Intraday Market Update
Equities gapped modestly lower this morning but then stepped off of a cliff as the S&P 500 lost more than -20 points in the first 30 minutes of trading and the selling has not stopped. Investors are not enthused with earnings as Bank of America, Citigroup and GE all missed top line estimates while Google missed bottom line estimates. Throw in more troubling economic data and you have the recipe for a sell-off as traders run for the exits. Consumer prices showed no signs of inflation and consumer sentiment plunged to its lowest level since August 2009. All of the major indexes are off -2% or more in early afternoon trading. Overseas, Japanese stocks led the Asia-Pacific region lower with a -2.86% decline while European markets gave up early gains and finished sharply lower. Yesterday's surge into the close that was sparked by the SEC settlement with Goldman Sachs and BP's progress on capping the Macondo well appear to be one big head fake. Although GS is hanging on to a +2% gain.
Today's selling gained steam when the preliminary July University of Michigan Consumer Sentiment survey plunged from 76.0 in June to 66.5. Estimates called for a decline to 74.0 so this was a big miss. The Consumer Price Index released in the pre-market fell -0.1% in June which marks the third consecutive month of declines.
Investors are taking Bank of America out to wood shed as the stock is down more than -7.50%, while Citigroup is faring a little better but still off more than -4%. Revenues at BAC and C fell -11% (y/y) and -26% (y/y) respectively. Both firms beat bottom line estimates but the quality of the earnings is suspect as profits are coming from one time items related to asset sales and upward adjustments to various assets under mark-to-market accounting rules. GE earnings tell a similar story as they beat on the bottom line but missed on the top line. Revenues decreased -4% (y/y) but executives noted on the conference call that they would pull off single digit order growth in the second half of 2010. This would be the first growth in orders the company has seen since early 2008.
Google is down more than -5% after they barely missed earnings bottom line estimates and said that their pay-per-click totals fell on a sequential basis. About 33% of Google's revenue comes from Europe which was a source of weakness. Toy maker Mattel (MAT) is down -7.50% after the company narrowly missed earnings. Revenues increased 13% (y/y) but the company's CEO said "We remain cautious and conservative and retailers remain cautious and conservative."
Positive earnings reactions came from chip maker Advanced Micro Devices (AMD +2.4%) after the company handily beat earnings and revenue estimates. Retail discount broker Charles Schwab is up +7.8% after they beat Q2 estimates. Note that SCHW was down -30% from its April highs on 7/1 and has bounced +13.50% since with the majority of the bounce coming from in today's session.
Commodities are under pressure across the board with copper approaching two-week lows. The USD/JPY currency pair is printing new 52-week lows which is adding to the risk aversion sentiment. Given the recent deflationary US economic data currency traders are flocking to the Yen.
Core Sector List:
Overall reading: 0 sectors advancing, 16 sectors declining
Strongest Sectors: Utilities (-0.97%)
Weakest Sectors: Banks, Internet, Home Construction
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