Greece and its pervasive indebtedness led to a downgrade of the country’s debt by Moody’s early yesterday, and led to a decline in the world’s stock markets. U.S. markets fell sharply, and the Dow Jones Industrial Average (DJI) was off more than 100 points by noon. But buyers liked what they didn’t hear from President Obama when, instead of an expected thrashing, they mostly heard a promotion of his proposals to re-regulate Wall Street.
The president’s speech was preceded by better numbers from new home sales, and that also contributed to an afternoon rally that overcame the early losses, closing the major indices with small gains. The National Association of Realtors said that existing home sales rose 6.8% in March, and that was stronger than expected.
The home sales numbers created a rush to buy homebuilders. Pulte Homes (PHM) rose 6%, Lennar (LEN) jumped 6.6%, D.R. Horton (DHI) gained 5.5%, and Toll Brothers (TOL) gained 3.5%. The iShares U.S. Home Construction Index (ITB) rose more than 4%.
Health care was the weakest sector yesterday, off 1.3%. And Verizon (VZ) fell more than 1% after reporting a 29% decline in Q1 earnings, mostly due to health care charges.
Some major companies missed estimates, and that was reflected in the market’s morning decline. EBay (EBAY) fell 5.7%, Qualcomm (QCOM) lost 7.7%, and PepsiCo (PEP) lost 1.8% on statements that future earnings might not meet expectations. Despite that, each exceeded earnings forecasts for their current quarter.
The U.S. dollar rose 0.5% against the euro, which fell to a new 11-month low of 1.326. The decline of the euro is due to the downgrade of Greece’s debt.
At the close, the Dow was up 9 points to 11,134, the S&P 500 (SPX) gained 3 points to 1,209, and the Nasdaq (NASD) rose 14 points to close at 2,519.
The NYSE traded 1.3 billion shares with advancers over decliners by 2-to-1. The Nasdaq crossed 782 million shares, and advancers led decliners by 8-to-5.
June crude oil rose to $83.70, up 2 cents, and the Energy Select Sector SPDR (XLE) gained 15 cents to close at $60.63.
June Gold fell $5.90 to settle at $1,142.90 an ounce. The PHLX Gold/Silver Sector Index (XAU) gained 1.94 points, closing at 170.55.
What the Markets Are Saying
Wednesday’s failure by the major indices to break into new highs was viewed by many as a serious setback that had to be quickly addressed. Yesterday, the markets spoke in strong terms with an intraday reversal that caught the bears off balance to such a degree that the last hour of trading was driven by shorts rushing to cover before new highs buried them.
Both the Dow Industrials and the S&P 500 came to within mere fractions of new highs, but the Nasdaq came through besting its old 2010 high by around 3.5 points.
The highs in the Dow and the S&P 500 could fall today following better-than-expected earnings from Amazon.com (AMZN), American Express (AXP), Capital One (COF), and Microsoft (MSFT), all reported after the close yesterday.
The big driver of course will be Mr. Softee. The firm’s success with Windows 7 indicates that the PC market is improving and the impact on a number of technology stocks could be great. And Amazon’s sales, which grew at 72%, show that the online retail business is booming too. However, Amazon said that it expects profits for the full year to not live up to Wall Street’s expectations, and the stock fell in after-hours trading.
The short list of earnings to be reported today will put an additional spotlight on the success of the stocks that reported late yesterday. So if today the major indices fail to close higher and establish a new trading platform, the markets could find the last week of April to be a challenge.
Lately, volume has been improving, but the gains have been very small, especially considering that the majority of quarterly reports are well above estimates. It wouldn’t take much to turn the breadth numbers from slightly positive to slightly negative, and if that happens, it is likely that we’ll be using the word “overwhelming” attached to “negative breadth” as the markets fall under a weight of panic.
Today’s Trading Landscape
Earnings to be reported before the opening include: Amcol, Arkansas Best, CMS Energy, Dover, Exelon, FLIR Systems, Honeywell, IDEXX Labs, Ingersoll-Rand, Johnson Controls, LM Ericsson, MDC Holdings, Patriot Coal, Prosperity Bancshares, Rockwell Collins, Schlumberger, SonicWALL, T. Rowe Price, Travelers, Viad Corp., Wilmington Trust and Xerox.
Economic reports due: durable goods orders (the consensus expects 0.4%) and new home sales (the consensus expects 330,000).
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