Intraday Market Update
US equities opened lower and quickly lost ground in early trading, however, the selling was short lived as the market rebounded to go briefly unchanged by noon, despite disappointing economic data. In the pre-market the June income and spending report declined slightly, while after the bell a larger than expected decline in June factory orders and a drop in the pending home sales index exacerbated the selling. Earnings misses from Procter & Gamble and Dow Chemical were offset by earnings from Pfizer and MasterCard which posted more enthusiastic results. All of the major indexes are in the red and are trading near the middle of their daily ranges. Overseas, China's Shanghai Index posted a -1.7% loss while Japan's Nikkei Index gained +1.3%. In Europe equities were mixed with no significant gains or losses.
Retailers are getting hit in the wake of the Personal Income and Spending report. Personal income was flat in June compared to estimates calling for +0.2% increase, while May's +0.4% increase was revised to a +0.3% gain. Personal spending was also flat in June compared to estimates calling for a +0.1% increase, while May's 0.2% increase was revised to a +0.1% gain. The savings rate also ticked higher to 6.4% in June after a 6.3% reading for May.
Factory orders declined -1.2% m/m in June which was more than double the decline of -0.5% that estimates called for. The prior month (May) dip was also revised lower from a -1.4% decline to a -1.8% drop. Furthermore, June durable goods orders that were reported last week were also revised lower from -1.0% to -1.2%.
Meanwhile, the disappointing data continued with the pending home sales index which posted a surprising drop of -2.6% m/m in June, compared to estimates calling for a gain of +4.0%. The National Association of Realtors is warning that near-term sales of existing homes are likely to be "notably lower" in contrast to the spring surge which was fed by government stimulus.
The focus is now shifting to Friday's employment report with the ISM Non-manufacturing Index due to be released tomorrow, then same store sales and jobless claims on Thursday. Comments from Tim Geithner this morning warned that it was possible that unemployment would continue rising for a couple of months, but added that the economy was "gradually healing." Hmmm.
In earnings news, MasterCard's results were in line with estimates in its Q2 report this morning. On the conference call, MasterCard's CEO said the firm was waiting for the Fed to develop regulations before determining the FinReg's impact on its business. MA has recovered from its early losses and is down -0.50%. Pfizer has gained +5% after beating top and bottom line estimates while also reaffirming its 2010 guidance.
Shares of Dow Chemical (DOW) are off nearly -10% after the firm missed consensus estimates in its Q2 earnings report. Revenue growth was mostly flat, while the company warned on the conference call that demand could also remain flat next quarter. Dow member Procter & Gamble (PG) is off nearly -4% after they also missed Q4 consensus estimates and offered soft Q1 guidance. Ag name Archer Daniels Midland (ADM) has gained +1% after they beat earnings estimates but missed on revenue.
Mortgage insurer Radian posted horrendous quarterly earnings due to changes in the fair value of derivatives on an after-tax basis. Earnings and revenue were way below estimates. Shares of RDN are down -20%. Dollar Thrifty (DTG) is down -1% after their earnings were in line with estimates but revenue was a bit soft. OfficeMax crushed bottom line estimates while revenue was in line, but lower on a y/y basis. OfficeMax's CFO expects to face headwinds in the second half of 2010 with challenging macroeconomic conditions and continued weak US employment trends. Shares of OMX are down -13%.
Core Sector List:
Overall reading: 5 sectors advancing, 11 sectors declining
Strongest Sectors: Pharmaceuticals, Gold Miners, Healthcare
Weakest Sectors: Home Construction, Retail, Semi's
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