After The Close - The U.S. equity market pressed forward again today, as expectations are growing that second-quarter earnings season, which commenced after the close of trading yesterday, may prove to be a solid one, particularly for the S&P 500 companies. Getting the ball rolling on the earnings front was a better-than-expected quarterly report last night from Dow-30 component Alcoa (AA - Free Alcoa Stock Report). The encouraging start to earnings season, along with last week’s positive report on the U.S. labor market is pulling investors back into equities after a difficult showing for stocks in June.
Overall, the tone of trading was positive for much of the session, as noted by the comfortable margin advancing issues maintained over decliners throughout the day. The Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index added 76, 19, and 12 points, respectively, by the closing bell. The recent strong showing by the broader S&P 500 Index, along with the notable jump in the Russell 2000—the small-cap dominated index has climbed further past the psychologically significant 1,000 mark and so far has stayed there—may be an indication that investors are once again showing an increased appetite for risk. The S&P 500 Volatility Index (or VIX), often referred to as the fear gauge, which surged past 20 in late June on worries that the Federal Reserve will cut back on its stimulus measures later this year, has fallen below 15 once again.
From a sector perspective, there was much to like for those long equities, as the top-10 sectors finished in positive territory. Even the healthcare issues, which were weak early, rallied to finish in the black. Leadership came from the sectors most closely tied to the global economy, including selective basic materials, energy, and industrial stocks. Within the basic materials space, the construction materials, chemicals, and mining and metals stocks were mostly higher. This performance was a little hard to figure, even with investors still cheering last week’s employment figures, as the International Monetary Fund said that it has cut its 2013 world GDP growth forecast from 3.3% to 3.1% and lowered its estimate for the United States from 1.9% to 1.7%. It marked the third downward revision for world economic growth this year, with slowing emerging markets and a prolonged recession in the euro zone behind the downgrade. It is also worth noting that the financial stocks, which were off initially after headlines indicated that regulators have proposed a dual standard for bank leverage ratios with large banks facing a capital requirement of 6.0%, rallied and finished the session nicely higher.
Elsewhere, the major European bourses also finished comfortably in positive territory. Helping equities on the Continent, were comments by Portugal’s deputy Prime Minister Paulo Portas—who rejoined the government after resigning from his post as foreign minister last week—that the background for political stability as well as conditions for meeting terms of the bailout agreement are in place in the financially struggling nation. This news, along with some positive commentary earlier today on Greece’s ongoing sovereign-debt woes, helped drive equities higher in the euro zone.
Looking ahead, the news on both the U.S. earnings and economic fronts will remain light over the next few days. This may make it difficult, short of some major developments in the international community, to stop the bulls who are in the midst of a good stretch following a difficult June. There seems to be a vacuum effect on trading recent days, with last week’s positive report on job creation and growing hope that economy will strengthen later this year pulling recently skittish investors back into the market and, ironically, back into risky holdings. - 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 EDT - The stock market opened higher this morning, pulled back about an hour into the session, and is now advancing notably. At just past noon in New York, the Dow Jones Industrial Average is up 67 points (0.4%); the broader S&P 500 Index is ahead 10 points (0.6%); and the tech-heavy NASDAQ is higher by 15 points (0.4%). Market breadth suggests strong underlying support for equities, as advancers are ahead of decliners by over 2 to 1 on the NYSE. All of the market sectors are advancing, with leadership in the basic materials issues. The industrial stocks are also doing quite well. Meanwhile, the healthcare issues are underperforming the other sectors.
Technically, the S&P 500 Index continues to extend its gains. The pullback that started in late May and carried through much of June could be over at this point. Notably, most stock market pullbacks have been short-lived, with stocks staging sharp recoveries, and this may again be the case. Assuming we move higher from here, the S&P 500 Index may encounter some resistance passing through the 1,660 area, as proved to be the case in late May. Trading volumes picked up yesterday, and broader participation in the rally is a positive sign. The VIX, now at 14.29, is lower again today, indicating that bullish sentiment is intact.
There was no notable economic news released this morning, but there are several reports slated for later this week.
The big news today was likely the Alcoa (AA – Free Alcoa Stock Report) earnings release. The aluminum maker’s adjusted earnings came in slightly better than recently lowered Wall Street expectations. The company also maintained that demand is improving. Although Alcoa stock has moved lower in price, investors may still feel encouraged about the outlook, as some related issues are trading higher.
Meanwhile, banking giant JPMorgan Chase (JPM – Free JPMorgan Stock Report) is due to release results on Friday. Things pick up significantly next week, with several market leaders reporting earnings. Notably, we will be hearing from a few financial companies, and these reports will be important, as a recovery in this sector would help assure investors that the economy is truly on the mend. On a general note, more important than actual results reported in the second quarter, will be corporate guidance for the remainder of the year. Given that we are now in the month of July, management should be in a better position to fine tune forecasts, and this can easily cause stocks, especially the less-followed names, to move. - Adam Rosner
At the time of this article's writing, the author had a position in Alcoa (AA).
Stocks to Watch from The Survey – Alcoa (AA – Free Alcoa Stock Report) kicked off second-quarter earnings season after the market closed yesterday. The aluminum producer reported earnings that were slightly above Wall Street’s consensus expectation, thanks to strength at its aerospace supply unit. AA stock is up marginally in pre-market trading as a result. Staying with earnings, shares of WD-40 (WDFC) are indicating a sharply higher opening this morning, after the maker of multi-purpose lubricants released better-than-expected May-period results and increased its earnings guidance. On the other hand, the stock of Intuitive Surgical (ISRG) is down sharply in the premarket, after the medical supplies company cut its sales outlook.
Elsewhere, on the M&A front, supermarket operator Kroger (KR) has agreed to acquire industry peer Harris Teeter (HTSI) for $49.38 a share, or approximately $2.5 billion, including the assumption of debt. Both stocks are up just slightly ahead of the bell, as investors were already aware that Harris Teeter was on the auction block.
Finally, William Lynch, CEO of struggling bookseller Barnes & Noble (BKS), has resigned from his post. A successor has not been named, and BKS stock is little changed in the premarket. – 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 - Stocks started the new week just the way they ended the prior four-day holiday shortened stretch. That is by gaining solid ground--especially in the Dow Jones Industrial Average and the Standard and Poor's 500 Index, which added 89 and nine points, respectively.
In essence, the day's gains were an extension of the euphoria taking hold on Wall Street in the wake of the surprisingly good jobs report issued by the U.S. Department of Labor last Friday morning. In that survey, the government noted that the nation had added 195,000 new jobs in June, some 35,000 more than had been forecast. Also, payroll totals for April and May were revised upward and significantly so. Although such good tidings increase the chances that the Federal Reserve will moderate the rate of monetary stimulus as early as this September, it also raises the odds that the economy will start to press forward more vigorously and that earnings, as a result, will strengthen notably.
Meanwhile, yesterday was a quiet news day. And that absence of major economic offerings allowed traders and investors alike to stop and ponder the investment landscape. Up until the past few days, the general consensus had been that the only way to keep the bulls fully satisfied was for the Fed to continue its aggressive bond-buying efforts. Now, a seeming view is evolving, which suggests that stronger economic growth may, in the end, be preferable to continued strong Fed support. Of course, one economic metric is not sufficient to change the sluggish economy's course, in our view, especially since a pair of reports issued just days before the employment survey was put out showed that there was continued sluggish growth on both the manufacturing and non-manufacturing fronts.
In addition to the economy and the erratic goings on around the globe, especially in Egypt where the situation, already fraught with danger, looks to now be spiraling out of control, the markets must grapple with the onset of second-quarter earnings season. That four times a year event kicked off yesterday after the market closed with the latest issuance from struggling aluminum maker and Dow-30 component Alcoa (AA - Free Alcoa Stock Report). That metals provider, which recently made a new 52-week low, reported somewhat better-than- expected earnings for the period after unusual items were backed out. The company cited strong demand for lightweight aluminum in autos and airlines for helping to partially offset the negative impact of weak aluminum prices. Alcoa shares, which closed at $7.92 yesterday, are indicated to open the day's trading at closer to $8.00 a share in some modest firming.
Now, earnings will take something of a break until later in the week when some of the big banks start to report their results. Next week, about a third of the Dow companies will issue their top-and-bottom-line metrics, which should be more telling.
As to other news likely to affect trading, there was widespread relief in Europe that Greece's euro-zone partners had agreed to give that struggling nation the next batch of bailout cash that the country needs to avoid a potential bankruptcy. The bourses were up nicely this morning, in apparent response.
Finally, our futures, perhaps taking a cue from Europe and also likely cheering the mildly encouraging Alcoa release, are gaining nicely in the pre-market presaging a moderately stronger opening when traders get down to business in about a half hour from now. – Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.