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Bullish Beginning to Earnings Season

Domestic stocks looking strong


Stocks rose gently higher on Monday on low volume in the final session before second-quarter earnings season gets underway. After the bell, the traditional kickoff to the season occurred when aluminum giant Alcoa (AA) reported results that beat expectations by a penny.

Market-moving headlines were scarce, and focused mainly on overseas events. In China, we learned that the cost of funds, which soared two weeks ago, have crested and are headed lower to levels that are considered more tolerable by borrowers. A survey released Monday showed that the financing squeeze could have reduced credit growth by the equivalent of $122 billion this year. Concerns about slow growth will remain in focus later this week, as the pace of GDP growth is expected to sink below last quarter’s 7.7% level. Chinese stocks fell the most in two weeks, with the Shanghai Composite Index losing 2.4% overnight

Back here at home, tech was the only group that suffered a setback after several major semiconductor companies’ shares were downgraded by Evercore Partners (EVR) and others. Intel (INTC) and Qualcomm (QCOM) were among the biggest losers. In the case of Intel, the company is said to be overly reliant on sales to the deteriorating PC market, and Qualcomm is said to be suffering from deteriorating prospects in China.

Apple (AAPL) also bucked the broad market strength amid rumors that it has cut iPhone production estimates. That news also hit its supply chain, with chip-makers like Broadcom (BRCM) taking the biggest hit.

One item of special note Monday was that dividend-paying stocks suddenly enjoyed the warm embrace of investors after being shunned like lepers the past month and a half. Utilities were in fact the best performing sector, up 1.4%, followed by consumer staples, up 1%.

Leaders in the two groups were the beaten-down Exelon (EXC), up 2.4%, Campbell Soup (CPB), and health care products-maker Johnson & Johnson (JNJ). It just goes to show that if you don’t care for a trend on Wall Street lately, just wait a month and it will change.

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