Loading...

After The Close - The major U.S. equity indexes started the day in negative territory and were never able to regain their equilibrium. In fact, the profit taking intensified as the morning progressed and stayed in place throughout the afternoon. The lack of any major catalysts on either the corporate or economic fronts to push an equity market that is clearly overbought at this juncture higher, along with some unsettling comments from two Federal Reserve officials (more below), pressured equities today. At the closing, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index were down 93, 27, and 10 points, respectively. The selling was even more pronounced among the small- and mid-cap stocks. Overall, declining issues led advancers by a sizable margin on both the New York Stock Exchange and the NASDAQ, to the tune of three-to-one on the Big Board.

A few hours into today’s trading session, investors were spooked by comments from Atlanta Federal Reserve Bank President Dennis Lockhart and Chicago Federal Reserve President Charles Evans, who both said the central bank could start dialing back on its bond-buying program by as early as this September. In recent years, the equity market has benefited greatly from the Fed’s accommodative monetary policies and the subsequent lower interest rates. The lower-yielding fixed-income securities have reduced the number of attractive alternative investments for investors who have stuck with stocks. It has had a big hand in both the S&P 500 Index and the Dow Jones Industrials recently hitting new all-time highs.

The comments by a few Federal Reserve officials overshadowed some encouraging news on the economy. Specifically, the Commerce Department reported that the nation’s trade imbalance narrowed significantly, from a deficit of $44.1 billion in May to $34.2 billion. The lesser trade gap was occasioned by a sharp increase in exports for the latest reporting month and suggests that an upward revision to the initial second-quarter GDP reading of 1.7% is plausible, though not necessarily assured. Meantime, we also learned today from CoreLogic, a real estate data provider, that U.S. home prices surged nearly 12% year over year in June, reflecting stronger demand amid a tight supply of homes for sale. The report also noted that home prices climbed on annual basis in 48 states, with the only exceptions being Mississippi and Delaware, and all but one of the 100 largest cities reported price gains. The data are yet another sign that the housing market, which is a huge cog in the nation’s economic output, is improving. However, this selective housing data did not give any support to the homebuilding stocks, as the group toiled in the red today. Our sense is that worries that the Fed will begin to taper off on bond purchases, which should push long-term lending rates higher moving forward, weighed on the homebuilding stocks.

From a sector perspective, there were few places for those long equities to hide. Nearly all of the 10 major sectors finished in negative territory, with the biggest laggard being the basic materials stocks. Even the defensive-oriented groups were in the red. This is not overly surprising as two areas that are viewed as defensive in nature, the telecoms and utilities, were likely the hurt by some rotation out of the sector following the aforementioned commentary that Fed will begin tapering off on its accommodative bond-buying stimulus, which could lead to a spike in rates on fixed-income securities. That would make bonds a more attractive alternative to the higher-yielding telecom and utilities issues. 

Looking ahead, we would not be surprised if the low trading volume that has marked this week’s first two sessions continued. There are no other notable reports on the economy over the next three days and the earnings news, save for the latest quarterly results from Walt Disney (DIS - Free Disney Stock Report), will probably be light on attention grabbers. Investors should note that periods of light trading activity can raise the volatility of a market, especially one that is certainly overextended. In recent weeks, the U.S. equity market has pushed higher on mostly supportive earnings news. Of the nearly 400 S&P 500 companies that have reported results, about two-thirds have exceeded analysts' expectations. -William G. Ferguson

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 U.S. stock market is trading sharply lower today. However, the market has stabilized for now, and stocks are off their lows. At just past noon in New York, the Dow Jones Industrial Average is off 92 points (-0.6%); the S&P 500 Index is lower by nine points (-0.5%); and the NASDAQ, which is still quite weak, is down 25 points (-0.7%). Market breadth still suggests widespread selling of equities, as declining stocks are outnumbering advancers by more than 4 to 1 on the NYSE. All of the market sectors are still in negative territory, with notable weakness in the basic materials and consumer names. In contrast, the high-yielding utilities are displaying some relative strength, as they often do on market weakness.

Technically, the S&P 500 Index slipped below 1,700 this morning. From here, we will have to wait and see if the index can firm up and move past this area, or if further consolidation is needed. Sentiment has turned a bit more apprehensive, as the VIX is moving higher today.

Traders seem to be looking past some decent economic news. Specifically, the nation’s trade gap narrowed to $34.2 billion in June, from $44.1 billion in May. The improvement was not entirely expected by analysts, and possibly hints that some progress is being made in this key area. Tomorrow will be a light day for economic news. This can leave traders in an information vacuum, and send them looking to guidance overseas or in the corporate arena.

Meantime, traders were not likely impressed with the corporate reports issued today. In fact, the selloff may be attributed to a few weak news items. In the retail sector, traders seem to be reacting strongly to a disappointing guidance from American Eagle Outfitters (AEO). That issue is off sharply. In technology, Dow component International Business Machines (IBM Free IBM Stock Report) is seeing its stock slip on a “Wall Street” downgrade.  The second-quarter earnings season is now slowing down, with most of the high-profile companies already having reported their results. While the market got a bit of a bounce from some of the better issuances, traders may now be looking for the next catalyst. For now, it is unclear what that may be, but rest assured, many are still likely watching the inflation data, interest rates, and the Federal Reserve  for any sign of a change in its monetary policy. - 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 SurveyThe drumbeat of earnings news continues today. Early indications are that investors were pleased with quarterly results from apparel and accessories company Michael Kors Holdings (KORS), brewer Molson Coors (TAP), drug store operator CVS Caremark (CVS), IT solutions provider Cognizant Technology (CTSH), watch and accessories retailer Fossil Group (FOSL), and hotel and casino operator MGM Resorts International (MGM), as all of these stocks are trading higher in the premarket. 

On the other hand, shares of satellite television provider DISH Network (DISH), hospital operator Tenet Healthcare (THC), and agricultural products company Archer Daniels Midland (ADM) are all down moderately ahead of the bell on earnings news. The stock of engineering, procurement, construction, and installation company McDermott International (MDR) is particularly weak in pre-market trading. The same is true for shares of American Eagle Outfitters (AEO), which are plunging ahead of the bell after the apparel retailer cut its earnings guidance. 

Finally, the stock of The Washington Post Company (WPO) is indicating a nicely higher opening this morning, after the newspaper publisher agreed to sell its eponymous paper to Amazon.com (AMZN) founder Jeff Bezos. – 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 - It was another dull, listless Monday down on Wall Street, with a critical and upbeat economic issuance failing to stir the bulls from their recent pause following some frenetic and largely upward market action earlier in the summer. In fact, this pause probably is constructive given the fact that valuations are now stretched.

Specifically, stock market opened the session to the downside, failed to see much buying activity sparked when some 30 minutes into the trading day, the Institute for Supply Management reported a much better reading on non-manufacturing activity than generally had been forecast, and then spent the final six hours of the session bouncing around at moderately lower levels.

Once again, earnings played a minor role, as will likely be the case over the fast-concluding days of this latest reporting season, as most of the big names have already put out their report cards. These late reporters have generally acquitted themselves well, albeit versus recently lowered forecasts. The economy, as well, has ushered in few surprises, although non-manufacturing activity, just as was the case with data issued the prior week on the companion manufacturing survey, held some pleasant surprises. However, any excitement on either of these fronts has been balanced out by a dour metric on job creation, with that report released on Friday. In all, the composite outlook for the economy is still unchanged, meaning that the chances for a durable, if non-compelling, expansion going forward remains the order of the day.

The big issue for investors, meanwhile, remains the outlook for a tapering off in bond-buying activity by the Federal Reserve in the months to come. That likely course of action is still on the table, but some sentiment is evolving that the festive meal may not begin to be served until much later this year, as expectations for a commencement of the program, once seen as being the likely outcome of the September FOMC meeting, may be held at bay for a subsequent Fed get together. The apparent impetus for this presumptive delay may have been the aforementioned listless employment report for July, which was headlined by a payroll increase of 162,000. Now, that was not an awful number by any means, but it was some 10%-15% below expectations.

Thus, there seems to be some doubt about the timing of the Fed's next move, although few quarrel with the notion that such action is on the table for no later than yearend. In other Fed speculation, there is the uncertainty of Chairman Bernanke's successor, who figures to be named later this summer. Larry Summers and Janet Yellen remain the leading contenders, according to most Fed watchers, although another possible name or two might well emerge in the days and weeks to come. This appointment clearly holds the potential to rattle or reassure the financial markets. Chairman Bernanke is generally given credit, save for some of his detractors, for staving off a much more severe and longer-lasting financial crisis and recession than the one we suffered last decade, due to his novel remedial actions.

Now, a new day dawns and it figures to be more of the same, with an early economic release, in this case, a report on the June international trade data, which may have only passing interest on Wall Street. Of note that report indicated a dramatic narrowing of the trade imbalance, with the shortfall going from May's downwardly revised $44.1 billion to just $34.2 billion in June. Expectations had been for a much smaller decrease in the deficit. However, that good news hasn't moved the markets much. In fact, after a mixed session in Asia overnight and a similar outcome thus far in Europe this morning, our futures are suggesting a somewhat lower opening when trading gets 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.