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After The Close - The major U.S. equity indexes, fresh off a week that saw the Dow Jones Industrial Average and the broader S&P 500 Index end at all-time highs, succumbed to some profit taking today. The selling was rather broadbased, but the most severe damage was inflicted in the small-cap universe, with the Russell 2000 suffering the biggest loss among the major averages. With the lack of any major economic and earnings news stateside, investors looked elsewhere and appeared to be spooked by some weaker-than-expected economic data from Germany (see below).

From a sector perspective, the biggest laggards were those groups most closely tied to the performance of the global economy. In particular, it was a difficult day for the energy stocks. Weighing on the oil and gas companies were once again falling crude prices. Oil is in the midst of its longest losing streak in four-plus years, as crude prices fell for the seventh consecutive session. Other notable laggards today were healthcare, financial, basic materials, and industrial stocks. There were not many places that did well—even the defensive sectors finished in the red. Overall, declining issues outnumber advancers by a significant margin on both the New York Stock Exchange and the NASDAQ, to the tune of about four to one on the latter.

As noted, with earnings and economic news was very light today. Thus, traders returning from the long- holiday weekend were forced to look elsewhere, and what they saw from the Continent was a bit disconcerting. Specifically, Germany’s industrial production fell 1.8% in May, the biggest drop in more than two years; the expectation there was for no growth for the European powerhouse. Germany’s data raised questions about the frailty of the region’s economic recovery, and unnerved investors. We think it was a big reason why some of the more economically sensitive sectors struggled the most during this down day on Wall Street; most of the stocks of the multinational companies in the Dow 30 finished in the red. Looking ahead, the investment community’s attention, at least from a business beat perspective, may remain on the Continent, as it will be a very quiet week for domestic economic news.

Meantime, second-quarter earnings season, which many pundits think will prove to be a decent one for the S&P 500 companies, is set to kick off after the close of trading tomorrow when former Dow-30 component and aluminum maker Alcoa (AA) releases its latest quarterly results. In addition to Alcoa, we will get earnings results from WD-40 (WDFC), Family Dollar Stores (FDO), and Wells Fargo (WFC). The earnings news will heat up next week, with JPMorgan Chase (JPM - Free JPMorgan Chase Stock Report) being the first of the Dow-30 companies to report earnings on July 15th. - William G. Ferguson

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

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12:00 PM EDT - The U.S. stock market is taking a pause today, as traders return from a three-day holiday weekend. This does not come as a complete surprise, given that stocks have advanced quite a bit over the past several sessions. At about noon in New York, the Dow Jones Industrial Average is off 73 points; the broader S&P 500 Index is down 10 points; and the NASDAQ is lower by 33 points. Moreover, market breadth suggests that there is some underlying weakness to today’s session, as declining issues are well ahead of gainers on the NYSE. Almost all of the equity sectors are trading in negative territory, too. Specifically, weakness can be found in the basic materials group. The energy stocks are losing ground, as well. Nonetheless, investors are buying the utility issues today. Given this group’s average dividend yield, this may largely be seen as a defensive move.

In general, stocks have been holding up quite well in recent weeks, pressing notably higher in late May and through the month of June. Some of the major averages have reached, or are near, important price areas. For example, the Dow just passed 17,000, and the S&P 500 Index is closing in on 2,000. Moving meaningfully beyond these levels may take a bit of effort, and some resistance could present itself.

Meanwhile, there were no notable economic releases issued in the United States this morning. That, and some mixed news from Europe, may be contributing to the weak tone of the market today. Tomorrow, will be a light day for economic issuances, too. Nonetheless, it should be mentioned that on Wednesday, the FOMC will release the minutes from its June meeting. That text will likely be examined by economists and equity analysts, always eager to gain insight into the Fed’s monetary policy.

Finally, it has been a light day for corporate reports. However, all that is about to change, as the second-quarter earnings season soon kicks off. Notably, the season unofficially commences with a report from aluminum giant Alcoa (AA), which is due out after the closing bell tomorrow. Generally, analysts are looking for corporations to post healthy results. While that is a plus for stocks, it also sets the bar a bit high. Many equities are trading at elevated price-to-earnings multiples, and disappointing news will probably not go unnoticed. - Adam Rosner

At the time of this article’s writing, the author had a position in Alcoa.

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Stocks to Watch from The Survey Corporate news is fairly light on the heels of the Independence Day holiday, though there are a few companies making headlines this morning. Tech giant Apple Inc. (AAPL) has reportedly hired an executive from Swiss watch maker Tag Heuer, as it gears up for the anticipated launch of a new device called iWatch this fall. The stock is down slightly in premarket trading. Meanwhile, computer maker Int'l Business Machines (IBM - Free IBM Stock Report) has received approval from China’s government to sell its low-end server business to China-based industry peer Lenovo for a reported $2.3 billion. The deal, which is still pending U.S. regulatory approval, is expected to close by the end of this year. Though this is good news, IBM stock appears poised to open a bit lower this morning, in what is shaping up as a weaker opening, in general, on Wall Street.  – Kathryn M. Drew

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

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Before The Bell - Investors celebrated the 238th birthday of our nation's founding a little early last week, as the U.S. stock market rose strongly and inclusively last Thursday in a pre-holiday shortened trading session. All told, the Dow Jones Industrial Average gained 92 points, and in the process moved above the psychologically important 17,000 mark for the first time. It had been weeks since the Dow, on the cusp of 17,000, has been attempting to cross that key threshold.

But the Dow wasn't alone as we headed into the long weekend that we hope proved to be safe for our readers and most enjoyable, as the good news also took in the Standard and Poor's 500 Index (up 11 points), the NASDAQ (ahead 28 points), the Standard and Poor's Mid-Cap 400 (in the plus column by almost eight points), and the Russell 2000 (better by nine points, or 0.72%). Moreover, the breadth of the market was strong, with nearly three Big Board stocks rising for every two that declined, while all of the top 10 market sectors rose on the day save for the utilities. The gains were led by the economically sensitive basic materials groups, as optimism increased on the economy and its prospects for the second half.

Importantly, the root of that emerging optimism was a trio of upbeat economic reports issued on Thursday. First, the Commerce Department released data showing a narrowing of the nation's trade deficit in May, helped along by a rise in exports. Then, in a much more critical report, the Labor Department issued data showing that non-farm payrolls had increased by 288,000 in June, well ahead of the 215,000 gain forecast. Also, the unemployment rate dipped from 6.3% in May to 6.1% last month. Finally, the Institute for Supply Management reported that non-manufacturing activity growth remained at a healthy level. These trio of upbeat issuances suggest anew that GDP growth in the second quarter likely rebounded to at least 3% and that such a decent level of improvement will continue in the current half.

Now, looking ahead to the new week, and the first full five-day stretch of the current half, we will be getting few economic releases of note, although we will get a glimpse of what the Federal Reserve is thinking, as the release of the minutes from the mid-June FOMC meeting. That report will be out on Wednesday afternoon. Save for that release, only the weekly jobless claims data will be on the docket. However, the start of earnings reporting season is now approaching, and tomorrow after the close of trading erstwhile Dow-30 component Alcoa (AA) will issue its second-quarter metrics. Expectations are likely high given the strength shown by this former blue chip in recent months. Also, late in the week, we are expecting to hear from banking giant Wells Fargo (WFC), as that financial behemoth readies its second-quarter profit statement. Then, by next week, many of the mainstays of Corporate America will join in with their quarterly metrics and accompanying forecasts for the next quarter.  

As to the outlook for stocks in the second half, we remain constructive, as there just are few alternatives in the current historically low interest-rate environment to equities. Fixed income yields, for example, are still very modest, with the return on the benchmark 10-year Treasury note holding at just 2.65%. Although that interest rate is up from the low of the past year of 2.40%, it is below what a good number of high-quality blue chip stocks are returning, and is just about two-thirds of a percentage point above the median-yielding issue.

Meanwhile, looking at the markets this morning, we find that there has been some profit taking overnight in Asia and this morning the bourses are selling off somewhat in Europe. Over on our shores, moreover, the futures are pressing lower and by a good sum, with the S&P 500 Index futures now off by about five points and the NASDAQ futures in the red to the tune of almost 10 points. Thus, we are not expecting a very upbeat start to the first full week of the second half.   - Harvey S. Katz

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