Stock Market Today: August 7, 2013
After The Close - The U.S. stock market got off to a weak start this morning, but once again the bulls moved in to offer some partial support for equities late in the day. Even if this effort did not bring the market into plus territory, it is still a positive indication and is preferable to a late-day selloff. At the close, the Dow Jones Industrial Average finished off 48 points (-0.3%); the S&P 500 Index was lower by six points (-0.3%); and the NASDAQ retreated 12 points (-0.3%). Market breadth was unfavorable, as declining stocks outpaced advancers by about 2 to 1 on the NYSE. Most of the market sectors closed in negative territory, with pronounced weakness in the energy group and in the consumer names. Nonetheless, there was some strength in the healthcare area and the basic materials names managed to advance slightly. Meanwhile, the high-yielding utilities also held up relatively well, as they often do in a selloff.
Technically, the S&P 500 Index has declined for three consecutive sessions, remaining below the 1,700 level. If we move lower from here, the broad index may find some support at the 1,680 area, or it may head back to the 50-day moving average located near 1,650. Notably, with earnings season largely over, traders may be taking a pause. Also, stocks as a group are no longer inexpensive, as the price-to-earnings multiple for the market is now roughly 18, which is a bit higher than what might be considered a normal reading. The dividend yield for equities, too, has declined, which could be a problem if interest rates start to head higher.
Traders got little economic news to digest today. But, tomorrow we will receive the weekly initial jobless claims. Right now, it seems analysts are looking for a slight uptick in claims. So a surprise improvement, should that be the case, could lend some support to the bulls. Friday also will be a light day for economic news.
Meantime, there were a few corporate reports worth noting today. In the Dow, Walt Disney (DIS - Free Disney Stock Report) shares traded a bit lower, even though the media giant posted decent quarterly results. Investors may be concerned about some upcoming weakness stemming from the “Lone Ranger” movie. In technology, Finisar (FNSR) stock jumped sharply, after the cutting-edge optical networking company issued encouraging guidance. - Adam Rosner
12:15 PM EST - The major U.S. equity averages started the session in negative territory and have not made up much lost ground as we pass the midday hour on the East Coast. The Dow Jones Industrials, the NASDAQ, and the broader S&P 500 Index, barring a pickup in buying this afternoon, are now pointing toward another losing session on Wall Street. Overall, declining issues are well ahead of advancers on both the Big Board and the NASDAQ, to the tune of nearly three-to-one on the former.
The selling has been broadbased so far, with nearly all of the 10 major sectors in the red. The biggest laggard is the energy group. There is also some notable sector rotation taking place today. In particular, there is some selective interest in the basic materials stocks after that group took another pounding yesterday. Specifically, strength in the precious metals stocks is offsetting sluggishness in the aluminum and steel issues. It is also worth noting that the more defensive-oriented groups, including the utilities, healthcare, and telecom issues, are holding up a bit better than some of the other sectors. The utilities are now trading in positive territory.
Weighing on the performance of the U.S. equity market once again is renewed concerns that the Federal Reserve will begin dialing back on its accommodative monetary policies as soon as next month. Those fears were stoked by comments from two Federal Reserve officials yesterday. The ongoing bond-buying efforts on the part of the central bank have kept downward pressure on interest trades, with the end result being that stocks are a more attractive option than low-yielding fixed-income securities. A change in this dynamic going forward could prompt some profit taking in an equity market that is clearly overextended right now. If anything, such fears have been pushing the market lower this week.
Meantime, the lack of any major news on the economy and, to a lesser extent, on the earnings front has investors giving more attention to the aforementioned remarks by the Federal Reserve officials. Unfortunately for those long equities, this could be the case until next week when the economic beat heats up again. There are also some more prominent names that are reporting earnings next week, including Dow-30 members Cisco Systems (CSCO - Free Cisco Stock Report) and Wal-Mart (WMT - Free Wal-Mart Stock Report), which may divert the investment community’s attention away from the Federal Reserve’s monetary policy outlook. Speaking of earnings, this morning brought some mixed news. On the positive side were reports from Time Warner (TWX) and AOL, Inc. (AOL). Conversely the latest quarterly results from First Solar (FSLR) and Ralph Lauren (RL) disappointed investors and shares of both companies are trading lower. Shares of Walt Disney (DIS - Free Disney Stock Report) also are trading down after the entertainment giant posted uneven results after the close of trading yesterday.
Looking ahead to the second half of the trading day, with the aforementioned Federal Reserve concerns fresh on the minds of investors, it is looking like the bears are well positioned to make it three straight wins. Stay tuned. - William G. Ferguson
Stocks to Watch from The Survey – Media powerhouses have taken center stage among the companies reporting quarterly results today. In general, the reports were upbeat, and shares of Time Warner (TWX), AOL (AOL), and Twenty-First Century Fox (FOXA) are all indicating moderately higher openings this morning. On the other hand, the stock of entertainment giant and Dow-30 component Walt Disney (DIS – Free Walt Disney Stock Report) is down modestly ahead of the bell after delivering lackluster June-period results, due in large part to its big-budget flop, The Lone Ranger.
Other notable stocks moving lower on earnings news include apparel and accessories company Ralph Lauren (RL), car rental agency Avis Budget Group (CAR), logistics and freight transportation services provider CH Robinson Worldwide (CHRW), solar panel manufacturer First Solar (FSLR), environmental and hazardous waste management services provider Clean Harbors (CLH), and auctioneer Sotheby’s (BID). – Matthew E. Spencer
Before The Bell - Stocks sold off broadly yesterday in the first serious dose of profit taking since June. To be sure, the selloff from the point of view of the leading averages was not all that severe, with the Dow Jones Industrial Average and the NASDAQ off by just 93 and 27 points, respectively. Yet, the mood was a somber one, with the selling in this overbought and frothy equity market being largely generated by comments from a pair of Federal Reserve Board officials to the effect that it was not a question of if, but rather when, the lead bank would start to taper its aggressive bond-buying activity.
The consensus earlier had been that the Fed would commence this tapering in September. Then, last Friday, the government came in with a sluggish report on job creation in July, and the general opinion moved to such restrictive activity beginning later this year. Now, with yesterday's comments from the aforementioned regional Fed bank Presidents, the feeling is that the initial reduction in bond buying might come as early as next month.
Whatever the truth, the feeling is that the heady days of aggressive monetary stimulus are near an end. To be sure, this should not suggest that short-term interest rates, which the central bank controls directly via adjustments in the federal funds rate targets, are about to rise. That is just not so, with such an upward track probably not being put into place until 2015. Still, the long bull market has been at least partly supported by the bond purchases, which have the effect of lowering long-term interest rates, which, in turn, heavily influence home buying among other business and consumer activities. Already, we are seeing some increase in mortgage rates, and a consequent reduction in mortgage applications over the past two months. Now, there could be the feared tapering on the way.
In addition to the key averages falling back yesterday, we also saw a poor advance-decline ratio, with more than three times as many issues falling in value on the Big Board as gaining in price. As to individual issues of note, we saw a rather sharp decline in the shares of Dow-30 component IBM (IBM – Free IBM Stock Report), on a brokerage house downgrade. Then, after the close, entertainment giant and Dow component Walt Disney (DIS – Free Disney Stock Report) reported solid results for the June period, but warned that the current quarter could be hurt by a loss of as much $190 million from the poor box office showing of the film the ''The Lone Ranger.'' Disney shares, up nicely yesterday, to just above $67, are indicating a modestly lower opening in the $66 range this morning.
Elsewhere, the market was not helped by a much better-than-expected showing on the international trade front. That metric came in with a narrowing deficit for June of $34.2 billion. That was well down from the revised $44.1 billion figure for May. The better trade news could lead to an upward revision in second-quarter GDP growth, which will be out later this month. The initial estimate showed growth of 1.7% in the recent period. But the real focus was on the Fed, and the retreat in IBM. Also, a pair of fertilizer companies saw their shares fall further on speculation that lower potash prices could induce one or both to cut their dividends next year.
As to the day ahead, a strengthening yen helped to drive stocks in Japan sharply lower overnight, with the Nikkei 225 off by some 4%. That further setback also pushed stocks across Asia into the red. In Europe, though, the bourses are largely mixed, with the performance on the Continent getting a recent lift from signs that the recession over there might be bottoming out. Finally, on our shores, there is some indication that yesterday's selloff might have a bit further to go, as both the Standard and Poor's 500 Index futures and the NASDAQ futures are off by a handful of points. Bond yields, however, are falling, which should help to limit the damage. Second-quarter earnings season is rapidly winding up, meanwhile, and there are no economic reports of note. So, further speculation on the Fed's intentions could well be the main occupation on Wall Street today. – Harvey S. Katz
At the time of this article's writing, the author had positions in DIS.