After The Close - It was a mixed conclusion to what turned out to be a largely uneventful trading week on Wall Street. The S&P 500 Index was helped today by decent performances from the healthcare, energy, and industrial sectors—three groups that carry heavy weightings in the index. The broad index was able to stay above the neutral line for much of the session and finish with a modest advance and in the plus column for the week. Conversely, the Dow Jones Industrials and the NASDAQ ended the five-day stretch nominally lower. The latter two averages were hurt by some disappointing earnings reports from the technology sector (more below). Overall, the spread between advancing and declining issues on both the Big Board and the NASDAQ was narrow, with more gainers on the Big Board and the decliners holding a slight edge on the NASDAQ.
Our sense is that the earnings news, which provided more negative than positive headlines today, was not enough to send investors to the exits. Indeed, we think most investors will continue to be supportive due largely to accommodative policies from the Federal Reserve. Fed Chairman Bernanke suggested such earlier this week before Congress. Instead of the earnings news prompting notable profit taking on Wall Street, we believe the end result was some sector rotation, which, as noted, helped the S&P 500 Index in the latest session.
From a sector perspective, leadership was shown by the healthcare, energy, and industrial sectors. The latter space got a big boost from diversified industrial giant General Electric (GE - Free GE Stock Report), which narrowly beat share-net expectations, but pleased the investment community with a rosy outlook for the second half of the year. Meantime, a good report from oil and gas services company Schlumberger (SLB) and an uptick in crude oil prices—which have risen markedly over the last fortnight on turmoil in the fractious Middle East—gave a boost to energy stocks today. Conversely, the technology issues were under pressure, owing to disappointing earnings news from two industry heavyweights.
As most market followers know by now, technology behemoths Google (GOOG) and Microsoft (MSFT - Free Microsoft Stock Report) missed on both the top and bottom lines in the latest quarter. Shares of both companies were hit hard and were the main reasons why the NASDAQ and, in the case of Microsoft, the Dow 30 finished in negative territory today. Conversely, stocks that moved higher today on earnings results included Whirlpool (WHR), Chipotle Mexican Grill (CMG), and Honeywell (HON). The Honeywell news, like the aforementioned GE report, helped the industrial stocks somewhat.
Looking ahead to next week, earnings season will receive the lion’s share of the investment community’s attention. There are several more Dow-30 companies scheduled to release their latest quarterly results. We will also get some more important data on the economy, most notably the housing market. The five-day stretch kicks off with a report on existing home sales on Monday and will also include data on new home sales (Wednesday), durable goods orders and initial weekly unemployment claims (Thursday), and consumer sentiment (Friday). However, none of these reports is considered game changers and, thus, we expect the earnings news to be the key equity market driver next week. The possible economic game changers come the following week, with data due on employment and unemployment, GDP, and consumer confidence, and manufacturing. - William G. Ferguson
At the time of this article’s writing the author did not have positions in any of the companies mentioned.
12:25 PM EDT - The stock market opened lower this morning, as traders digested a few weak earnings reports. Nonetheless, the damage seems to be contained, for now, as the major averages are off their session lows. As we pass the noon hour in New York, the Dow Jones Industrial Average is off 28 points (-0.2%); the broader S&P 500 Index is down just a bit; and the NASDAQ, which is the source of much of the trouble today, is lower by 29 points (-0.8%). It will be important to see how traders behave in the afternoon, especially considering that it is a summer Friday.
Market breadth really suggests a mixed tone to the session, as declining stocks are only outnumbering advancers by a narrow margin on the NYSE. Moreover, there are quite a few market sectors advancing today. The healthcare names are showing leadership, and again it is the biotech stocks that are pushing that sector higher. Further, the energy issues are doing well, helped by equipment and services companies. It also likely helps that the price of crude oil has been moving higher lately. The industrials, too, are putting in a decent showing. However, there is considerable weakness in the technology space, specifically in the software makers (see below) and that is largely dragging down the market.
Technically, the S&P 500 Index continues to try and make its way into higher ground. The trading volumes were a bit stronger over the past few days, suggesting that there may be some commitment behind the recent move. The VIX is lower today to just over 13, and that, too, may indicate that sentiment remains relatively strong, despite some of the recent earnings misses.
Meanwhile, there were no economic reports released today of any significance. We start the week ahead, with few reports, as just the June existing home sales figures are due out on Monday.
Today, traders are largely fixated on corporate earnings reports. We heard from Microsoft (MSFT - Free Microsoft Stock Report). That issue is trading sharply lower after the company reported weaker-than-expected revenues and profits. Google (GOOG) stock is also off, as that company also put out a disappointing report. These companies alone due to their size and weighting in the major averages, are likely responsible for much of today’s weakness. On a more upbeat note, General Electric (GE -Free General Electric Stock Report) put out decent numbers and that issue is trading higher, and is likely helping support the shares of related companies. - Adam Rosner
At the time of this article’s writing the author did not have positions in any of the companies mentioned.
Stocks to Watch from The Survey – Technology stocks will likely come under pressure today, after bellwethers Microsoft (MSFT – Free Microsoft Stock Report) and Google (GOOG) delivered second-quarter results that fell short of investors’ expectations. Both stocks are down ahead of the bell, with Microsoft showing significant weakness. Industrials appear to be faring better, however, as diversified manufacturers General Electric (GE – Free General Electric Stock Report) and Honeywell (HON) are both trading higher in the premarket on earnings news. Quarterly reports from restaurant operator Chipotle Mexican Grill (CMG), financial services companies Capital One (COF), Sun Trust Banks (STI), and State Street (STT), appliance manufacturer Whirlpool (WHR), and oilfield services provider Schlumberger (SLB) also garnered warm receptions from investors and are indicating higher openings this morning.
Aside from Microsoft, two of today’s other notable laggards are semiconductor manufacturer Advanced Micro Devices (AMD) and medical device maker Intuitive Surgical (ISRG). Both stocks are down sharply in pre-market trading on earnings news. – 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 - Earnings season really rolled in yesterday, and if this had been a prize fight, the combatants would have shown a real ability to take a punch. Actually, there was little need for such defensive abilities, as most corporations acquitted themselves quite well. Of course, there were a few exceptions, and that led to some selective selling, even in a few cases, a full-scale retreat. But for the most part, the casualties were generally not hurt all that badly. In fact, to return to a boxing analogy, most remained standing for the full eight count.
To wit, a handful of Dow-30 corporations posted their quarterly results between the time the market closed on Wednesday to before the opening bell yesterday morning, and the news generally was good--especially in the case of health insurer UnitedHealth (UNH – Free UnitedHealth Stock Report) and iconic tech stalwart IBM (IBM – Free IBM Stock Report). And, as if on cue, both stocks performed nicely in yesterday's higher session, with shares of the former hitting a 52-week high in the process.
Overall, as noted, the markets handled things quite well, with the Dow Jones Industrial Average and the Standard and Poor's 500 Index hitting all-time highs over the course of the session. In all, the Dow climbed above 15,500, gaining 78 points, and ending the session at 15,549. The S&P 500 Index, meantime, pushed up eight points, edging to within some 10 points of 1,700. The NASDAQ, which is still far from a record, ended trading at a still-formidable 3,611. But that index's gain, a mere point, was restrained by some selective weakness in the tech sector, including an eight-point drop in the shares of high-flying Internet icon Google (GOOG), as Wall Street awaited that tech giant's after-the-close earnings issuance. That issue is now indicating nearly a 30-point drop at the opening this morning.
Elsewhere, the economy was less of a factor yesterday, one day after the market was blindsided by a dour report on housing starts and building permits. However, that issuance, which may be just a short-term outlier, did not ruffle too many feathers. Helping a bit yesterday, meantime, was a better showing on the jobs front, as first-time jobless claims fell notably in the latest week; on the other hand, the leading indicators suggested no such strength, coming in with a flattish reading. This all follows a generally lower session in the overseas markets.
Overall, though, the big story continues to be earnings, as second-quarter reporting season is now in full bloom. This will be the case again today, with scores of major companies reporting their results. On balance, the releases have been market friendly, with most companies either meeting, or topping, lowered expectations. This has been a regular pattern on Wall Street over the past several quarters, and such a trend has been of considerable importance in keeping the aging bull market alive. And, we sense Corporate America will be the decisive factor in determining the direction of equity prices over at least the next fortnight. The Fed, for example, has already answered the questions regarding the timing of the expected tapering off in bond buying, while the next really critical report on the economy is still some two weeks away, at which time we will get reports on consumer confidence, second-quarter GDP, manufacturing, non-manufacturing, and employment.
Finally, after the close of trading, in addition to Google, which suggested a decelerating pace of earnings and revenue growth that is pushing those shares lower in the pre-market, we also received a disappointing release from software giant Microsoft (MSFT – Free Microsoft Stock Report). That blue chip, which had closed yesterday at $35.44 a share, is indicated to open today at below $33 a share. Overall, the futures are suggesting a weaker start to the trading day, with the NASDAQ futures really reeling. – Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.