Economic data and future outlook outweigh earnings. The major indexes had broad losses spurred on by mixed economic data.
Index futures were flat to positive in early trading as the markets awaited the onslaught of today's economic and earnings data. Today was heavy on both and the markets struggled between the two. Economic data suggests the economy is still growing but that growth is slowing. On the other side of the coin earnings have been good so far this season and today was no exception. There was one big surprise loss in the tech sector but it was quickly brushed away as traders and investors focused on other data.
Initial claims for unemployment benefits were higher than expected for the week ending 4/14. The number of people who filed for the first week of unemployment benefits is 386,000. Analysts had been expecting claims in the range of 375,000. The previous week's data was revised up 8,000. The upward revision continues a trend of upward revisions. Initial claims are at 4 month highs and are on the rise. The four week moving average increased as well and also reached a high for the year.
Continuing claims and total claims for unemployment both fell but lag the report of initial claims. Continuing claims had been expected to to 3.3 million in the week ending 4/7 but were actually a marginally lower 3.297. Total claims fell by the biggest margin this year to a total of 6.77 million from the previous weeks 6.95 million. It'll will be important in the coming weeks to see how this changes in light of the recent spike in initial claims.
The bulk of today's data came around 10 AM and sparked the sell off that took the Dow into negative territory and took the index below 13,000. Though positive, the data shows that growth is slowing.
The index of leading indicators rose by 0.3% in March, a little slower than the 0.7% gain in February. The index is at its highest level since 2008. The modest rise in leading indicators is supported by a coincident gain in manufacturing. The Philadelphia Federal Reserve survey of manufacturing showed an 8.5% expansion in domestic manufacturing. This is a little slower than than previous reading of 12.5% expansion in March. Existing home sales was the big disappointment. The sector, which has been struggling, was expected to increase by 8.4% but actually declined by more than 2.5%. The rate of homes sold was an adjusted 4.48 million units, down from February's 4.6 million.
European shares ended the day in the red. Rising debt concerns, a possible French credit downgrade and the mixed US data sent the shares down. Higher yield rates for Spanish 2 and 10 year bonds started the sell off in today's European trading. There was good demand but the cost of the debt raised the question of future impacts to Spain rising debt. Fears that Spain's troubles were spreading were heightened by speculation of a French credit rating downgrade by Moody's. European banks are estimated to lose over $2.5 trillion dollars from their balance sheets in 2012.
News from Asia had no impact on today's trading. China is reported to be making moves to increase liquidity in order to spur growth. The moves are aimed at increasing the â€œsoft landingâ€ during the current economic slowing. The government is reported to be cutting reserve requirements for banks to free up cash in the system. Neighboring country Japan reported a rise in exports for the first time in 6 months. The gains were offset by rising fuel costs and resulted in losses for businesses. The gains were based on strong sales in the US.
Natural gas inventories rose again today, and the price of natural gas fell to 10 year lows. The storage system received an injection of +25 billion cubic feet, within the expected range but natural gas storage is near capacity and at record high levels. At the current rates of injection it is estimated storage will reach capacity later this year. Natural gas dropped over 2% in today's trading to sell around $1.90.
Apple received a few more downgrades today upon speculation its third quarter earnings would miss expectations. Sales targets for iPhones are in question. Increased competition from Android devices and hold outs for an anticipated iPhone 5 are to blame. Verizon also announced a sharp drop in new activations of iPhones. The stock dropped sharply to trade below $600 and close around $588.
The earnings report schedule was very full today with over 125 companies on the list. For the most part earnings were positive with some surprises as financials, tech and others posted big gains. One surprisingly big loss was reported by Nokia. The phone maker said that â€œtougherâ€ than expected conditions were to blame. The company posted a $1.2 billion loss in the first quarter compared to last years profit of $0.4 billion. The company uses the Microsoft operating system in its phones and is facing tough competition from Apple and Android phones.
The financial sector performed well in the last quarter and were in the spotlight today. Big name financials Bank of American and Morgan Stanley both reported today as well as a handful of smaller banks. Bank of America beat expectations in the first quarter on increases in business and improvements to its balance sheet. The stock jumped over 3% in pre-market trading but sold off on high volume during the day to fall below its short term moving average.
Bank of America, daily
Morgan Stanley posted a net loss for the quarter due to a massive one time charge. On an adjusted basis the financial giant beat expectations. Earnings per share are $0.71, $0.27 over the average estimate. Revenue rose by more than 10% in the quarter, a gain of over $1 billion from the previous year, to $8.9 billion. Analysts had been expecting revenue in the range of $7.6-$7.7 billion. The firm posted big gains in stock and bond sales and trading activities. The stock jumped over 5% from recent support to the short term moving average but traded down from there throughout the day with high volume.
Morgan Stanley, daily
BB&T reported earnings of $0.61 per share, ahead of the expected $0.51. The bank more than doubled its mortgage banking revenue and had broad based loan growth. The company's earnings were helped by lower costs and reduced loan provisions. The stock traded in a tight range today and is just above the short term average. The stock is trending up and has support around $30.
Fifth/Third Bancorp increased first quarter earnings per share more than 30% to $0.45. A large portion of the increase is due to the IPO of Vantiv. The bank also saw gains across all its market segments. The company reported decreased costs and no exposure to the European sovereign debt crisis. The stock had been trending up and was near 12 month highs. The stock traded down today on heavy volume but indicators are weak.
Fifth/Third Bancorp, daily
The financial sector Spyder (XLF) traded down today on moderately higher volume. The stock is trading around the 30 day moving average and is beginning to squeeze between resistant and the recent up trend.
Verizon beat expectations by a penny. The company reported revenue of $28.2 billion, slightly ahead of the estimated $28.17 billion. The quarterly revenue increase is a 5% gain from last year and delivered profits of $1.7 billion to its shareholders. The stock jump more than 2% in early trading and got tied up on the 30 day moving average. Bearish momentum has been declining and is about to turn bullish.
Shares of online market place Ebay jumped more than 10% on extremely heavy volume following the announcement of its recent quarter earnings. The company posted strong gains in revenue and earnings based on the success of its Paypal platform. The online financial service is a leading method of payment/purchasing and is being used in areas far outside its original purpose. Net income grew over 20% and resulted in earnings of $0.44 per share. Total revenue grew 29% in the quarter to a total of $3.28 billion. Growth in the Paypal segment of business is expected to continue into the future.
America's largest chemical maker, DuPont, increased net income by 4% in the quarter. The warmer than expected winter sparked increased sales in its agriculture unit which. Net sales increased 12% for the business and they restated the previous earnings guidance. The company is expecting adjusted earnings between $4.20 and $4.40 per share. The stock traded down today on average volume. The decline was halted at the 30 day moving average.
Chipotle Mexican Grill reported today, one day ahead of its former sponsor, McDonald's. The high profile chain of restaurants reported after the bell and beat expectations. The company earned $1.97 per share, $0.04 higher than expectations. Revenue was also higher than expected. The company brought in $641 million versus the expected $631. The stock has been trending up strongly this year, gaining over 150% in the last 12 months. The stock, which closed down today, is trading near all time highs in after market action. The stock jumped $4 on the news.
Chipotle Mexican Grill, weekly
Microsoft also reported after the bell. The tech giant was another to beat Wall Street estimates. The company earned $0.60 per share compared to a consensus estimate of $0.57. PC shipments world wide are up 2% in recently helping boost Microsoft sales. Enterprise and Windows systems made strong gains. The company was also able to revise its expected costs lower. The stock traded higher today on average volume.
The Blackstone Group reported a significant drop in revenues and earnings. The companies income and earnings both fell around 20%. The stock dropped 4% in today's trading and continues a recent down trend.
Qualcomm reported record revenue but cut short hopes of near term growth. The company says that supply of chips from Taiwan Semiconductor is hurting its ability to meet sales demands. The company guided expectations for the 2nd quarter down based on the short supply. Qualcomm is going to boost its support to other semi-conductor manufacturers but it is uncertain when the supply will increase. The new chips sold by Qualcomm are made using new technology and the number of available machines is limited. The chips are important to 4G technology and are used industry wide. The stock dropped over 6% today on high volume and bearish technicals.
Another handful of public offerings opened this week. Two highlights today are Tumi (TUMI) and Splunk (SPLNK). Tumi, named for a Peruvian god, is a high end luggage and business accessory manufacturer. The stock was initially thought to be priced at $17 but the stock was in high demand and opened at $26.
Tumi, one day
Splunk provides real time data to software enabling companies. The firms software tracks business and user click data on multiple levels and transforms the number into more useful data. The stock opened at $32, well above its original range of $8-$10. The stock traded steadily throughout the day on thin volume.
Splunk, one day
The yields on US 30 year bonds fell today and closed at new one month lows.
30 year bond yields
The markets tried to make gains today but the weight of worries over economic data kept the major indexes in negative territory. After a positive start to the morning the Dow Jones index tried to remain positive but the economic releases sent the market plunging around 10 am. The Dow fell below 13,000 and soon turned lower, losing as much as 130 points during afternoon trading. The market rebounded from its lows before closing to end the day down only 69 points. Today's decline brings the Dow below its 30 day moving average and the important 13,000 level. Momentum is bearish but very weak in the short term and has just turned bearish in the long term.
Dow Jones Industrial Average, daily
Dow Jones Industrial Average, weekly
The S&P 500 performed the same as the Dow but traded in a tighter range. Momentum in the broader S&P 500 has not turned bearish yet but is very close.
S&P 500, weekly
The Nasdaq fell today as well and is also under its short term moving average. However, it has not yet broken trend. It appears to have support at 3,000. Bearish momentum has peaked and is receding. Microsoft's earnings beat after the bell could help boost the index in tomorrows trading.
Things to look out for tomorrow is more earnings. There are no scheduled economic releases tomorrow. Europe will continue to be a mess but that news wont lead the US market. Our own earnings, economy and year end forecasts will be the determining factors. Tomorrows earnings calendar is lighter than today's but includes names like McDonald's, General Electric, Honeywell, Ingersoll Rand and Under Armor.