Daily Market Reports | Jul 18 2009
By Andrew Nelson
The Dow closed 32 points or almost 0.4% higher, while the S&P was barely changed, down just 0.04% and the Nasdaq nudged up 0.08%
The Dow was down in the morning and up in the afternoon, then some late selling threatened until a big jump in the last half hour of trade. Earnings were mixed and volumes were thin, with the broader market showing some sure signs of fatigue after four days of solid gains. Still, the Dow kept on trucking, with IBM helping to push it to near intraday highs by the close.
Investors seemed torn between the generally better than expected financial results that were flowing in and a reluctance to play after the week’s run-up. But in the end stocks managed to cement in a seven percent rally for the week, as earnings season kicked into full gear. It was the first up week for the Dow and S&P 500 and the second for the Nasdaq in the past five.
The main difference between the Dow and the broader market was IBM, which is the most influential stock on the Dow because of its size. Shares rallied better than 4% after the company reported higher quarterly earnings late Thursday that topped estimates, despite weaker than expected revenues missing forecasts. The global tech and business leader also said full-year earnings would come in at US$9.70, a full US50c better than forecast.
IBM wasn’t the only tech stock to (seemingly) deliver good news. Internet search giant Google also reported higher quarterly earnings late Thursday, also beating estimates. But most of the upside was due to cost cutting, as evidenced by the company also booking a mediocre revenue result because of slowing ad sales. That saw the top-line result shrugged aside, with investors looking at the bigger revenue picture. Shares fell 3% and ensured a flat outcome for the Nasdaq.
The performance was the same pretty much across the Dow, with stocks slipping even after reporting profit gains, or declines that were for the whole better than analysts had been expecting. General Electric fell 6% after reporting a 47% drop in quarterly profit and earnings of 26c per share, versus forecasts for 23c per share. Bank of America was down 2.3%, despite reporting a profit of 33c per share, and while the number was down from 72c a year ago, it was still five cents more than what analysts were expecting.
It looked like investors were still not in the mood to show a bit of much needed sympathy to former Dow component Citigroup, with shares ending pretty much unchanged despite the bank reporting a second-quarter profit of 49c per share, surprising analysts who were looking for a loss of 37 cents. Everyone knew the result was boosted by the one-off sale of a majority stake in the bank’s Smith Barney brokerage, so it seems it’s going to take a while yet to convince investors that this type of earnings momentum can be sustained.
The saga continued for CIT Group (see the back story in yesterday’s Overnight Report) after shares rallied a whopping 108% on reports the company is in talks with JPMorgan Chase and Goldman Sachs as it tries to avoid a bankruptcy filing. Yesterday, shares fell 71% after the small business lender said it won’t be getting a handout out cheque from Mr Geithner and friends, sparking some easily understood panic that the company could be close to collapse. While the company helps fund as many as 1 million small businesses, the team in Washington had decided that a collapse of the company wouldn’t pose a risk to the broader financial system.
A big sign of retuning optimism was evident in the rebound of homebuilders shares, with the sector running hot on an upbeat reading from the housing market. Construction of new homes and apartments jumped 3.6% in June to the highest level in seven months, beating estimates. Building permits were also on the up, climbing 8.7% and also beating forecasts.
Keep your eyes on this space, because I can tell you that sitting here at my desk in Florida, the home of the housing downturn, this is exactly the type of news investors both big and small are really hungering to hear. The report will more than likely be taken as a clear indication that the economy is getting closer to stabilising, especially as it is something the Federal Reserve already alluded to earlier this week.
Says Chief US economist at Swiss Re, Kurt Karl: “It looks to me like we’ll be moving from shrinking to growing by the end of the quarter.” Karl said that the building permits number was the best that has been seen all year and that it’s a sign the sector has hit bottom on the construction side.
Crude-oil futures, which have pretty much been a makeshift barometer of expectations for the broader economy lately, settled up 2.7% at US$63.72 a barrel on the New York Mercantile Exchange. Much of the action was from speculators jumping back into oil and other commodities on the hope that demand for raw materials may be recovering.
And it wasn’t just oil that got up big on the returning materials optimism, with base metals ending the week almost 9% higher on the LME. Copper and aluminium posted new highs on a surge of fund interest following the strong housing data from the US. Zinc was the best performer in percentage terms, jumping 4.5%, while tin, nickel and lead were also higher.
Gold was more modest in its advance, only adding US50c to be at US$937.70 an ounce, while in currency trading, the US dollar gained against the Aussie, euro and the Japanese yen.
The building optimism for materials seems to be manifesting itself, at least a little, across the Pacific. The SPI was up a cautious 11 points to 3993, boding well for Sydney on Monday. Although things being as they are, it’d be best to check the read again on Monday morning before getting too carried away.
