After The Close - The U.S. equity market was able to modestly reverse course as the session worn on today, and after a weak start to the trading day—likely prompted by a weaker-than-expected earnings report from Dow-30 component and drugmaker Pfizer (PFE - Free Pfizer Stock Report) and some profit taking following a strong start to the trading week yesterday—eventually gave way to a slight pickup in buying. In all, the major equity indexes were able to eke out modest gains by the closing bell. Helping matters were some encouraging reports on the U.S. economy, highlighted by better-than-expected data on consumer confidence (more below). A report that Cyprus' government had approved a $23 billion rescue loan from international creditors aimed at preventing the debt-saddled country from going bankrupt was also greeted positively by investors. Overall, advancing issues led decliners by a comfortable margin on both the Big Board and the NASDAQ.
Much like yesterday, leadership came from the technology and energy sectors. It was also a productive day for the telecom, basic material, energy, and financial stocks. The noted strong showing by the technology issues, led by shares of Apple (AAPL), played a big role in the outperformance of the NASDAQ relative to the other major indexes. Apple stock jumped on word that the technology behemoth had completed the largest non-bank bond deal in history, offering a whopping $17 billion of fixed-income securities. Meantime, good showings from Dow-30 components and technology giants International Business Machines (IBM - Free IBM Stock Report), Intel (INTC - Free Intel Stock Report), and Microsoft (MSFT - Free Microsoft Stock Report) lent support to the index of 30 bellwether companies, which was initially pressured by a subpar near-term outlook from Pfizer. (Fellow drugmaker Merck (MRK - Free Merck Stock Report) is scheduled to report its latest quarterly results tomorrow.) Not surprisingly, the healthcare group was the biggest laggard among the 10 major sectors in today’s session.
As noted, we received some encouraging reports on the U.S. economy. Once again, the news on the housing market did not disappoint. Specifically, the S&P/Case-Shiller Home Price Index, the leading measure of U.S. home prices, showed the average home prices increased 8.6% and 9.3% for the 10- and 20-city composites in the 12 months ended February, 2013. The 10- and 20-city composites rose 0.4% and 0.3% from January to February. Then, a half hour into the trading day, the Conference Board, a New York-based research organization, reported that its confidence survey jumped to a reading of 68.1 this month, following an upwardly revised estimate for March of 61.9. Initially, the March result had been tabulated at 59.7. The better-than-expected news on the domestic economy brought investors back into the market after some initial profit taking.
All in all, today’s modestly positive showing for equities capped off a productive, but at times volatile, April for those long equities. For the month, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index were up 1.8%, 1.9%, and 1.8%, respectively, as a better-than-expected earnings season trumped some lackluster reports on the economy.
Overall, our sense is that the lack of many other attractive investment options right now is keeping investors in an equity market that clearly looks overextended. The S&P 500 Volatility Index (or VIX) ended April at a level that would indicate that buying has overheated. However, with interest rates still at historically low levels, stocks remain in demand. Investors should note that we will get additional insight on Federal Reserve’s stance on monetary policy tomorrow afternoon when the two-day FOMC meeting concludes. Given the recent lackluster economic reports, we do not expect the lead bank to deviate from its current accommodative stance on monetary policy. - William Ferguson
At the time of this article’s writing the author did not have positions in any of the companies mentioned.
12:20 PM EDT - The stock market got off to a weak start this morning, but is now firming up. As we pass the noon hour in New York (EDT), the Dow Jones Industrial Average is well off its session lows, down just a few points; the broader S&P 500 Index is up two points; and the technology-heavy NASDAQ, which has been exhibiting some strength lately, is tacking on 12 points (0.4%). Market breadth shows a slightly favorable bias, with advancing stocks just ahead of decliners on the NYSE.
The major market sectors are also putting in a mixed showing. There is considerable weakness in the healthcare stocks. The basic materials issues are also declining today. In contrast, the technology stocks are advancing nicely. The energy names are also firmly in positive territory.
Technically, the S&P 500 Index is currently testing high ground at the 1,597 mark. Notably, trading volumes were quite light on yesterday’s advance, and this may indicate that traders are wary about committing to the market at the current level. From a valuation standpoint, the price-to-earnings multiple for the larger market is approaching the 17 range, which is probably a bit high. For perspective, a reading that is considered “normal” is about 15, or so. With stocks trading at current prices, companies will be expected to meet, and even beat, the consensus earnings forecasts.
Also, today’s economic news has been mixed. Once again, the recovery in the housing market continues to be affirmed. The Case-Shiller 20-City Index showed prices rising 9.3% during the month of February. This exceeded expectations and showed improvement over the prior month's reading. Further, we received a good consumer confidence reading from the Conference Board. Specifically, this key measure came in at 68.1 for April, sharply higher than analysts had anticipated. On a less impressive note, in April the economy in Chicago region contracted slightly. Tomorrow brings the Fed’s interest-rate decision and probably some remarks on the economy, as well as a key manufacturing survey.
Meanwhile, traders received a few important earnings releases today. In the Dow, we heard from Pfizer (PFE – Free Pfizer Stock Report). That issue is trading lower, as the drug giant put out a weaker-than-anticipated earnings report. This news likely accounts for some of the decline in the broader healthcare sector. In metals, U.S. Steel (X) stock is lower, after that company posted a larger-than-expected quarterly loss. This report, as well as weakness in Newmont Mining (NEM), may be holding back the basic materials stocks, as a group, today. -Adam Rosner
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 – Today’s most high-profile earnings report is arguably from drugmaker and Dow-30 component Pfizer (PFE – Free Pfizer Stock Report), which delivered lackluster first-quarter results and trimmed its outlook. The stock is trading lower in the premarket as a result. Other stocks trending lower ahead of the bell on earnings news include United States Steel (X), restaurant operator Buffalo Wild Wings (BWLD), postage meter and mailing equipment manufacturer Pitney Bowes (PBI), brewer Anheuser-Busch InBev (BUD), and software developer Nuance Communications (NUAN).
On the other hand, investors appeared reasonably pleased with quarterly reports from nutritional supplements maker Herbalife (HLF), and car rental company Hertz (HTZ), pharmacy benefit manager Express Scripts (ESRX), beauty and cosmetics seller Avon Products (AVP), publishing company McGraw-Hill (MHP), restaurant chain Domino’s Pizza (DPZ), and energy company BP PLC (BP). – 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 - April is rapidly drawing to a close, and it has been a decent, albeit an uneven, month for the stock market, which is rather impressive given it comes on top of a stellar first quarter for those long equities. To wit, after the Dow Jones Industrial Average, which had tacked on 11.3% in the opening period, has come back with a 1.0% increase in the fast-concluding month. Moreover, the NASDAQ, an 8.2% opening-quarter winner, has added another 1.2% so far this month, while the Standard and Poor's 500 Index, which had tacked on 10.0% in the initial stanza, has added 1.6% in the latest month.
Now, these gains are not dramatic, to be sure, but they show that the market has kept its momentum intact, albeit not without a struggle at times, helping Wall Street navigate some choppy economic waters this month, has been a generally supportive earnings reporting season, which has now passed its peak. In its wake, though, nearly three-quarters of the companies in the Standard and Poor's 500 Index have beaten consensus for the latest quarter. Such more-than-respectable tidings have helped to counter a number of less-than-compelling metrics on retail sales, non-farm payroll growth, manufacturing, industrial production, and overall growth in the nation's gross domestic product.
Yesterday, meanwhile, saw a continuation of the mixed economic pattern, with data issued early in the morning showing rather pedestrian increases in personal income and personal consumption expenditures, but somewhat better data on pending home sales. The business beat, moreover, picks up today, when at 10:00 AM (EDT), the Conference Board, a New York-based research organization, reports its latest findings on consumer confidence. Expectations are that this survey, which fell sharply in March, came back a bit in April.
As to earnings, it was a generally light day yesterday, as is typically the case on a Monday deep into earnings reporting season. However, the profit beat picks up today, with some big name issuing results. Specifically, drug making giant and Dow-30 component Pfizer (PFE – Free Pfizer Stock Report), which has been seeing its stock rise nicely this year, disappointed investors with a revenue miss and cautious guidance going forward. That stock is off modestly in the pre-market. Also, struggling steel manufacturing giant U.S. Steel (X) posted another quarterly loss in the opening quarter, as was expected, only the deficit was larger than forecast, and the company's struggles appear likely to continue in the current three months. U.S. Steel shares are indicated some 3% lower in the pre-market.
Also of note, the Federal Reserve will shortly be starting its two-day FOMC meeting, a get together, which seems likely to result in a reaffirmation of the lead bank's easy monetary policies going forward. The rest of the week also will see some key earnings reports issued, including quarterly results from Merck (MRK – Free Merck Stock Report) and Automatic Data Processing (ADP). As to economic matters, there will be a succession of important surveys, led notably by reports on manufacturing (tomorrow), non-manufacturing (on Friday), and non-farm payroll growth and the national unemployment rate (also on Friday).
As to the market, following another strong day for the bulls yesterday, as the Dow climbed by 106 points, the equity futures are now indicating a mixed opening, with the S&P 500 Index futures off slightly, and the NASDAQ ahead nominally. – Harvey S. Katz
At the time of this article's writing, the author had positions in PFE.