Better-than-expected quarterly earnings by some of the biggest banks led stocks to early gains. But stocks couldn’t hold in the face of comments made by Federal Reserve Chairman Bernanke during his semiannual monetary policy report to the Senate Banking Committee.
Following Tuesday’s close there were positive earnings from Apple Inc. (NASDAQ: AAPL), and on Wednesday morning Coca-Cola (NYSE: KO) beat estimates. And Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC) and U.S. Bancorp (NYSE: USB) led the financial sector to a strong opening following better earnings. But Chairman Bernanke’s outlook on the economy as “unusually uncertain” drove the financials to a 1.8% loss leading all other sectors lower.
Eaton (NYSE: ETN) and Textron (NYSE: TXT) posted better-than-expected earnings and helped the industrial stocks limit their losses. And eBay (NASDAQ: EBAY) rose 3.6% in after-trading on better earnings and revenues. But Starbucks (NASDAQ: SBUX) fell 1.7% on weaker-than-expected revenues although earnings matched analysts’ forecasts.
The yield of the 10-year Treasury note fell below 2.90% to its lowest level in 15 months as investors once again fled to more secure investments.
At the close the Dow Jones Industrial Average fell 109 points to 10,121, the S&P 500 lost 14 points, closing at 1,070, and Nasdaq fell 35 to 2,187. The NYSE traded 1.2 billion shares with decliners over advancers by almost 2-to-1. On Nasdaq decliners were ahead by almost 3-to-1 on volume of 666 million shares.
Crude oil for September delivery fell $1.02 to $76.56, impacted by a government report showing an increase in oil inventories at a time in the year when inventories are usually falling. The Amex Energy SPDR (XLE) fell 87 cents to $52.38. July gold gained 10 cents to $1,191.60 an ounce, and the PHLX Gold/Silver Index (XAU) closed at $168.69, off 39 cents.
What the Markets Are Saying
Following the dynamite earnings of Apple after Tuesday’s closing bell, it was almost a cinch that stocks would open higher. And by 10:15 the Dow had gained about 35 points. The remainder of the session, until mid-afternoon, prices fluctuated between break-even and up several dozen points.
Then The Chairman expressed his concern over the recovery, spending and a host of other problems. Even that shouldn’t have been a shocker since the Fed’s minutes revealed a similar outlook. But what had the most immediate impact were those words “unusually uncertain” with regard to the economy. There are fewer words that create more fear in the stock investor’s heart than the word “uncertainty,” and so within minutes of the utterance the Dow lost over 100 points, taking with it the hopes of the bulls for a quick resolution of the current narrow trading range.
Both the Dow 30 and the S&P 500 topped out yesterday at just under their respective bearish resistance lines, but both held just over their 20-day moving averages. This odd coincidence left both indices within a compressed trading range which will no doubt be broken today. And the chances are high that yesterday’s downward reversal, which triggered a strong sell signal from the stochastic indicators of both indices, will break prices lower — at least initially.
And so with The Chairman’s “uncertainty” ringing in the collective ears of the world, stocks could head lower as soon as the opening bell chimes. But don’t be surprised if the market falls and then swings up later in the day for a challenge to the important bearish resistance line now at Dow 10,300 and S&P 1,090. If the two major indices reverse, it could result in the fourth test of the downtrend line and if successful would turn the markets from near- and intermediate-down to sideways. This may be a slim possibility but one that traders should consider before immediately jumping into new bearish strategies.
As usual try not to anticipate the market’s direction. With a load of news, both economic and corporate, due today anything can happen. Let Mr. Market tell you his future course.
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