After The Close - The stock market put in a mostly choppy session today, before strengthening late in the day. At the close of the day the Dow Jones Industrial Average ended up 19 points; the broader S&P 500 Index closed higher by five points; and the NASDAQ added on 12 points. Market breadth was favorable as advancing stocks outnumbered decliners by about 2 to 1 on the NYSE. Most of the market sectors made progress today. The energy names showed some leadership and the financial stocks were also strong performers. However, there was some weakness in the utility stocks and the technology issues lagged other groups.
Technically, the S&P 500 Index took another pause for much of the day, as the recent gains were digested. Going forward, much will likely depend on the quality of the corporate earnings reports coming out over the next few weeks, as traders may need further good news to push the average higher from here, we sense. Meanwhile…
The economic reports released today did little to inspire further market gains. First, traders received some weak housing market data. Specifically, housing starts for the month of June came in much lower than expected, and also declined from May’s level. Building permits for the month of June also were disappointing. However, one month’s worth of data is not enough to spell the reversal of a longer trend. The homebuilding issues traded lower this morning, but managed to reverse course as the session wore on. We also received the Fed’s Beige Book summary for the month of July. That issuance more or less conformed to trader’s expectations and probably had little impact on the broader market direction. Tomorrow, we get a look at the employment situation, with the release of the weekly initial and continuing jobless claims. We also are set to receive a report on the state of the economy in the greater Philadelphia region, along with the Conference Board’s report of leading economic indicators.
Meanwhile, the second-quarter earnings season rolls on. Today, we heard from Dow component Bank of America (BAC - Free Bank of America Stock Report). That issue traded higher on better-than-expected profits. Internet giant Yahoo! (YHOO) stock traded higher, as well, as that company put out a solid release. - Adam Rosner
At the time of this article’s writing the author did not have positions in any of the companies mentioned.
12:15: PM EDT - The bulls, after a brief hiatus yesterday, were back at it again this morning and thus as we pass the midday hour on the East Coast with most of the major U.S. equity indexes trading a bit above the neutral line. The Dow 30 is now moving lower, though, due to weakness in the shares of American Express (AXP – Free American Express Stock Report), McDonald’s (MCD – Free McDonald’s Stock Report), and a few of the bigger technology names. However, the even more pronounced advances by the S&P Mid-Cap 400 Index and small-cap Russell 2000 suggest underlying strength in the equity market so far today. Overall, the spread between advancing and declining issues is comfortably in favor of the former on both the Big Board and the NASDAQ. Helping the case for the bulls were comments this morning from Federal Reserve Chairman Ben Bernanke before Congress. The lead monetary policy official said that the central bank will begin tapering off its bond purchases later this year, but plans to keep accommodative policies—particularly low short-term interest rates—in place. The investment community seemed to be pleased by the latter remarks, and the modest buying is largely continuing on Wall Street.
Mr. Bernanke’s commentary also was well received by fixed-income traders. The remarks that he wants the accommodative monetary policies (i.e., low short-term interest rates) to remain in place even as the bond-buying is scaled back, drove demand for bonds. The yield on the benchmark 10-year Treasury note, which moves in the opposite direction to the price, is down several basis points so far today. The falling yield on fixed income securities may push income-oriented investors to take a look at the higher-yielding equities in the telecom, utilities, and consumer staples sectors, but thus far today that has not been the case as the utilities and telecom issues are nominally lower.
Speaking of sector allocation, most of the 10 major groups are modestly positive as trading heads into the second half of the session on these shores. The energy and industrial areas are showing mild leadership, but nothing is standing out yet.
In addition to Fed Chairman Bernanke’s testimony before Congress, investors were busy sifting through a heavy load of earnings reports. Of note, banking giant Bank of America (BAC - Free Bank of America Stock Report) posted solid results in the latest quarter. Meanwhile, shares of fellow Dow-30 component American Express, which reports after close of trading today, are lower after the Financial Times of London reported that the euro zone may put a cap on credit card transaction fees. The stocks of rival processors MasterCard (MA) and Visa (V) are also modestly lower. Lastly, the earnings news from the drug industry was mixed this morning. Specifically, Novartis (NVS) missed expectations on both the top and bottom lines, while Abbott Laboratories (ABT) topped forecasts. Shares of the two pharmaceuticals giants traded accordingly on the reports.
Meantime, the news on the economy was disappointing today, as we learned that both housing starts and building permits fell sequentially and were well below the consensus expectations. However, shares of the major homebuilders rose on the disappointing data. Perhaps, investors think that the pullback in building activity, which is a significant cog in the nation’s economic output, will give the Federal Reserve more lead way to keep interest rates low, and ultimately push mortgage rates. Such a scenario would be viewed as a positive for the building industry—and the overall economy. Equity and bond activity so far today would tend to suggest such. William G. Ferguson
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 – Earnings season is gaining steam, and a number of stocks will likely see active trading today as a result. Investors appear pleased with quarterly reports from financial services providers Bank of America (BAC – Free Bank of America Stock Report) and Bank of New York Mellon (BK), Internet company Yahoo! (YHOO), rail transport services provider CSX Corp. (CSX), and medical supplies company St. Jude (STJ). Indeed, all of these equities are trading modestly higher in the premarket. On the other hand, earnings releases from drugmaker Abbot Laboratories (ABT), banks PNC Financial (PNC) and U.S. Bancorp (USB) and, most notably, toy manufacturer Mattel (MAT), failed to impress investors, causing all four stocks to move lower ahead of the bell. – 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 - The stock market, which had flirted with some half-hearted profit taking on Monday, before the bulls regrouped late in the session to extend their winning streak, but in unprepossessing fashion, went a similar early route yesterday. However, after easing by almost 70 points in the morning and again in the early afternoon, the Dow Jones Industrial Average could not bounce all the way back this time, as the market's latest attempt to lengthen its winning streak proved unsuccessful.
In truth, the bears never really threatened to wrest control of the agenda yesterday, even though the market's red arrows persisted through the day, ending the second session of the week with incremental losses, overall. Of note, the aforementioned Dow, pulled down by a modest loss in the shares of beverage giant Coca-Cola (KO – Free Coca-Cola Stock Report), which had reported disappointing quarterly metrics before the market opened, ended the day off by just 32 points. The NASDAQ shed a mere nine points, while the Standard and Poor's 500 Index fell six points. The setback was more pronounced, but not altogether deep, in the small- and mid-cap arena. Losing issues, not surprisingly, led winning stocks by a comfortable margin on both the Big Board and the NASDAQ.
Behind the profit taking, which, as noted, was mild, were concerns ahead of today's Congressional testimony by Federal Reserve Chairmen Ben S. Bernanke. His commentary, and inevitable follow-up answers to questions from Congressional leaders have, in the past, had something for either the bulls or the bears. Our sense, therefore, is that one of these two camps will walk away somewhat disappointed today. In recent months, his musings on a presumptive easing in bond buying later this year, have unleashed a brief torrent of selling. That setback in mid-June, though, was followed several weeks later by enough backtracking to prompt the bulls to start buying again. That is where we are now. In addition to the Fed, the markets suffered some selling in the wake of losses in the shares of commodity producers and the utilities. Moreover, a few equities saw disappointment on the profit front, and they fell as well. And even some companies, which had outperformed on the earnings front, such as Goldman Sachs (GS), encountered some mild profit taking.
Meanwhile, trading was again subdued, as it had been on Monday, as many investors refrained from making commitments on either the buy or the sell side, as traders awaited the aforementioned comments by Mr. Bernanke. Also, of note, in the latest session was a pair of economic reports, one disappointing, the other reassuring. First, the Labor Department reported that the Consumer Price Index rose more than forecast in June, mostly on higher energy prices, although core inflation, which strips out food and energy costs from the mix, remained subdued. Then, 45 minutes after that issuance, the Commerce Department reported a better-than-expected increase in industrial production in June. Now, this morning, Commerce has issued data showing a sharp drop in June housing starts, thus at least for the moment countering the sector's ongoing strength. Housing has been leading the business upturn, so this latest survey is somewhat disconcerting, to say the least.
Still, at least for the day ahead, the principal item to watch, as noted, is the Fed Chairman's testimony before Congress, to see what his latest thinking is on the economy and the outlook for monetary policy. We are not expecting any big surprises here. So, the market should not react all that forcefully. At the same time, the earnings plate is full, as we move further into peak reporting season with several Dow stocks set to report today, a trio of them, headlined by American Express (AXP – Free Amex Stock Report), Intel (INTC – Free Intel Stock Report), and IBM (IBM – Free IBM Stock Report) will issue their statements after the close of trading. Meantime, banking behemoth Bank of America (BAC – Free BofA Stock Report) has just issued better results than generally expected, mostly on expense reductions. However, the report was largely unexciting and the stock is indicated to be little changed at today's opening. As for other influences during the day ahead, the major bourses in Europe were largely lower on some angst ahead of the Fed Chairman's testimony today. Our futures, meantime, have turned somewhat higher, following the housing news, with traders perhaps reasoning that the Fed may now be less willing to slow the pace of bond buying than heretofore.
In all, we are in an overbought market, and one that we think is vulnerable to some profit taking should either the Fed or Corporate America fail to live up to expectations. Even if such disappointments do not surface, our sense is that the easy money has already been made this year, with future gains, should they evolve, being uninspiring, in the main. – Harvey S. Katz
At the time of this article's writing, the author had positions in Intel.