After The Close - The major U.S. equity indexes closed out the week on a mixed note, with the Dow Jones Industrial Average in the red, pushed lower in the final hour by some late-day selling. Perhaps, investors are a bit worried about what might take place over the weekend in Europe (more below). The broader S&P 500 Index also finished the session slightly below the neutral line. However, the NASDAQ, which fared better than the other two indexes from the get-go, finished comfortably in positive territory. Still, today’s Dow showing made for the first losing week in 2012 for the index of 30 bellwether companies. Relatively disappointing reports from a couple of its members today, along with some slightly weaker-than-expected news on the U.S. economy, were behind the latest setback.
Among the disappointing performers today in the Dow 30 were the stocks of Chevron (CVX – Free Chevron Stock Report) and Procter & Gamble (PG – Free P&G Stock Report). Shares of Chevron were weaker after the oil giant reported lower quarterly earnings, as rising spending on oil and gas projects and losses at its U.S. refinery business offset gains from higher crude oil prices. Meanwhile, P&G stock declined despite the fact that the company beat fiscal second-quarter earnings expectations. The investment community was disappointed that the household products giant guided third-quarter earnings significantly lower due to higher commodity costs. P&G also projected that unfavorable foreign currency rates will likely cut fiscal 2012 net sales by 1%. In addition to the aforementioned Dow companies, notable decliners include the stocks of Starbucks (SBUX) and Ford Motor (F). The automaker slipped after reporting disappointing fourth-quarter earnings due to weak sales in Europe.
As mentioned, the NASDAQ turned in another solid performance, helped by some stronger stocks in the technology space. In particular, chipmaker KLA-Tencor (KLAC) reported quarterly results that surpassed expectations. The KLA report also pushed the stocks of fellow tech companies Lam Research (LCRX) and Novellus Systems (NVLS) higher. Technology, as well as financials and basic materials, were among the better performing sectors today. Conversely, the day’s biggest laggards were utilities, consumer noncyclical, and energy stocks—the aforementioned Chevron news weighed on the latter group.
Meanwhile, the U.S. economic news was not particularly supportive today. An hour before the market opened, the Department of Commerce said the economy grew at a 2.8% annualized rate in the final quarter of last year. While that figure was the best quarterly showing in 2011, it fell short of the consensus expectation for 3.0% growth. The economic news, along with the continued uncertainty overseas (more below) did prompt some investors to seek safe-haven instruments. In fact, the yield on the benchmark 10-year Treasury note, which moves in the opposite direction to the price, fell once again today, ending the session at 1.90%--it was as high as 2.07% on Monday. The price of gold, also of interest to skittish investors, continued its climb today, ending the session above $1,735 an ounce on the New York Mercantile Exchange. In addition to the uncertainty overseas and the lower dollar today, the Fed’s projections of historically low interest rates to 2014 have raised investors’ interest in the precious metal.
As noted, the situation in the euro zone continues to cast a cloud over the equity markets—most of the major European bourses finished the day in negative territory. Meantime, the trading week ended with still no agreement worked out between debt-saddled Greece and its creditors. We also learned today that one of the major credit ratings agencies has cut its sovereign-credit ratings for Italy, Spain, Slovenia, Cyprus, and Belgium. The agency also said there is a 50% chance of further downgrades in the next two years.
Turning back to the United States, fourth-quarter earnings season continues next week, with reports due from Dow-30 companies Pfizer (PFE – Free Pfizer Stock Report) Exxon Mobil (XOM – Free Exxon Stock Report), and Merck (MRK – Free Merck Stock Report). Likewise, it will be a busy week on the economic front with reports on personal income and spending (Monday), consumer confidence (Tuesday), manufacturing activity and vehicle sales (Wednesday), productivity (Thursday), and non-manufacturing activity and employment (Friday). – 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 is generally directionless today, as traders digest a few mixed economic reports. The Department of Commerce estimated that Gross Domestic Product (GDP) for the fourth quarter increased by 2.8%, coming in a bit short of analyst expectations. Moreover, an unusually large rise in inventories had some analysts concerned. This report was somewhat offset by a favorable consumer sentiment reading. The University of Michigan’s Consumer Sentiment Index registered 75 for the month of January, a bit better than some had anticipated.
The corporate reports were also largely mixed. In the Dow, Chevron (CVX - Free Chevron Stock Report) is seeing its stock move lower, after the oil giant reported a disappointing fourth quarter. Also in the Dow, Procter & Gamble (PG - Free Procter & Gamble Stock Report) posted its results, and that stock is lower. In the automotive sector, Ford (F) stock is slipping, as analysts were expecting better profit figures. In technology, Juniper (JNPR) shares are also down after the networker reported weak top-line results. Elsewhere, there has been some merger and acquisition activity. Solutia (SOA) is trading higher on a bid from Eastman Chemical.
As we pass the noon hour in New York, the Dow Jones Industrial Average is off by 95 points (-0.8%); the broader S&P 500 Index is down six points (-0.5%); but the NASDAQ is still up one point (0.1%). The market, as a whole, may be a bit stronger than it appears, as advancing stocks are slightly ahead of decliners on both the NYSE and the NASDAQ.
As was the case yesterday, the basic materials group is performing well. Investors have been buying metals stocks lately. Barrack Gold (ABX) and Silver Wheaton (SLW) are both rising. The technology sector is also doing well, thanks to some strength in the Internet stocks. There is also notable weakness in the utilities. American Electric (AEP) is off sharply. The energy group is also weak.
Technically, the S&P 500 Index started pulling back yesterday. That move came on heavy volume, which makes it worth noting. Ultimately, we will have to see if a pullback of any duration materializes. If the market pulls back we might look for some support at the 50-day moving average at roughly 1,250, about 5% lower than the current level. The pullback may be short lived, as the buy-the-dip investors, and others who missed the rally entirely, are, no doubt, waiting on the sidelines. - Adam Rosner
At the time of this article's writing, the author had a position in Ford (F).
Before The Bell - The stock market started strongly yesterday in what appeared to be another leg up on the current bull market run, which began in early October, and which has rarely looked back. In fact, emboldened by a strong report on orders for durable goods issued before trading commenced, the Dow Jones Industrial Average raced ahead strongly at the opening. And within 30 minutes of the starting bell, that composite of 30 well-known companies had surged to a gain of some 80 points. However, two data releases at 10 AM (EST) took away a lot of the optimism. First, the Conference Board reported that the leading indicators rose by 0.4% in December. That was a lesser increase than the 0.7% gain forecast. Second, data issued showed that sales of new homes dipped in December to an annualized rate of 307,000 homes; a slight gain to 320,000 new residences sold had been the forecast.
Armed with these latter metrics, the market turned lower by midday, save for the Dow, which clung to a portion of its gain until later in the afternoon. By the close, though, that composite, too, had dipped into the red, falling by 22 points. The NASDAQ, meanwhile, eased by 13 points, a larger percentage drop than the Dow.
Amidst this mixed economic backdrop, the chorus of corporations continued to put forward their fourth-quarter earnings reports. And, for the most part, they were satisfactory, and in some cases rather supportive. Specifically, a pair of Dow companies, namely 3M Company (MMM – Free 3M Stock Report) and earthmoving giant Caterpillar (CAT – Free Caterpillar Stock Report), posted better-than-expected numbers for the final quarter of 2011, sending both stocks nicely higher. Conversely, a profit miss at telecom behemoth AT&T (T – Free AT&T Stock Report) pushed that stock a bit lower on the day.
The selling, meantime, may also have been the result of further angst about Europe, where the euro-zone nations are still trying to piece together a deal to stave off a default in debt-encumbered Greece. There are reports of progress today, but nothing has been hammered out as yet. Despite in-fighting and assorted delays, Athens still hopes to fashion a workable deal, with a formal submission by February 13th. Essentially, private creditors are being asked to take a 50% haircut on their holdings. Such a prospective writedown would be critical if Greece is to put together a second bailout. Whatever debt relief Greece does not get from its investors would have to come from its European partners and the International Monetary Fund.
Also weighing on stocks yesterday was the temptation to take profits after the sharp runup in equities in recent weeks. Indeed, all of the major averages are solidly higher so far in 2012, with the Dow up 4.2%. Also, the NASDAQ is ahead 7.7% and the Standard and Poor's 500 Index better by 4.8%.
Finally, there is the economy, which notwithstanding yesterday's ho-hum series of reports, has been pressing nicely forward in recent weeks. Now, a major report has been issued this morning, in which the Department of Commerce has released data showing that the nation's economy pressed forward at a 2.8% rate in the final quarter of last year. That was the best showing of the four quarters in 2011, but it was a bit shy of the 3.0% rate of improvement that had been the consensus forecast. By comparison, GDP had increased by 1.8% in the third quarter.
The modestly disappointing metric has taken some of the wind out of the sails of the equity futures, with the S&P futures, which had been up by some five points earlier, now in the red by more than three points, while an earlier seven-point increase in the NASDAQ futures has been pared to less than a point. At this moment, therefore, a mixed opening on Wall Street seems ahead, as traders prepare for the upcoming session, which will be getting under way in about a half hour from now. – Harvey S. Katz
At the time of this report's issuance, the writer had positions in T.