After The Bell - Wall Street turned cautious today on weaker-than-expected economic data, uncertainty about conditions in Europe, and uninspiring corporate news at home.
Three out of four of the day’s economic reports came in short of expectations, including initial jobless claims, existing home sales, and a manufacturing index for the Philadelphia area. The bright spot was a greater-than-forecast rise in the nation’s leading economic indicators, as determined by the Conference Board, a private research group. A preponderance of better-than-expected data supported the stock market rally that began in late 2011, so it is not surprising for a selloff to occur when clues to the economy’s health are not as bullish.
At the close, the Dow Jones Industrial Average was down 69 points, falling below the 13,000 level, and the tech-heavy NASDAQ lost 24 points. Three stocks fell for every two rising on the New York Stock Exchange composite index.
The technology and industrial sectors led the way down. In the tech space, EMC Corp. (EMC) reported good quarterly earnings, but its outlook for full-year profits was less than analysts’ predictions. Its shares fell as a result.
Renewed doubts about Europe, and Spain’s financial health in particular, also weighed on investors during the session. The Spanish government successfully sold a limited amount of debt today, but at yields that raised some eyebrows. Yields of 5.74% for its 10-year notes contrast sharply to the 1.7% yield on the comparable term for German debt, and hint at some concern that Spain will ultimately be able to pay in full. Reports that Spanish banks have run through much of the cash lent to them by the European Central Bank earlier this year may have undermined confidence, as well.
Back home, the yield on the 10-year U.S. Treasury fell to 1.96% from 1.98%, with prices rising, on lackluster business data. The lack of conviction in the economy also showed up in today’s $16 billion sale of five-year Treasury Inflation-Protected Securities (TIPS) for a negative yield of 1.08%. Investors are obviously assuming that compensation for inflation will allow them to achieve returns close to the regular five-year Treasury note’s yield of 0.84%. But such low yields are normally taken as a sign of a weak economy.
Tomorrow brings another full slate of earnings reports from a number of heavyweights for investors to consider. Some positive surprises on the profit front would probably have a good chance of pushing stocks higher in the absence of any significant economic reports pending in the United States, and barring any bearish tidings out of Europe. - Robert Mitkowski
At the time this article was written, the author did not have positions in any of the companies mentioned.
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12:15 PM ET - The U.S. stock market got off to a weak start this morning, and is now looking for direction. As we pass the noon hour in New York, the Dow Jones Industrial Average is off 32 points (-0.3%); the S&P 500 Index is down four points (-0.3%); and the NASDAQ is shedding three points (-0.1%). Market breadth suggests a mixed tone, as well.
There is leadership in the healthcare group. This probably reflects some merger news. Specifically, Human Genome Sciences (HGSI) stock is up dramatically after that company received a bid from GlaxoSmithKline (GSK). Human Genome has since rejected the offer. There is also some strength in the consumer area. Elsewhere, the transports are trading lower today, and the technology stocks are struggling, with Apple (AAPL) leading the group lower.
The international markets put in a mixed performance, meanwhile. After a decent start, Frances’ CAC-40 ended off about 2%. Germany’s DAX slipped as well, and Britain’s FTSE-100 posted a modest loss. The weakness comes despite decent results at Spanish and French bond auctions.
Traders are largely shrugging off some weak economic reports here at home. According to the Department of Labor, initial unemployment claims came in at 386,000 for the week ended April 14th. This figure was a bit higher than the consensus expectations. Continuing jobless claims also rose, lending support to the idea that the job market may not be recovering as fast as had been hoped. The housing market news was also not too encouraging. The National Association of Realtors reported that existing home sales slipped to 4.48 million units, annualized, during the month of March, coming in lower than analysts expected, and also below the 4.60 million units sold in February. There was also a weak reading from the Philadelphia Fed, indicating sluggishness in that region. On the bright side, the Conference Board’s Survey of Leading Economic Indicators showed some improvement for March.
Meanwhile, the earnings reports continue to stream in. In the financial sector, a few big names reported today. Shares of Bank of America (BAC - Free Bank of America Stock Report) were up after the banking giant posted better-than-expected results. Morgan Stanley (MS) stock is also trading higher, as Wall Street seemed pleased with the results. Elsewhere in basic materials, DuPont (DD - Free DuPont Stock Report) put out strong results, but the stock is headed lower nonetheless.
Technically, the stock market seems to be looking for direction after pulling back in early April. Trading volumes have been light for the past several sessions, suggesting some ambivalence. Hopefully, the S&P 500 Index will remain above its 50-day moving average, located at 1379. If we head lower the Index may find some support at the 1,360 level which was hit several days ago. If we go lower than that, there may be some support at the 1,340 area, which marked the bottom of a slight pullback in March. - Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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Stocks to Watch from The Survey – Investors are digesting a slew of earnings reports from bellwether Dow-30 components today. American Express (AXP – Free American Express Stock Report), which reported after the market closed yesterday, and Bank of America (BAC – Free Bank of America Stock Report) led the way for the financials. Both companies reported better-than-expected earnings, but investors were much more excited about BofA’s results, and bid that stock higher in the premarket. Shares of American Express were greeted with a more subdued response, and are little changed in premarket trading. The biggest winner among the financial this morning is Morgan Stanley (MS), which reported stronger-than-anticipated sales and adjusted earnings. Investors also appeared pleased with its fixed-income trading profits, and the stock climbed nicely in the premarket.
Three other Dow-30 components, Verizon (VZ – Free Verizon Stock Report), Travelers (TRV- Free Travelers Stock Report), and DuPont (DD – Free DuPont Stock Report), also announced quarterly results today. All three reported solid earnings, though only the shares of Verizon and Travelers moved higher in the premarket.
Today’s earnings parade also included results from metals and mining company Freeport-McMoRan (FCX), tobacco giant Philip Morris International (PM), and paint manufacturer Sherwin Williams (SHW). Meanwhile, Microsoft (MSFT – Free Microsoft Stock Report), restaurant operator Chipotle Mexican Grill (CMG), apparel company Hanesbrands (HBI), and mattress manufacturer Tempur-Pedic (TPX) are scheduled to report earnings after the market closes today.
In non-earnings related news, shares of Human Genome Sciences (HGSI) are up more than two fold in premarket trading, after the biotech company received, and subsequently rejected, a $13-per-share buyout offer from drug maker GlaxoSmithKline (GSK). The bid represented an 81% premium to Human Genome’s Wednesday closing price of $7.17. – Matthew E. Spencer
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 - The stock market pulled back yesterday in an orderly decline, following a stellar showing by the bulls on Tuesday. Once again, it was earnings that set the tone. On Tuesday, investors cheered results at softdrink giant Coca-Cola (KO – Free Coca-Cola Stock Report), drug and medical supplies blue chip Johnson & Johnson (JNJ – Free J&J Stock Report), and investment banking behemoth Goldman Sachs (GS), with the latter also raising its quarterly dividend. Yesterday, it was tech stalwart International Business Machines (IBM – Free IBM Stock Report) that set the tone. Only this time, it was not a positive sound that investors heard.
It wasn't that IBM's earnings were poor; they could hardly qualify as that, with a gain of some seven percent. In fact, earnings were better than forecast. However, revenues were soft, especially in hardware and business services. And Wall Street is not forgiving these days. Thus, investors bid the stock lower, pushing it down by more than seven dollars a share. Of course, with an opening price north of $207, such a backtracking would not qualify as headline making. Nevertheless, for a stock that has been a rewarding investment for years, and an equity that routinely does well in the hours following its quarterly release, this latest reaction was a jolt of some magnitude, and the Dow Jones Industrial Average reacted negatively, with a session loss of more than 82 points. Lesser proportionate setbacks were suffered by the other principal averages, meanwhile. Declines in the European bourses earlier in the day, on continued worries about Spain and its financial structure, didn't help sentiment over here. All told, a modest portion of the prior session's gains were reversed in the latest day's selloff.
Then, after the close, financial services giant American Express (AXP – Free Amex Stock Report) led the earnings parade, with results that modestly topped expectations. In all, the credit card issuer earned $1.07 a share, exceeding consensus forecasts of $1.00 a share, and our estimate of $1.04. The day ahead, meantime, will feature a plethora of reports from Dow-30 companies, while the profit parade will also take in a good number of non-Dow names that could influence trading in the coming hours. Thus far, Bank of America (BAC – Free BofA Stock Report) has chimed in, posting a drop in first-quarter profits. The issue is indicated somewhat higher in the pre-market, apparently on rather upbeat expectations going forward. This is the peak of earnings season, and the heavy reporting will go on for the next fortnight. So far, the results have been favorable, for the most part, but there have been a few celebrated misses, or failures to hit the so-called whisper number. That might have been one problem with IBM yesterday. The pattern so far this earnings season is likely to be the rule going forward over the next few weeks, a trend that is likely to be the minimum needed, we think, to keep the recent stock market rally in place.
Aside from earnings, there was little of note on the economic front yesterday, following a flurry of activity earlier in the week. That will change in the hours to come, as the government has just reported that weekly jobless claims ticked down ever so slightly in the latest seven-day stretch, but are still up sharply from earlier this spring. Then, later this morning, the National Association of Realtors will issue March figures on existing home sales, while the Conference Board will release data on the leading indicators. Both reports are expected to be decent, but not memorable.
Then, there is Europe, where Spain is holding its latest bond auction, and where yields have pushed higher in recent weeks, but are backtracking some this morning on a reasonably strong reception for the borrowings. But earlier gains in the European bourses, in response, have been pared somewhat, most likely on talk about a possible downgrade of France's sovereign-debt rating. In all, yields on the debt of the euro zone's second largest economy (after Germany) are ticking up modestly this morning.
As to our futures, they are showing slight gains in the S&P, the Dow, and the NASDAQ, presaging a possibly higher start to the trading day, which is set to get under way in less than an 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.