After The Close - Stocks spent another session trading in mixed-to-lower fashion on Tuesday, but with more volatility than they exhibited to start the week on Monday. To an extent, the normal focus on earnings at this point in the quarterly cycle has been derailed by political events and matters related to the economy.
Regarding the latter, the widely-watched release of a preliminary estimate of the nation’s second-quarter GDP is due out at 8:30 (EDT) tomorrow. Economists are looking for a big number to offset the weather-related weakness in the first quarter. The strength of this data may well set the tone of the market early, and investors may have shied away from becoming overly bullish today ahead of this important data point.
Later Wednesday, the Federal Reserve is set to conclude its two-day policy meeting. No surprises are expected, but Wall Street would like to hear some reassuring words about the state of the recovery from the nation’s lead bank and its plans for interest rates.
Then, on Friday, the monthly government payroll report for June is projected to confirm the labor market’s recent upturn with another strong showing.
As for this morning’s economic data, a strong figure on consumer confidence failed to ignite a lasting rally, although it did offset to a degree a reduced outlook from transportation bellwether United Parcel Service (UPS).
But while the factors related to the economy are thought to be favorably inclined, unsettling political events continue to keep Wall Street and the broader public on edge. Those include the escalation of violence in the Middle East and today’s imposition of stiffer sanctions by the European Union on Russia. The United States may soon follow the EU in that regard, which would not be good for business, especially for companies that have gone to great lengths to establish ties to Russia’s emerging market economy.
When all was said and done, stocks turned in another choppy performance. The Dow Jones Industrial Average was down 70 points, the S&P 500 lost nine points, but the NASDAQ was mostly flat. Market breadth on the Big Board was weak, with the losers easily topping gainers.
Among the stock market’s various sector, telecoms turned in a solid performance. One smaller company in the group took steps to put assets in a tax-advantaged real estate investment trust, and there was speculation that other telecoms might do something along those lines.
So far this week, the bears have had the edge over the bulls, but stocks are still not that far from recent record highs. - Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
12:20 PM EDT - The U.S. stock market headed higher earlier this morning, but has since given up those gains following the European Union’s vote to apply tougher sanctions against Russia. At just past noon in New York, the Dow Jones Industrial Average is flat; the broader S&P 500 Index is down one point; but the NASDAQ is higher by 10 points. Market breadth has turned negative, as declining issues are now outnumbering advancers on the NYSE. Further, the various equity sectors indicate a divided market. Specifically, there are losses in the utility issues, after a solid showing in these names yesterday. Moreover, the energy stocks are off quite a bit, as the price of crude oil is weaker today. In contrast, the healthcare issues are making strides, and some of the consumer names are holding up well.
Notably, stocks continue to pull back after hitting record territory a few days ago. Specifically, the S&P 500 index hit the 1,991 level last week, and many traders were looking for a move past the 2,000 threshold. However, it now seems that such an advance may be difficult for the bulls to produce, at least without a definite catalyst. While the second-quarter earnings season has been decent, many equities have had a nice run and are now trading at elevated valuations. Further, political tensions in Ukraine and the Middle East are not helping matters. Nonetheless, for now, the market remains stable. We have seen the buy-the-dip crowd moving in to support stocks on signs of weakness, and that is likely the best bullish indicator.
Meanwhile, the economic news was supportive today. Specifically, the Consumer Confidence Index came in at 90.9 for the month of July (discussed below). This reading easily surpassed expectations. Elsewhere, the FOMC is currently meeting, with the customary concluding announcement slated for tomorrow afternoon. While no major change in policy is anticipated, this upcoming issuance may have some traders sitting on the sidelines.
Finally, corporate profit reports continue to dominate the headlines. Today, we heard from numerous high-profile names. In the drug area, Merck (MRK – Free Merck Stock Report) put out decent issuance, and is seeing its stock move higher. Pfizer (PFE – Free Pfizer Stock Report) shares were up earlier, but have since slipped, after the drug giant reported decent figures. - Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
10:30 AM EDT - Meanwhile, 30 minutes into today's trading session, the Conference Board, a private New York City-based research organization, reported that its gauge of consumer confidence had jumped to a reading of 90.9 in July. That result compared favorably with the upwardly revised survey result for June of 86.4. Initially, the June result had been estimated at 85.2. Expectations had been for a result of 85.3.
This was a most encouraging report, coming as it does on the heels of some dour housing metrics, which had been reported over the past fortnight, including declines in housing starts, building permits, new home sales, and yesterday's report of weaker results in pending home sales.
Meanwhile, within this overall report, the present situations index rose to a reading of 88.3 from 86.3 in June. Here, too, the June result was revised upward from an initially estimated 85.1. At the same time, the expectations index, which looks ahead by six months, and is normally the most upbeat of the components, gained as well, rising to 82.7 from June's revised 86.4. Earlier, this component had been estimated at 85.2.
Helping these overall components was the fact that those seeing jobs as hard to get eased somewhat from the prior month. it should be noted that the monthly Consumer Confidence Survey is based on a probability-design random sample. The cutoff date for the preliminary July result presented here was July 17th.
According to the Conference Board's Director of Economic Indicators, Lynn Franco, “Consumer confidence increased for the third consecutive month and is now at its highest level since October 2007.” That, it should be noted, was before the onset of the long and painful recession of late 2007 through early 2009.
Overall, this was a clearly encouraging report and one that helps to counter the dour housing news and some other recent economic sluggishness. The good confidence figures also add weight to the view that economic growth, in the aggregate, should increase nicely through yearend and into 2015. - Harvey S. Katz
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 – Although earnings season is slowly starting to wind down, there were a few noteworthy announcements issued this morning. To wit, drug behemoths Pfizer (PFE - Free Pfizer Stock Report) and Merck (MRK - Free Merck Stock Report) have chimed in with their quarterly metric, and the issues are trending slightly higher in the pre-market. Also, tech stalwart and Dow component Microsoft (MSFT - Free Microsoft Stock Report) is being investigated by the Chinese government, although the focus of the probe remains unclear. Bank of America (BAC) is still in talks with regulators over whether the financial services giant should pay a fine due to the dealings of Countrywide and Merrill Lynch. – Sharif Abdou
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 opened lower yesterday and proceeded to spend the better part of the morning in negative territory. Fears about the suddenly pressured housing market, skittishness ahead of critical economic issuances due out over the course of the next few days and the outcome of the two-day Federal Reserve FOMC meeting that concludes tomorrow, worries about corporate earnings, and well-placed concerns about the eroding global situation headed the list of market depressants. It was not a pretty picture, and the latest early chipping away at the bull market suggests as much.
On point, the stock market, which fell sharply this past Friday, on some weaker bottom-line metrics, pushed lower again yesterday, as noted, weighed down in part by further worries about housing. Specifically, a report issued early in the day showed that pending home sales had fallen by 1.1% in June, to mark the first decline in that category in four months. Still, the reading of 102.7 (off from May's 103.8) kept that index above 100, which is viewed as an average pace of sales. Still, coming on the heels of data showing faltering housing starts, weaker building permits, and lower new home sales, it is worrisome. In fact, even if the 102.7 level is above average, it is well below the year-earlier 110.8. The latest falloff in housing, while modest, does point up the risks of higher interest rates, the difficulty in obtaining mortgages, and the problem of stagnant wages. The latter, of course, is raising affordability issues.
In addition to the housing softness, there are the spreading global issues, which now take in Ukraine, Gaza, Libya, and Iraq. It is a dangerous world out there. Add in unevenness on the profit side and an overbought stock market, and the latest retracement is not hard to understand. Meanwhile, we sense that the global event risks will continue to have an influence on short-term trading, but, in the end, fundamentals will be the determining factor in whether or not the bull market will persist. As to those fundamentals, there will be a number of reports upcoming, starting with today's data on consumer confidence, due out at 10:00 (EDT). Then, tomorrow morning, we will get the first look at second-quarter GDP. A gain of 2.9% is the forecast. That will be followed on Friday by critical reports on non-farm payrolls, the jobless rate, and manufacturing activity across the country. Also, the chorus of earnings reports will continue with some big names due to release their latest results along with a number of smaller companies.
As to the market, after the Dow Jones Industrial Average sold off rapidly at 10:00 (EDT), in response to the dour pending home sales report--at one point falling to a loss of more than 80 points--the market began to pare the deficit, and met some success in that area. In fact, by early afternoon, the Dow, the Standard and Poor's 500 Index, and the NASDAQ had all pushed into the black for a time, although the mid-afternoon gains were far from memorable. Not surprisingly, the homebuilders were among the weaker groups following the disappointing news on pending home sales.
Helping to spark this modest recovery was a pickup in merger and acquisition news, with retailer Family Dollar Stores, Inc. (FDO) agreeing to be purchased by rival Dollar Tree (DLTR). The announced purchase price was at a 23% premium to the closing price on Friday of Family Dollar shares. Family Dollar stock surged on the news, rising to above the announced purchase price, perhaps on speculation that another suitor might come in with a richer bid. Dollar Tree shares also rose, albeit much more modestly. Thus, we were treated to another Merger Monday. Clearly, such an event helped to mollify skittish investors to some extent.
Meanwhile, after this hesitant push into the black by these large-cap indexes, there was a period of back-and-forth movement in and out of the plus column over the final two hours of the week's initial trading session. And by the close, the market had no worse than a mixed look to it. In all, the Dow closed up by 22 points; the Standard and Poor's 500 Index was essentially flat; while the NASDAQ finally edged into the red by almost five points. The small- and mid-cap stocks, meantime, were off modestly, as well. An uneven pattern also was in place among the ten key equity groups, with the utility stocks among the few areas in the black on the day.
Finally, looking out to the day ahead, the markets in Asia, led by Japan's Nikkei, which rose to a six-month high, were up modestly overnight, while stocks are generally in the plus column in Europe this morning, managing to shrug off worries about toughening sanctions against Russia. As to our futures, they are suggesting a mixed opening when trading gets under way within the hour, as higher blue-chip earnings are allowing the S&P 500 Index to counter some weakness in the NASDAQ. Finally, as noted, the Federal Reserve's two-day FOMC meeting commences shortly. No change in monetary policy is expected following that confab. - Harvey S. Katz