Stocks are down as we approach the end of August. A better than expected earnings report from Dell (DELL) and a positive surprise from Intel (INTC) were not enough to shake off a mediocre consumer confidence number. Meanwhile consumer spending was in line with estimates. The Dow Industrials are on track to end an eight-day winning streak.
Asian markets were mixed. The Japanese NIKKEI gained 0.5% ahead of the country's general election on Sunday. Most analysts believe that the market has already factored in a win by the opposition Democratic party and the LDP will lose its ruling grip on the country after 50 years of control. The NIKKEI has been alternating up and down days for ten sessions in a row as traders wait for the election results. The Chinese markets were lower as the Shanghai index lost 2.9% and the Hong Kong Hang Seng gave up 0.7%. Investors may have been reacting to news that the Chinese government had told the banks to lower their lending pace as the month draws to a close (source: Reuters).
Investors shrugged off lackluster economic news in Europe. The United Kingdom released their revised look at second-quarter GDP. The number was revised from -5.6% to -5.5%. While an improvement it was still the steepest drop on record. England's consumer sentiment numbers came in unchanged for August. This didn't stop European markets from bouncing after a two-day decline. The English FTSE index rose 0.8%. The German DAX gained 0.86%. The French CAC-40 rallied 1.2%.
In the U.S. the big report today was the Reuters/University of Michigan's consumer confidence numbers. Consumer spending accounts for about 70% of the economy. A nervous consumer doesn't spend as much as a confident consumer. The preliminary read for August was 63.2. The final reading jumped to 65.7, which was better than the estimate at 64.5 but under July's reading at 66. Looking inside the report consumers' perception of current conditions fell from 70.5 to 66.6. In contrast consumers' outlook for the economy six months from now rose from 63.2 to 65.
The Commerce Department released the July consumer spending report, which rose 0.2% in July. This was inline with estimates and fueled in large part by the success of the "cash for clunkers" program. Personal incomes came in flat and the personal savings rate dipped from 4.5% in June to 4.2% in July.
In New York, a private firm, the Economic Cycle Research Institute, made headlines with their Weekly Leading Index data. The WLI is supposed to measure future economic growth in the U.S. The weekly report slipped from 124.9 to 124.4 but the real news today was the annualized growth rate has jumped to a 38-year high of +19.6%. The last time the WLI's growth rate was this high was a +20.5% reading back in May 1971 (source: Reuters).
Two companies making headlines today are DELL and Intel (INTC). DELL reported earnings last night that were better than expected. Wall Street was looking for a profit of 23 cents per share. DELL delivered 28 cents per share. Revenues also beat analysts' estimates, which has been an uncommon feat this earnings season. The stock soared yesterday afternoon on the early release of the numbers and the rally continued this morning with a spiked to $17.26, levels not seen since September 2008. Intel, another technology bellwether, came out with a surprise announcement this morning that revenues would be better than expected. INTC raised their third-quarter revenue estimates to the $8.8-9.2 billion range. Its previous guidance was in the $8.1-8.9 billion range. Furthermore, if that wasn't good enough, INTC also raised their gross margin estimates to the upper half of its previous range. The stock gapped open higher and hit $20.65 this morning. DELL's earnings news has garnered the company at least nine analyst upgrades in the last 24 hours. Together DELL and INTC helped the NASDAQ composite gap open higher. Unfortunately DELL's rally is fading fast as traders take profits ahead of the weekend.
Currently the S&P 500 index is off less than three points at 1,028. The NASDAQ is off less than one point as it bounces from the low of the session at 2,017. The Dow Industrials are off about 40 points at 9,540. The small cap Russell 2000 index is off around four points at 579.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
A quick review of the OptionInvestor.com play list reveals that AAPL spiked to a new high this morning at $172.49 but has faded back under the $170 level. The action in IBM is turning bearish. The rally failed near $120 this morning and today's session is building a bearish engulfing candlestick pattern. The early morning spike in LM was enough to tag our breakout buy signal. The profit taking in LO has now reached four days in a row and hit our newly revised stop loss. PPG has broken higher and hit our trigger to buy calls.