Stocks closed modestly lower Tuesday despite positive economic reports. The fall was mostly blamed on jitters prior to today’s upcoming testimony by Federal Reserve Chairman Ben Bernanke.
The Dow industrials were adversely impacted by lower-than-expected revenue and weak volume growth reported by Coca-Cola (KO). But Johnson & Johnson (JNJ) and Goldman Sachs (GS) beat earnings estimates.
The consumer price index (CPI) for June rose more than expected. And June industrial production and the National Association of Home Builder’s housing market index for July rose above expectations.
At Tuesday’s close, the Dow Jones Industrial Average was off 32 points at 15,452, the S&P 500 fell 6 points to 1,676, and the Nasdaq lost 9 points at 3,599. The NYSE traded 616 million shares and the Nasdaq crossed 382 million. Decliners were ahead of advancers on the Big Board by 1.6-to-1, and on the Nasdaq, decliners were ahead by 1.2-to-1.
Recent disappointments in earnings of U.S. companies have come from those that do more overseas business, such as UPS (UPS). On Friday, UPS fell 5.8% due to slowing global and U.S. revenues. Pressure like this hits the Dow 30 stocks more than others due to their exposure in the emerging markets countries.
On Tuesday, Sy Harding noted in his StreetSmartPost report that exports from the 17-nation euro-zone fell 2.3% in May, the largest month-to-month decline in two years, and imports fell 2.2%.
The chart of the iShares MSCI Emerging Markets ETF (EEM) shows a dramatic breakdown in early June, along with the dreaded death cross. The death cross confirms that the decline is likely to be longer that most economists have expected and may even result in a severe economic situation.
Conclusion: With the U.S. dependent upon both emerging nations and developing ones to beef up revenues, it is difficult to imagine that there would be only a small impact on our markets. On Monday, even Germany reported that exports fell 9% in May versus April.
It is clearly time to nail down profits and raise cash.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.