After a week of modest gains with volatile swings in both directions, Friday closed with stocks mixed, light volume, and questions over the future profits of two blue-chip heavyweights — American Express Company (NYSE: AXP) and Verizon Communications Inc. (NYSE: VZ). Over 100 of the S&P 500 companies reported earnings, including 12 of the Dow 30.
American Express fell 3.1% on weak demand for new loans, while Verizon fell 1.3% on disappointment over slow growth in the wireless area. But both exceeded earnings estimates, which illustrates investors’ focus on future expectations.
Amazon.com, Inc. (NASDAQ: AMZN) beat earnings estimates and rose 2.5%, and Schlumberger Limited (NYSE: SLB) jumped 5.4% as it too beat estimates. But Exelon Corporation (NYSE: EXC) fell 3.5% after an increase in Q3 earnings of 12% and falling operating margins due to higher costs.
Overhanging the market is the G-20 meeting in South Korea. The finance ministers and central bankers of key nations are meeting to reach agreement on “managing exchange rates and cool what has been called a ‘currency war'” (Wall Street Journal).
Treasury prices fell Friday, as investors sold bonds in preparation of a $109 billion new debt supply this week. The 10-year Treasury note fell 8/32 to push the yield to 2.563%. The bond market fell on Thursday following a comment by Federal Reserve Bank of St. Louis President James Bullard who he sees “small increments” of Treasury-bond purchases when the Fed meets in early November.
The U.S. dollar rose, which offset some of the losses earlier in the week. The greenback closed on Friday at $1.3929 versus $1.3925 on Thursday.
At Friday’s close, the Dow Jones Industrial Average was off 14 points to 11,133, the S&P 500 rose 3 points to 1,183, and the Nasdaq gained 20 points at 2,479. The NYSE traded only 772 million shares with advancers ahead of decliners by 1.5-to-1. On the Nasdaq, advancers were ahead by 1.75-to-1 on volume of 445 million shares. For the week, the Dow gained 0.6%, the S&P 500 rose 0.6%, and the Nasdaq was up 0.4%.
On Friday, crude oil for December delivery rose $1.13 to $81.69 a barrel, and the Energy Select Sector SPDR (NYSE: XLE) gained 39 cents, closing at $59.30. December gold fell 50 cents to $1,325.10 an ounce with traders “saying that most of the currency-related jitters surrounding the potential for further U.S. monetary easing have been priced into the market” (Wall Street Journal). The PHLX Gold/Silver Sector Index (NASDAQ: XAU) closed at 196.82, up 0.34 points.
What the Markets Are Saying
There is really very little to be said of the market’s action last week other than the fact that the volatility or “sound and fury” of early in the week was apparently “signifying nothing,” to borrow a line from Shakespeare. But Friday may have provided a clue as to the future direction of the market with volume at one of the lowest days of the entire year.
Last week, the Dow added 70 points, the S&P 500 was up 7 points, and the Nasdaq gained 11 points — not a spectacular week for the bulls, but enough to keep them plodding ahead.
To summarize the last couple of weeks: The S&P 500 spiked through its 200-day moving average and the double-top at 1,130, and in a little over a month ran to the major resistance at the bottom of April’s trading diamond at 1,185. It also popped over the January trading peak at 1,150 and the flash crash rebound at 1,173.
This is an impressive performance, so what is there not to like?
Well, first there were very modest stock gains despite 88% of companies that reported last week topping EPS estimates and 62% had better-than-expected revenues. And, to put it in the words of MarketWatch’s Michael Ashbaugh, there could be some looming trouble ahead from a “second 9-to-1 downdraft within the next several sessions (piling on Tuesday’s 9-to-1 sell-off). I would add that Friday’s puny volume numbers and stalling prices in the midst of some glowing earnings reports makes me more than just a little uncomfortable. We would not want to see more solid earnings reports or better economic numbers with accompanying declines in stock prices — that scenario could turn into a ‘good news/bad market reaction’ that often precedes a pullback.”
Until the April high is resolved, I’ll remain a very cautious bull.
For one of the stocks you should be bullish on, see my Trade of the Day.
Today’s Trading Landscape
Earnings to be reported before the opening include: Bank of Hawaii, Boardwalk Pipeline, Boyd Gaming, Ceragon, Changyou.com, DSP Group, Kaiser Aluminum, KVH Industries, Lorillard, M/I Homes, NuStar Energy, NV Energy, RadioShack, Roper Industries, Sohu.com and Tuesday Morning.
Earnings to be reported after the close include: Aaron’s, Advent Software, Amgen, Arch Capital, Atheros Communications, BancorpSouth, Basic Energy Services, BE Aerospace, Cabot Oil & Gas, Chemed, Covenant Transport, Crane, Developers Diversified Realty, Digital River, East West Bancorp, Edwards Lifesciences, Energy XXI, Ferro, Harris, Heartland Financial, Hexcel, Insituform Technologies, Integrated Device, Kilroy Realty, Masco, Matrixx Initiatives, MIPS Technologies, Nara Bancorp, National Instruments, Olin, Owens & Minor, Plum Creek, PLX Technology, Reinsurance Group of America, Rent-A-Center, SL Green Realty, Synovus, Texas Instruments, Ultra Clean Holdings, Veeco Instruments, Vertex Pharmaceuticals, Volterra Semiconductor, W.R. Berkley, Zix Corp. and Zoran.
Economic report due: existing home sales (the consensus expects 4.3 million).
If you have questions or comments for Sam Collins, please e-mail him at firstname.lastname@example.org.