Daily Market Reports | Jul 22 2009
By Greg Peel
The Dow closed up 67 points or 0.8% while the S&P added 0.4% to 954 and the Nasdaq also added 0.4%.
It was a close run thing for the S&P 500, which only snuck into positive territory right on the death after stumbling mid-session, but by its measure Wall Street is now up seven sessions in a row. That’s virtually unheard of. The Dow is there too, but the Nasdaq has now hit twelve days of gains. Are you thinking what I’m thinking?
The market tried to sell off at lunch time last night but still the buyers came back. But after such a solid streak, a down-day is around the corner. This doesn’t mean the rally is all over necessarily, but markets just do not go up in straight lines for too long. We still have to complete this solid week of earnings reports, plus another solid week, plus some stragglers thereafter. By that stage we’ll be into the Australian year-end season.
I tipped a new high in the ASX 200 yesterday, but I was clipped by the profit-takers. Action this week has been reminiscent of the earlier attempt to break through the January high back in late May. Such milestones do not surrender without a fight, given short term traders see them as good enough places to cash in on a psychological basis. Thus on Monday we just pipped the previous 4062 high before settling back to 4050. Yesterday we pushed right up to 4083 before settling back to 4050. It looks like 4050 is the number to conquer.
Last night the Chicago Fed activity index showed improvement from negative 2.3 in May to negative 1.8 in June, which is its highest level since October. In this index zero is the neutral point, and it has been negative since August 2007. But all focus is on earnings at the moment.
Caterpillar is a significant Dow component which makes full-scale Tonka toys most noticeably for the mining industry. More than 50% of Caterpillar’s sales are global exports, so the company is a good bellwether for global mining and construction activity. The company comfortably beat the Street on earnings per share, posting US74c to the market’s US22c estimate. While that may be outstanding, it has to be put into the context of representing a 66% drop from the June quarter last year. And the company is expecting the September quarter to be even tougher, perhaps to the point of posting a loss.
Yet Caterpillar shares finished the day up nearly 8%, leading the Dow to its outperformance. The reason was not so much the EPS result, but guidance from the company that despite a weak Q3 ahead, it did see improvement on the horizon. On the back of some US$1.7 trillion of global government infrastructure stimulus, Caterpillar actually upgraded its year-end profit expectations. US infrastructure stimulus is not much more than a trickle at this stage, management noted, but China is really leading the way. The company also lost money in the June quarter on pay-outs to laid off staff, which will not be repeated.
The positive mood was nevertheless tempered by poor results in the banking sector. Three smaller banks posted quarterly losses as they struggled to deal with rising bad debts. And the CIT group rescue is now under a cloud, with management suggesting the extra US$3bn pledged by bondholders this week will still not be enough to save the company.
Ben Bernanke made a perfunctory trip up Capitol Hill to testify to the House Finance Committee last night, and said nothing new. The Fed chairman reiterated his view that the US economy would recover by year-end but that subsequent growth would be very sluggish, and that unemployment would continue to rise. When asked about an exit strategy from excessive monetary stimulus, Bernanke said there was one. He didn’t elaborate.
They were the highlights of the day session. Trading lacked the vigour of recent sessions given the previous re-rating strength of stock performances leading up to results releases. The US dollar index ticked up slightly last night, allowing base metals and gold to take a breather. All base metals fell 1-2% in London while gold gave back a mere US50c to US$948.80/oz.
Oil stuck with the rally however, no doubt keen on Caterpillar’s forecast. It rose US74c to US$64.72/bbl.
The Aussie marked time at US$0.8167, while after a stuttering day yesterday on the local bourse the SPI Overnight added 15 points or 0.4%.
The real action then began after the closing bell in the New York as some big names posted their earnings.
First up was alleged coffee retailer Starbucks, which noted a 6% decline in same-store sales. EPS came in at US24c to the Street’s US19c nevertheless, and the shares are up a tidy 10% in the after-market. Starbucks has, however, closed a lot of stores across the globe in a push to counter flagging revenues, including in Australia where actual coffee is preferred.
Next came search engine and web advertiser Yahoo, which posted an EPS of US10c to the Street’s US8c. Revenues were nevertheless down 13% and third quarter guidance was posted below Street estimates. Cynics noted Yahoo has a new CFO who probably pitched low for conservatism’s sake, but the shares are down 4% in the after-market.
Advanced Micro Devices is a tech company which makes…um…advanced micro devices. (AMD is Intel’s biggest competitor in the market for pc chips). AMD bucked the trend to date by posting a US62c loss to the Street’s US53c expectation, and you can’t do that in this market. The shares are down 13%.
But the biggie for the night came last, and that was tech darling Apple. Apple shares are already up over 100% from their nadir in March, and only settled back 0.9% in the day-session ahead of the announcement. And it was a good ‘un.
The company posted core EPS (sorry) of US$1.35 against US$1.19 expectations, and also beat comfortably on the revenue line. In this case analysts are most interested in just how many Macs and iThings the company sold across the globe, and the numbers were quite spectacular. Apple shares are up 4.5% in the after-market.
So it was a mixed suite for a Tuesday evening, providing little guidance as to what tonight may bring from the bell. Mostly positive, might be the response, but can Wall Street go 8 days in a row (13 for the Nasdaq)?
