Posted on July - 15 - 2011
Earnings Optimism Confronts Economic Pessimism
– The major U.S. index futures are pointing to a higher opening on Friday, with positive tech and bank earnings likely to give some support to the markets. Google (GOOG) reported forecasting beating results in the second quarter, strengthening expectations for strong corporate profit growth ahead of the peak earnings news flow. That said, economic data continues to be lackluster, with a regional survey showing that the manufacturing sector of the region is still in the contraction zone.
Added to this, concerns surrounding the U.S. debt ceiling and the results of the second round of stress tests conducted on European banks may also create some uncertainty. Traders may also stay focused on the industrial production report and a consumer sentiment report to be released shortly after the markets open.
Close on the heels of a warning by Moody’s, rating agency Standard & Poor’s also placed its “AAA” long-term and “A-1″ short-term sovereign credit ratings on the U.S. on “CreditWatch” with negative implications. The agency said there is a one-in-two likelihood that it could lower the long term rating within the next 90 days due to the dynamics of the political debate on the debt ceiling.
U.S. stocks declined on Thursday after the previous session’s recovery proved short-lived amid economic worries, with technology stocks showing marked weakness. After opening higher, aided relatively upbeat reports economic data on jobless claims and retail sales, the major U.S. averages rose sharply in early trading. However, after the initial spike, the averages gradually gave back their gains over the course of the session before ending moderately to notably lower.
The Dow Industrials ended down 54.49 points or 0.44 percent before closing at 12,437 and the S&P 500 Index closed down 8.85 points or 0.67 percent at 1,309, while the Nasdaq Composite lost a steeper 34.25 points or 1.22 percent, ending at 2,763.
Twenty-three of the thirty Dow components closed lower, with Alcoa (AA) (down 2.46 percent), American Express (AXP) (down 1.10 percent), Boeing (BA) (down 1.36 percent), Bank of America (BAC) (down 1.27 percent), DuPont (DD) (down 1.43 percent) and Travelers Co. (TRV) (down 1.26 percent) among the worst decliners. Meanwhile, JP Morgan advanced 1.84 percent in reaction to its forecast-beating results. McDonald’s (MCD) rose 1 percent.
Among the sector indexes, the Dow Jones Transportation Average ended down 1.23 percent, the Philadelphia Oil Service Index lost 1.54 percent, the NYSE Arca Airline Index declined 1.68 percent, the Dow Jones U.S. Basic Materials Average fell 1.07 percent and the S&P Retail Index slid about a percent. Additionally, the Philadelphia Housing Sector Index receded 1.54 percent compared to a 1.40 percent drop by the NYSE Arca Securities Broker/Dealer Index and a 1.23 percent retreat by the KBW Bank Index.
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