Intraday Market Update
US Equities erased all of yesterday afternoon's declines in the overnight session as favorable economic data out of Europe boosted investor sentiment. Earnings results from Dow members UPS, Caterpillar, 3M and AT&T were all strong and that helped stoke gains in the pre-market which led to more than a +1% gap higher in the S&P 500 this morning (about +12points). All of the major indexes surged higher as shorts began to cover and bulls began to chase prices higher. US economic data was not as bad as expected which has also helped equities hold on to gains of more than +2% across the board being led by the Russell 2000, which has gained +2.75%. Overseas, Asian markets were mixed to mostly higher while European markets surged +2% to +3% higher.
Advances overnight got started when Germany reported better than expected manufacturing readings, while a separate report showed euro zone industrial orders surged. In addition, France posted better than expected reports of business and consumer confidence, while UK retail sales rose more than anticipated on both the headline and core rates. In the US, noise remains in the jobless claims numbers. Initial claims jumped +37,000 to 464,000 compared estimates of 445,000. Despite the jump in claims, the 4-week moving average of 456,000 is slightly lower m/m which is holding out hope for an improvement in the monthly employment reports. The jump in claims was offset by a -223,000 drop in continuing claims which could be attributed to expiring benefits. The drop in continuing claims are likely to resurface as Congress is set to approve an extension of unemployment benefits.
On the surface the Leading Economic Indicators (LEI) looks promising, falling -0.2% in June compared to estimates of a -0.3% decline. However, when the interest rate spread is excluded from the index it would have fallen to about -0.6%. The interest rate spread has been inflated with near 0% interest rates which has been propping up the LEI index throughout the recession. The factory workweek was the biggest negative in the index followed by vendor performance. These two readings are hinting at trouble in the manufacturing sector which has been leading the economic recovery so far.
Meanwhile, existing home sales fell -5.1% in June to an annual rate of 5.37 million. The drop was not as much as expected and prices were up +5.2% which is positive for the housing market, although this increase may just be a blip when you look at the supply numbers. The supply of homes for sale were up to 8.9 months from 8.3 months. Increasing supply is likely to pressure prices or at least hold back price improvements in the near term. The National Association of Realtors said inventories may rise to 10 months in the next report and that stresses in the housing market will turn when the unemployment rate turns.
In earnings, results from Dow members UPS, Caterpillar, 3M and AT&T all beat on the top and bottom line and raised their full year guidance but there were some cautious comments from executives. The average daily volume of shipments at UPS was a bit light and executives on the conference call said they are more confident on their outlook than in early 2010 but they not counting on a significant up tick in the economy in the second half of the year. Executives from 3M echoed those comments and also warned that the period of "easy y/y" comparisons is now over and that it will be more difficult to show improvements in key metrics moving forward. CAT announced plans for two new major facilities in the US and China. UPS is up nearly +6%, T is up +3%, MMM is up +3%, and CAT is up +2%.
Nucor (NUE) is up +3% while Reliance Steel (RS) is up +8% after both firms beat estimates. Nucor noted that residential and non-residential construction markets continue to show "little, if any, strength." RS's guidance for next quarter was below analysts estimates but appears to be experiencing a short squeeze. Railroad name Union Pacific (UNP) is up +6% after they beat estimates.
Tech name Qualcomm is nearly +9% higher after their earnings report yesterday. XLNX is up +3% and Cypress Semiconductor is up nearly +4%, despite an earnings miss. Western Digital (WDC) also missed and is down over -6%. Regional banks Fifth Third (FITB) and SunTrust blew away earnings and both names are about +10% higher. BB&T (BBT) is off by -1.6% after missing estimates and seeing no improvement credit quality.
Core Sector List:
Overall reading: 12 sectors advancing, 0 sectors declining
Strongest Sectors: Transportation, Banks, Semiconductors
Weakest Sectors: NONE
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