After The Close - A difficult week for the U.S. equity market, punctuated by a more-than-430-point two-day drop in the Dow Jones Industrial Average, ended on a slightly upbeat note, as some selective bargain hunting on Wall Street erased a small portion of the prior days’ outsized losses. The NASDAQ and the broader S&P 500 Index finished modestly higher, up nine and two points, respectively. However, the Dow 30, rising ever-so slightly, was held in check by a dismal performance from one of its components. Specifically, the stock of Walt Disney (DIS - Free Disney Stock Report) fell almost 6% after the media giant posted a bottom-line gain, but the results fell short of consensus expectations. Next week three more Dow components—The Home Depot (HD - Free Home Depot Stock Report), Cisco Systems (CSCO - Free Cisco Systems Stock Report), and Wal-Mart (WMT - Free Wal-Mart Stock Report)—are scheduled to release quarterly results.
As noted, there was some bargain hunting on Wall Street in this volatile week’s final session. While most of the top 10 sectors finished in the black, no one stood out from the pack. There was some selective interest in healthcare stocks, with the biotech and medical equipment and supplier areas among the patches of strength. The technology group also put in an admirable showing, with Apple (AAPL) and Google (GOOG) in the plus column on the heels of a difficult few days for the giant technology stocks, particularly for the former. Conversely, the basic materials and utilities sectors were weak.
Meantime, the U.S. economic news continues to be constructive for the markets. Shortly after trading opened on these shores, the University of Michigan released its first reading on consumer sentiment for the month of November, and the figure came in at a five-year high for this important gauge of how consumers are feeling. The strong reading is also an encouraging sign with the all-important holiday shopping season set to kick off two weeks from today with Black Friday. Consumer goods and services account for about two-thirds of the nation economic output, so investors will be closely monitoring how the retailers are doing over the next several weeks. Next Wednesday will bring data on retail sales for the month of October.
The upcoming week will be a busy stretch on the economic front. In addition to the retail sales figures, we will get reports on producer and consumer prices, initial weekly jobless claims—which were down this week—and industrial production and factory usage. We will also get the latest surveys of manufacturing conditions from the New York and Philadelphia Feds, and the minutes from the latest Federal Open Market Committee meeting are expected to be released on Wednesday.
Over the remaining weeks of 2012, the economy is surely to be on the minds of investors, as government officials in Washington work to avoid a “fiscal cliff” on December 31st—one that could push the U.S. economy back into a recession. The battle lines have been drawn over the last few days. Re-elected President Barrack Obama said today he won't accept any approach to a deficit reduction that doesn't ask the wealthy to pay more in taxes. The President also said he wasn't wedded to every detail of the plans he outlined during the election and is open to a compromise. Meantime, Speaker of the House John Boehner countered by saying that he is unwilling to raise taxes on upper-income Americans, but remains open to the possibility of balancing spending cuts with new revenues that could be achieved by revising the tax code to lower rates and eliminate some tax breaks.
Our sense is that a compromise will be worked out to avoid the “fiscal cliff”, but the route to an agreement may be grueling and could last until the 11th hour or later. Such an arduous process may make for a volatile equity market in the coming weeks. However, investors seemed to be encouraged by today’s news that President Obama has invited business and congressional leaders of both political parties to the White House next week to begin talks on how to avoid the “fiscal cliff”. Buying picked up slightly in the final few hours of trading following the announcement from the White House. - William G. Ferguson
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
12:20 PM EST - Stocks are trading higher today on favorable economic data after a two-day selloff that saw the Dow Jones Industrial Average shed over 430 points. The drop was largely owing to the potential for further weakening in an already subpar economy, which might well weigh on corporate profits.
The earnings season now drawing to a close was hardly a bellringer, but Wall Street to some degree was looking past current problems until a couple of days ago. Then, Europe’s problems began to resurface and investors started to look at the fiscal impasse in Washington with alarm.
Increasingly, too, the realization set in that Hurricane Sandy might clip fourth-quarter GDP growth materially. The only plus for the economy on that count is that there will be a lot of rebuilding in devastated coastal communities in New Jersey and New York in the months and years ahead, post clean-up.
Meanwhile, there was some upbeat business news today in the form of a rise in wholesale business inventories—which tends to indicate more sales are expected—and a jump in consumer sentiment. Indeed, a preliminary reading on the University of Michigan’s consumer sentiment index showed a rise in early November to its highest level since July of 2007. Slow but steady improvement in the housing market and on the jobs front is very likely pushing up that measure. Falling gasoline prices are another positive. Stocks gained a measure of momentum after the better-than-expected consumer data were released.
At the noon hour on the East Coast, the Dow Industrials are up 47 points and the NASDAQ is 23 points to the good. Advancing issues hold a three-to-two lead over decliners on the New York Stock Exchange; the margin is wider on the NASDAQ. The Dow is being held back by a drop in Disney (DIS - Free Disney Stock Report) stock, where quarterly results released after last night’s closing bell, while better, still disappointed investors.
As for this afternoon, President Obama is scheduled to speak about the looming ''fiscal cliff''. The hope is that a lasting deal can be struck with Republicans in the House of Representatives over tax and spending issues. Both sides dug in earlier this year, unable to reach the ''Grand Bargain'' that had been sought. But post-election, chances are greater that some form of compromise can be reached. Whether whatever type of deal is struck will satisfy the financial markets remains to be seen. But a confident tone to Mr. Obama’s talk today might help stocks. - Robert Mitkowski
At the time this article was written, the author did not have positions in any of the companies mentioned.
Stocks to Watch from The Survey – Although earnings season is in its latter stages, there are a few stocks that could see active trading today. Shares of Walt Disney (DIS – Free Disney Stock Report) are indicating a notably lower opening, after the media and entertainment giant reported September-period results after the market closed yesterday. Sales and earnings were up nicely from the year-earlier period, but fell short of investors’ expectations. Other stocks making big moves on earnings news include department store retailer J.C. Penney (JCP), which delivered a wider-than-expected loss in the October interim, causing its shares to move sharply lower in pre-market trading. On the other hand, shares of car rental company Zipcar (ZIP) are surging ahead of the opening bell on better-than-anticipated third-quarter results. The same is true for shares of drugmaker Warner Chilcott (WCRX), household products outfit Energizer Holdings (ENR), entertainment company Lions Gate (LGF), and International Game Technology (IGT), a maker of slot machines and related software.
In M&A news, shares of online travel Web site priceline.com (PCLN) are down slightly in the premarket, after that company agreed to buy industry peer Kayak Software for roughly $1.8 billion. – 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 - Make it two in a row for the bears, as those perennial pessimists, held at bay for much of the year so far, have started to again flex their muscles. To be sure, even with the back-to-back material setbacks, in which the Dow Jones Industrial Average has lost a combined 434 points, the decline, a modest 3.4%, is still not sufficient for us to conclude that this is even the start of a correction, let alone a bear market. However, the twin losses, and the prime reason for them--mounting concerns about the dreaded approach of the so-called fiscal cliff--is serious enough for us to at least suggest that a reversal of some note could be in the offing.
All told, in addition to the Dow, which lost 121 points yesterday, partly on a late wave of selling that caused the index of 30 blue chip stocks to tumble by an additional 50 points, or so, in the final few minutes of trading, we saw the NASDAQ shed another 42 points and the Standard and Poor's Mid-Cap 400, a reasonably good gauge of overall market sentiment, lose 13 points, or 1.3%. Although the Dow's 313-point decline on Wednesday was a headline event because of its sheer magnitude, yesterday's losses, while not as dramatic, were almost as deep and broadbased. It was not a pretty picture for the bulls.
The big worry, it seems, is the rapid approach of the aforementioned fiscal cliff of scheduled tax hikes and spending cuts. Concerns are that unless this one-two punch can be avoided, or its arrival is delayed, the impact on our economy could be severe enough to perhaps put us back into a recession. Attempts to calm the markets by some leaders in our country, albeit well meaning, have not yet been appreciated or even helped to defuse the current angst slightly. But the fiscal cliff is not our only concern. Specifically, the news out of the euro zone remains bleak, one day after the European Central Bank President Mario Draghi warned that even the presumed twin pillars of strength in that beleaguered region, France and Germany, might not be able to avoid economic setbacks of their own. That is because the effect of the attempts to right the respective economic ships of the other struggling EU members may press down hard enough on these stronger nations to put them at greater risk of recession.
Meanwhile, our sense is that calmer heads will eventually prevail in Washington and that this ongoing soap opera will be defused at a later date--or at least delayed until the new Congress, which does not differ materially from the old one--is seated in January. The alternatives are not appealing, and we do not think a worst case scenario is likely. Until we get some assurance, however, the bears may retain a reasonable psychological edge.
As for some individual stocks on this poor day to be long equities, we saw iconic fast-food giant McDonald's Corp. (MCD - Free McDonald's Stock Report) sell off, as the company reported its first monthly decline in global sales since March of 2003. Also, tech darling Apple (AAPL) continued its recent decline, losing another 20 points, to close at $537.75 a share. The issue is now down some 25% from its record high of just over $705 a share, putting the heretofore one-decision stock in its own bear market. On the other hand, Qualcomm (QCOM), a supplier of chips for cellphones, jumped by more four than percent on better-than-expected quarterly revenues. Overall, though, there were many more casualties in this latest session than winning issues.
And, the story isn't all that pretty so far today, as the equity futures, albeit off of their lows of a few minutes ago, are still down notably, with the S&P 500 Index futures lower by more than five points and the NASDAQ futures off by almost six points. A bit earlier, the declines were on the order of 12 and 15 points, respectively. These latest setbacks, which now suggest a slightly weaker start when trading commences in about a half hour from now, follow declines in the markets in Asia overnight and in Europe thus far this morning. – Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.