Daily Market Reports | Jul 25 2009
By Andrew Nelson
The Dow finished near its intraday highs, up 24 points or 0.26% and the S&P 500 was up 0.3%, but the Nasdaq did it a bit tougher, dropping almost 8 points to end 0.4% lower and snapping a 12-session winning streak on less than impressive results from Microsoft and Amazon. The funny thing is, Microsoft is actually a Dow stock, but there’s little argument that it is seen a leader for the tech sector, which sits mostly within the Nasdaq.
Lord Byron wrote a long time back that “And the heart must pause to breathe, and love itself have rest”. In the context of the poem the line is from, let’s hope there is little relevance, as We’ll Go No More A-Roving is about the fatigue of age conquering the restlessness of youth. And few feel a greater restlessness now than investors towards their hard-earned money. And I’m sure few feel older than investors that have weathered the last year. But what holds true about the line is that all good things must pause before continuing onwards. And that’s what today’s session was all about, because continuing onwards is just what investors did.
The Dow started off low and headed lower, with yesterday’s positive reads on home sales and jobless numbers seemingly forgotten. Less than impressive after hours reports from Dow components American Express, Microsoft, and internet retailer Amazon had investors quickly on the back foot after the opening bell. The latter two can certainly be blamed for the fate of the Nasdaq today.
After spending the morning in the red and most of the afternoon moving sideways on both sides of the gain line, the broader market clawed back its losses as the afternoon progressed. The late run ended up pushing the Dow to its intraday highs before closing just off them and locking in another up-week for Wall Street. In the end, the Dow was able to make it two days of closing above 9,000 in a row, with yesterday marking the first time since January the blue chip gauge has been able to achieve this feat.
Pharmaceuticals were one of the day’s few bright spots, with Merck, Johnson & Johnson and Pfizer all more than 2% higher and among the top gainers on the Dow. Capital One Financial sank early after booking a US$276 million loss, but shares recovered to climb 8.1% on the day. Tool manufacturer Black and Decker also provided some good news on the earnings front, with shares jumping 10% after the company raised its full-year profit outlook.
However, shares in Dow major Microsoft tanked 8.8% on disappointment about the company’s quarterly results released late Thursday. The tech sector leader booked weaker earnings and weaker revenue that missed estimates. The company blamed a slowdown in the global PC and server markets, which did little to raise hopes about upcoming quarters.
Meanwhile, Amazon.com also reported weaker earnings that beat estimates but revenue that nonetheless also missed forecasts. Despite guiding for third-quarter revenue that is in-line with consensus, shares dropped 7.9%.
Completing the hat-trick of pre-market bad news was Dow component American Express, which reported weaker quarterly earnings as a result of the cost of paying back the loan it received from the US government last year. Yet while stocks certainly helped apply some of the morning pressure, they climbed with the broader market to finish the day in the black.
But if the morning was about bad news profit reporting, the afternoon was about the good news, of which funnily enough, there was very little. But still, the belief that corporate profits are stabilizing, which was evident even in the aforementioned bad news, has helped Wall Street to jump start its 2009 advance after a mostly flat May and weaker June.
Be warned though, “less bad” economic news and seemingly positive profit reports driven almost solely by cost cutting can’t help stocks forever. If one is to be realistic, a market rally can’t continue ad infinitum in a slow growth economic environment. It’s all well and good to cut costs, but it’s a little tougher to build things back up to a position where one time consumers and now unemployment recipients will be pulled out of the dole queue and put back in to the check out line.
And this sentiment is best reflected by the latest consumer sentiment read, which put simply, remained weak. According to a University of Michigan survey consumer sentiment dropped to 66 in a final July reading, its lowest reading since April, while measures of expectations for the future and current conditions also declined.
The saga continued for CIT Group, with shares rallying nearly 20% after the mid-tier lender reshuffled its debt restructuring program to keep the program out of the courts and to bring in more creditors. The stock dropped more than 15% on Thursday on talk the company may wind up in bankruptcy protection if it can’t bring in enough creditors.
As it has done so often of late, crude oil tracked the Dow higher, rising above US$68 a barrel and finishing higher for a second week in a row. A weaker dollar and buoyant US stocks were more than able to offset seemingly well founded concerns that oil’s recent run-up can’t be justified by energy-market fundamentals. Light sweet crude for September delivery rose US89c, or 1.3%, to end at US$68.05/bbl. Little surprise that most of the oil majors tracked the move higher, led by Chevron, which bounced nearly 1%.
The US dollar lost ground against the Aussie and more importantly, against the euro after some key economic data indicated the 16-nation Euro Zone was able to partially slow its fall in output in July. However the news wasn’t all good from the old world and while the German business climate index rose for the fourth straight month and while Euro-Zone PMI increased more than forecast, UK GDP was anything but good. UK GDP saw a quarterly contraction of 0.8%. Compared to the same period last year, output has fallen by 5.6%, which is the largest annual decline since current records began in 1955.
Food for thought for those dishing up or backing the return to global growth in 2009 story.
Gold prices firmed US$2.60 to US$951.40 and base metals pulled back from the day’s highs and some new multi-month peaks during late trading on the LME. Nickel, copper and aluminium all posted fresh 2009 highs, reports Basemetals.com, but all trimmed gains in late trade on the back of profit-taking as investors looked to pocket some of the week’s advances. That said, the complex was still higher across the board in both London and New York.
The SPI was 26 points higher at 4065, with Aussie investors looking to ride the building wave of optimism out of Wall Street.
