steel companies, including Cliffs Natural Resources (CLF), which hit a 52-week low, and U.S. Steel (X), were notably weaker. On the other hand, the defensive sectors, including utilities, consumer noncyclical, and healthcare, finished in the plus column.   

On the corporate front, shares of Netflix (NFLX) fell after news surfaced that Amazon.com (AMZN) and Hollywood studio partnership Epix reached a deal that will add about 3,000 movies to Amazon's video streaming library. The new partnership will increase the competition for struggling Netflix. Sticking with the technology theme, shares of Facebook (FB) fell to a new low after a lead underwriter of the company’s initial public offering cut its price forecast on concerns that the social network is struggling to reach mobile users with ads. Still, the technology sector held its ground today, with a boost from the aforementioned Apple news. 

Meanwhile, the overseas markets performed poorly. Germany’s DAX, France’s CAC-40, and Britain’s FTSE-100 finished 1.2%, 1.6%, and 1.5% lower, respectively. Discouraging economic data on the Continent—including an increase in Spain’s unemployment rate and weakening construction data in the United Kingdom—along with the disappointing U.S. figures unnerved investors.  An announcement by a major credit ratings agency that it has changed to negative the outlook in regard to the AAA-rating of the EU also weighed on the European bourses. However, there was a glimmer of optimism with regard to the euro zone’s ongoing sovereign-debt problems. Specifically, rumors have surfaced that the European Central Bank is planning to buy short-term government bonds on secondary markets, a maneuver that could help Italy and Spain keep a lid on their borrowing costs, which have skyrocketed in recent months.   - William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

-

12:30 PM ET - The U.S. stock market got off to a weak start this morning, but is now paring its losses.  Some of the initial weakness may have been attributable to a difficult showing overseas. In Europe, the major bourses are finishing up a dismal session, with the FTSE-100, DAX, and CAC 40 all off over 1%. Weak manufacturing reports in several countries have likely amplified concern amongst traders. 

Meanwhile, things did not get off to a great start on our shores, either, as traders this morning digested some weak economic news. The Institute for Supply Management’s Manufacturing Index declined to 49.6 in August, coming in below the 50 figure that many had been anticipating. Notably, readings lower than 50 suggest that manufacturing is contracting. Adding to the negative sentiment, construction spending for the month of July slipped 0.9%, where a slight gain had been expected. Later today, auto and truck sales for August are due out. Later in the week, we get a look at the employment report for the month of August, and fears that those figures may not come in as strong as some had hoped could weigh on the market over the next few days.

At just past noon in New York, the averages are showing some improvement. The Dow Jones Industrial Average is now off 94 points (-0.7%); the broader S&P 500 Index is lower by eight points (-0.6%); and the NASDAQ is lower by 19 points (-0.6%). Market breadth is negative, with declining issues outnumbering advancers by nearly 2 to 1 on the NYSE. Most of the market’s sectors headed lower, with large losses in the energy, basic materials, and capital goods names. Notably, losses in the energy stocks likely reflect a drop in crude oil prices today. Crude oil is off about 1% to roughly $95 a barrel, on concerns about global demand. In contrast, there is some relative strength in the consumer non-cyclical stocks. Also the utilities, which offer large dividend yields, are holding up well.

Technically, the S&P 500 Index is testing the 1,400 level, as it has several times over last week or so. Hopefully, for the bulls we will not slip too far below this area of support.

In corporate news, Campbell Soup (CPB) is seeing its stock rise, after the company posted strong results. However, Smithfield Foods (SFD) stock has been choppy, after the company posted weak results but issued a decent outlook.   - Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

-

Stock to Watch from The Survey - Although earnings releases have slowed down considerably following the end of second-quarter reporting season, there are still a few companies posting results. Campbell Soup Co. (CPB), a soup maker and producer of packaged foods, announced strong results for its fiscal fourth quarter this morning, owing to solid growth in U.S. soup sales. The stock is trading moderately higher in the premarket. On the other hand, pork processor Smithfield Foods (SFD) reported fiscal first-quarter results that fell short of investors’ expectations, as higher costs pressured margins, sending the stock slightly lower in early morning trading. Also in earnings news, Finisar Corp. (FNSR), a designer of optical subsystems and components for high-speed data communications, is scheduled to report its fiscal first-quarter results after the close today.    – Kathryn M. Drew

At the time of this article’s writing, the author did not have positions in any of the companies mentioned. 

-

Before The Bell - Investors return to the U.S. equity market in less than an hour from now, as we begin what is often one of the crueler months of the year for the bulls. No, it is not October, with its celebrated selloffs and meltdowns, which has been among the worst months of the year for performance, but rather it is the month now getting under way.

And, as if on cue, the world's markets are generally lower at this time. One of the reasons for the hesitancy to commit to equities this morning so far is that over the weekend China, the world's second largest economy, issued a worse-than-expected August purchasing managers' survey showing a reading of just 49.0. which suggests that a correction in this industrial sector is now under way. Later on this morning, our purchasing managers will issue their monthly survey of manufacturing activity, and a slightly negative reading of 49.9 is the consensus view.

Meanwhile, in Europe, the Purchasing Managers' Index readings out of Germany, France, and Italy were all under expectations, while surveys in Britain and Spain exceeded forecasts. Notwithstanding this mixed business tone, the equity markets across the sea are mostly in the red so far today.

Back on these shores, the purchasing managers survey is just the first of several critical metrics due out over this holiday shortened trading week, as we also will be getting data this morning on construction spending, where a small uptick is the estimate, and on car sales, where a nominal increase is the expectation. Then, after a quiet day tomorrow, we will get reports on productivity and unit labor costs for the second quarter on Wednesday. Thursday will then bring weekly jobless claims and the companion report to today's manufacturing issuance, when the Institute for Supply Management will report on non-manufacturing activity for August. Here a flattish reading is forecast.

Finally, Friday will bring the most widely anticipated report of the month, when the government issues its data on non-farm payrolls and the unemployment rate for August. Last month, the government estimated that 163,000 jobs had been added in July. The expectation for August is 128,000 new hires. The jobless rate, estimated at 8.3% last month, is expected to have remained at the same approximate level in the current survey.

As to individual stocks, there is little of note to report this week, with comparatively few companies on tap for profit issuances, as second quarter earnings season is now safely in the history books. And it was a decent, if hardly memorable, quarter for earnings. Our sense is that the third quarter will be similar in scope.

As to what to watch, in addition to the aforementioned economic reports, we also will need to keep an eye on the Federal Reserve. This past Friday, at the annual economic symposium held in Jackson Hole, Wyoming, Federal Reserve Chairman Ben S. Bernanke suggested that the weak labor market could need some eventual help via the implementation of further accommodation, although he stopped short of actually predicting such an effort. A more definitive statement on Fed intentions could come at the next FOMC meeting, which is to be held on September 12th and 13th. For now, the expectation has shifted slightly to the view that the Fed may initiate some further quantitative easing, a possibility that helped to drive the Dow Jones Industrial Average up 90 points on Friday.

This morning, though, the market seems poised to start the new week off on a slightly lower note in about a half hour from now, as there are modest losses in the stock market futures at this time. – Harvey S. Katz

At the time of this article's writing, the author did not have positions in any of the companies mentioned.