There were disappointing earnings Wednesday from Disney (DIS), Kraft (KFT), and Costco (COST), but the focus continued to be on Capitol Hill and the White House.
Two issues continue nagging the markets and the new president: his plans to address the negative economic impact of the bad assets of some key banks and his party’s unpopular and even embarrassing economic stimulus package.
There were positive developments that could have sustained a rally. But following a strong opening due to the Automatic Data Processing (ADP) employment report that showed 522,000 jobs were lost versus an expected loss of 535,000 and the January Institute for Supply Management (ISM) Service Index that came in at 42.9 versus an expected 39, the market sagged.
Even though stocks traded sideways for the last hour-and-a-half of the session, the Dow (DJI) closed lower by 122 points to 7,957. The S&P 500 (SPX) lost six points at 832 and the Nasdaq (NASD) fell a little more than a point to close at 1,515.
The New York Stock Exchange traded 1.4 billion shares, and the Nasdaq traded 871 million shares, both with decliners ahead of advancers by 3-to-2.
The March crude oil contract fell 46 cents to $40.32 a barrel as U.S. inventories hit the highest level in 18 months. The Amex Energy SPDR (XLE) gained 44 cents, closing at $47.41.
Gold for February delivery gained $9.60, closing at $901.60, and the PHLX Gold/Silver Index (XAU) rose $3.59 to $123.44.
What the Markets Are Saying
Even though the Dow Industrials (DJI) closed below 8,000 for the third time in three weeks, the support at 7,940 has held and the other indices, including even the Dow Transportation Index (DJT), are now up a more comfortable distance from their support.
Most of our internal indicators have turned up but are not overbought, and the sentiment indicators show fear on the part of the public (the American Association of Individual Investors, or AAII, has shown four successive weeks of bearish stance at more than 44%) and optimism on the part of insiders — a good combination.
And one widely-followed Exchange-Traded Fund (ETF), the Qs (QQQQ) which track the Nasdaq 100, closed above both the 20- and 50-day moving averages for the second-consecutive day with relatively strong volume on the buy side.
(Click here to read more analysis of the Qs in the Trade of the Day.)
But not everyone agrees with my analysis.
Mark Arbeter of Standard & Poor’s said, “We would not be surprised to see a decent-sized move coming in the next couple of weeks. Since there are a plethora of bearish short-term signals to go with the multitude of bullish intermediate-term signals, we think we are susceptible to a decline in the near term.”
Earnings season is now at its peak and the number of corporate reports should start to decline next week. With that in mind, all of the focus will go to Washington, D.C., and, with the eyes of the world on the new president and Congress, my bet is that the politicians will pass a more effective stimulus bill to bring hope in the dead of winter — and with that hope a 20% stock-market rally.
Today’s Trading Landscape
Earnings of note to be reported include:, Alkermes, Alliant Energy, Allied World Assurance Co Holding Ltd, America Movil, S.A. de C.V., American Pacific Corp, Amicus Therapeutics, Annaly Capital Management, Apollo Investment Corp, AptarGroup and Aspect Medical Systems.
Bebe Stores, Belden, Benchmark Electronics, Biodel, Blackbaud, Brookfield Infrastructure Partners L.P., Brookfield Properties Corp, Brush Engineered Materials, Bunge Limited and Burger King.
Carbo Ceramics, Cardinal Health, Carlisle Companies, Cepheid, Cigna, Cincinnati Bell, Cincinnati Financial Corp, Conmed, Credicorp, Deutsche Bank, Diamond Offshore Drilling, Double-Take Software and Duke Energy Corp.
Eagle Materials, EarthLink, Echelon Corp, Elizabeth Arden, Enersys, EOG Resources, Equity Residential, ESCO Technologies, Evercore Partners, FalconStor Software, FEI Company, First Merchants Corp, Flexsteel Industries, FLIR Systems and Flowers Food.
Gartner, GlaxoSmithKline, GSI Technology, H.H. Gregg Appliances, Hartford Financial Services, Healthways, ICO, Imperial Sugar, IMS Health, Infinity Property and Casualty Corp, International Flavors & Fragrances, International Rectifier, Ixia and Ixys Corp.
JDSU, Kellogg Co, Kimco Realty Corp, Knoll, KVH Industries, Lennox Int’l, Liquidity Services, Lubrizol and Luminex Corp.
MasterCard, Maximus, Medcath Corp, Merit Medical Systems, MF Global, Micros System, Micrus Endovascular, Millipore Corp, Minerals Technologies, Mitsubishi UFJ Financial Group, Moody’s Corp, MPS Group and Multi Fineline Electronix.
National Fuel Gas Co, Navarre, NCR Corp, Newfield Exploration, News Corp, Nippon Telegraph and Telephone Corp, Nutraceutical Int’l, Omniture and Owens & Minor.
Palomar Medical Technologies, PC Connection, PC-Tel, Penn National Gaming, Penson Worldwide, Performance Technologies, PharMerica Corp, Phase Forward, Pitney Bowes, Polyone Corp and Prestige Brands Holdings.
Radvision, Ralcorp Holdings, RBC Bearings, Industries, Royal Gold, Rudolph Technologies, Sally Beauty Co, Scripps Networks Interactive, Seattle Genetics, Semiconductor Manufacturing Int’l Corp, Simpson Manufacturing, Skyworks, Sonoco Products, Spectra Energy, Spectra Energy Partners L.P., Spirit AeroSystems Holdings, SRA Int’l, Stericycle, Suburban Propane Partners and Synchronoss Technologies.
Techwell, TeleCommunication Systems, Tenneco, Terremark Worldwide, The Estee Lauder Companies, The Hanover Insurance Group, The McClatchy Co, The Timberland Co and Thoratec Corp.
Ultimate Software, Unifi, Unilever N.V., Unilever PLC, Universal Corp, VeriSign, Warner Music Group, Watson Wyatt Worldwide, Western Union Co and Westwood Holdings Group.
Several economic reports are due including: initial jobless claims for the weekending Jan. 31 (the consensus expects an increase of 2,000), Q4 productivity (the consensus expects a 1.5% increase), Q4 unit labor costs (the consensus expects 2.5% growth), December factory orders (the consensus expects a 3.2% drop), and the DJ-BTMU Business Barometer for Jan. 23.
Cisco (CSCO) beat estimates but warned of a future drop in revenues of 15% to 20%. The Bank of England cut rates by 0.5% to 1%. Visa (V) reported a big jump in FQ1 net income.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
