After The Close - The major U.S. equity indexes began the session in positive territory, helped by a solid batch of earnings reports and a good showing overnight in Asia. Then some selective profit taking took place and the Dow Jones Industrials and the broader S&P 500 Index weakened through mid-afternoon, before both indexes regrouped in the final hour of trading to finish around the breakeven line. One constant throughout the trading day was the performance of the NASDAQ, which stayed above the neutral line on the strength of the technology stocks. The S&P Mid-Cap 400 also turned in a nice showing. Overall, the mild late-day buying flurry narrowed the lead declining issues held over advancers on the Big Board. The scale was slightly tilted in favor of the advancers on the NASDAQ.
As noted, the earnings news was fairly supportive today, with good reports coming from Cummins (CMI), Goodyear (GT), TRW Automotive (TRW), and Dow-30 component Pfizer (PFE - Free Pfizer Stock Report), which beat profit expectations. However, things were not as rosy for fellow drugmaking giant Merck & Co. (MRK -Free Merck Stock Report), which maintained its profit outlook for the year, but reduced its forecast for revenues, citing unfavorable foreign exchange rates and other factors. Meanwhile, it was a nightmarish day for some of the fertilizer names. Shares of Potash (POT) and Mosaic (MOS) tumbled after reports surfaced that Russia's OAO Uralkali, the world’s largest potash producer, withdrew from a potash cartel. This news also weighed on other members of the basic materials sector, which was the biggest laggard among the 10 major groups.
We also received some news on the economy, but the two more notable reports did not seem to have much of an effect on the direction of trading. Specifically, the Conference Board's Consumer Confidence Index weakened a bit in July, dropping from an upwardly revised 82.1 in June to 80.3 this month, which was only marginally below the consensus expectation. The nominal decline in the index did not seem to change the investment community’s current sentiment that overall confidence among consumers is improving. Meanwhile, the S&P/Case-Shiller 20-city Home Price Index rose 12.2% in May, which topped expectations. The report did not have much of an effect on the homebuilders, with trading mixed on the day. The homebuilding stocks have lost some steam the few months after a remarkable run dating back to mid-2011.
From a sector perspective, as noted above, the materials sector was the day’s biggest laggard. In addition to the notable weakness in the agricultural chemicals producers, the construction materials, including the steel and aluminum issues, were generally lower. On the other hand, it was a productive day for those long technology names. The sector got a nice boost from some positive earnings results. Industry heavyweights Apple (AAPL), Google (GOOG), and Cisco Systems (CSCO - Free Cisco Systems Stock Report) were higher. The nice showing from technology was the primary reason for the NASDAQ’s outperformance.
Looking ahead to tomorrow, the investment community’s recent focus on the earnings will likely shift to the economy, as two potential game-changing reports are due out. Before the commencement of trading on these shores, we will receive the initial reading on second-quarter GDP. Then shortly after 2:00 P.M. (EDT), we will get some commentary from the Federal Reserve following the conclusion of its FOMC meeting. Our sense is that there is now some indecision on the part of investors, notwithstanding today’s semi-successful late-day rally, leading up to these two events. Such a backdrop could push the markets forcefully in either direction if the news were to surprise. If anything, it should be an interesting day on Wall Street tomorrow. -William G. Ferguson
12:25 PM EDT - The U.S. stock market is trading higher this morning. At roughly noon in New York, the Dow Jones Industrial Average is up 12 points (0.1%); the S&P 500 Index is ahead three points (0.2%); and the NASDAQ, which is leading the averages higher, is gaining 25 points (0.7%). Market breadth is favorable, with advancing stocks ahead of decliners by a narrow margin on the NYSE. Notably, traders are buying the small-and mid-cap names today, as some bargain hunting in the less popular and often overlooked stocks is taking place.
Most of the market sectors are making strides today. There is leadership in the technology stocks, as the semiconductor issues are up nicely. Some of the telecommunications names are also doing well. However, there is notable weakness in the basic materials issues. This group is being hurt by sharp declines in a few big names doing business in the agricultural area. Specifically, Potash (POT) and Mosaic (MOS) are plunging on concerns that global potash prices could decline significantly. The energy group is also lower with some selling in the exploration and production stocks.
Technically, the S&P 500 Index has been consolidating over the past week, as traders look for direction. Investors are likely pleased with second-quarter earnings reports, but may still have concerns about the Fed’s commitment to stimulus measures and a low interest-rate policy. In addition, equity valuations have gotten a bit stretched, and that could be playing a role, too. Nonetheless, the market has been holding up quite well, and we have seen very little panic selling or heavy profit taking. Even on days when the market has declined, the bulls have moved in, at least partially, to reverse the situation in the afternoon, and that is a positive indicator.
Meanwhile, there were a few economic reports out this morning. Specifically, the Case-Shiller 20-City Index showed housing prices rising 12.2% in May, following a large gain in the prior month. The recent figure was a bit better than analysts had expected, and that may be helping to offset some of the mixed housing-related releases we have seen over the past couple of weeks. Meanwhile, consumer confidence eased to 80.3 in July, which was a bit lower than had been widely anticipated. Meanwhile, traders are likely waiting for any words to emerge from the FOMC meeting now getting under way. Beyond that, the July Employment report is due out on Friday, and that may be influencing the markets at this point, as well.
The earnings reports continue to come in. In the drug area, we heard from Pfizer (PFE – Free Pfizer Stock Report). That stock is trading higher on a decent profit report. But Merck (MRK – Free Merck Stock Report) shares are off a tad after the company put out a mixed release. – 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 is a big day for healthcare stocks. Drugmakers and Dow-30 components Pfizer (PFE – Free Pfizer Stock Report) and Merck (MRK – Free Merck Stock Report) have delivered mixed second-quarter results, with PFE shares climbing slightly on the news in the premarket, and MRK stock indicating a modestly lower opening. Elsewhere, hospital operator Health Management Associates (HMA) has agreed to be acquired by industry peer Community Health Systems (CYH) for $13.78 a share. However, HMA stock closed at $14.92 yesterday, so the equity is down notably in the premarket. Shares of CYH are up moderately ahead of the bell.
There is a lot of other earnings news out, as well, and notable advancers include nutritional supplement maker Herbalife (HLF), media company Martha Stewart Living (MSO), hotel and casino operator Boyd Gaming (BYD), tire manufacturer Goodyear (GT), and specialty truck maker Oshkosh (OSK).On the other hand, shares of airline Jet Blue (JBLU) and leather goods and accessories retailer Coach (COH) are indicating lower openings this morning on earnings news.
Finally, shares of potash makers, including The Mosaic Company (MOS), Potash Corporation of Saskatchewan (POT), and Agrium (AGU), are plunging ahead of the bell. Investors fear that the price of the commodity, which is an important component of crop fertilizers, could fall sharply after Russia-based potash giant Uralkali exited a joint venture and said that increased competition may cause the price of potash to sink some 25%. – 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 final three-day stretch of July did not get off to a rousing start, following a flattish week for Wall Street, which had preceded it. Of note, after a wobbly start to the trading day, and some subsequent half-hearted buying in the early afternoon that briefly helped to pare the deficits, the stock market softened anew into the close, so that by the end of the session, the averages were broadly, but not deeply, in the red.
To wit, the final tabulations show that the Dow Jones Industrial Average had shed 37 points; the Standard and Poor's 500 Index lost six points; and the tech-heavy NASDAQ had pushed into the red to the tune of 14 points. However, the losses in the small- and mid-cap arena were somewhat greater, which has been the case the past couple of sessions. Not surprisingly, the advance-decline ratio was notably negative, as befitting such a large-cap, small-cap breakdown.
Overall, it was a sparse news day, and as such, volume was on the light side, as one would expect on a very slow Monday during the summer. Also, there was understandable unease ahead of the two-day Federal Reserve FOMC meeting that will begin this morning. No interest-rate action, or even Fed tapering of its bond buying, will likely be announced. However, traders will be watching to see whether there is a language adjustment by the Fed. Also, of note, later this morning, the Conference Board will be reporting on July consumer confidence. No major change is likely in that survey. Then, tomorrow morning, the Commerce Department will issue its initial estimate of second-quarter gross domestic product change. A much smaller gain, on the order of 1%, or so, is the consensus expectation, reflecting the increase in U.S. government austerity. That data, many economists believe is just a brief adjustment that will be followed by a pickup in the third quarter. Then, on Thursday morning, we are due to get the weekly figures on initial jobless claims and the monthly data on manufacturing activity.
Of course, all of that is just a warm-up for Friday's critical report on employment and unemployment, which will be issued by the U.S. Labor Department at 8:30 (EDT). This survey can be a game changer, just as the GDP report and the Fed meeting can be.
Then of course, there is the continuing flood of earnings reports, as we are right in the middle of reporting season. Thus, far, the results have been decent, albeit not especially welcoming, as most companies are beating their targets, but those expectations had been lowered in recent weeks, so that the bar is not an especially difficult one to beat. Be that as it may, results have been positive enough, on balance, to keep the five-week long rally in stocks largely intact.
As to the day ahead, in contrast to yesterday, our markets are getting some support from Asia, where the indexes all finished higher. Meantime, the bourses in Europe are advancing, if modestly, while on our shores, the futures are up solidly. Thus far this morning, a pair of Dow mainstays, drug giants, Merck (MRK- Free Merck Stock Report) and Pfizer (PFE –Free Pfizer Stock Report) have weighed in with their second-quarter results. Overall, these reports have produced a collective yawn by the markets as they have been more or less in line with forecasts, after adjustments. On the other hand, it is not business as usual for a pair of potash and fertilizers producers, as global potash prices are expected to tumble by some 25% after Russia's Uralkali dismantled one of the world's largest potash partnerships by pulling out of a venture with Belarus Potash Co. Potash Corp. (POT), Mosaic Co (MOS), and Agrium Inc. (AGU) shares are all plunging in the pre-market, in response. – Harvey S. Katz
At the time of this article's writing, the author had positions in PFE.