Stocks are churning sideways but they appear to be bouncing off their lows of the session. Investors were unhappy with the drop in consumer confidence, which overshadowed a dead-cat bounce in the Case-Shiller index of home prices. The market remains short-term overbought but there seems to be little desire to sell even as earnings news starts to disappoint. As is normally the case the deeper we move into earnings season the worse the results.
Asian markets were mostly higher. Positive comments from Goldman Sachs about the steel industry in Asia helped fuel a rally in the Chinese Shanghai index and the Hong Kong Hang Seng. The Shanghai index posted a small gain of +0.09% but it was enough to mark a new 14-month high and its fifth gain in a row. The Hang Seng rallied 1.8% to hit an 11-month high and its 4th win in a row. The Japanese NIKKEI closed with a 0.01% decline, which ended a 9 in a row winning streak. Meanwhile in Europe stocks were down across the board. Markets rallied this morning but investors immediately began taking profits and the trend was down throughout the rest of the session. The English FTSE snapped an 11-day winning streak with a 1.25% decline. The German DAX lost 1.4%. The French CAC-40 lost 1.2%.
This morning the S&P/Case-Shiller Home Price index produced its first month over month gains since July 2006. Today's reading is for the month of May and the 20-city index saw prices rise 0.5% over April. Yet prices still fell more than 17% from a year ago. After a three-year sell-off pundits are hoping this is another indication that the housing sector is stabilizing. The news follows better than expected new-home sales data from yesterday and improving existing home sales data from Friday. I wouldn't read too much into this bounce. The country is still facing another wave of foreclosures later this year and then again in the 2010-2011 time period as billions in option-ARM mortgages reset. The DJUSHB home construction index is virtually unchanged on the session.
Countering the good news in the Case-Shiller index was the Consumer Confidence index produced by the New York Conference Board. Economists were hoping that consumer confidence would hold steady near 49.0. Unfortunately, confidence slipped from 49.3 in June to 46.6 in July. It's the second month in a row that confidence has pulled back after the spring rebound. Consumer spending accounts for nearly 70% of the U.S. economy and the sliding confidence numbers don't bode well for the back-to-school shopping season. Yet the RLX retail index is still up 0.2% on the day.
The second-quarter earnings parade continues. Here are a few highlights. Biotech giant Amgen (AMGN) reported last night and beat estimates and guided higher. The stock is up 3.1% at new nine-month highs and it's fueling a 0.8% bump in the BTK biotech index. Luxury-goods retailer Coach (COH) reported earnings that were in-line with analysts' estimates of 43-cents a share but revenues were a little light and the stock is down 3.6% but bouncing off its lows of the session. Office Depot (ODP) missed Wall Street's forecast by 10 cents with a loss of 22 cents a share. After a very sharp three-week rally in ODP the stock is off more than 15% following its report. Pittsburgh-based U.S. Steel Corp. (X) managed to beat analysts' estimates by 17 cents with a profit of $3.28 per share yet management remains very concerned about current business environment and predicts that the company will swing to a loss in the third quarter. The stock is holding up pretty well. After a rally from $30 to almost $42 shares of X are only down 2.4% on the news.
The U.S. dollar is bouncing from its recent lows and that's helping snap a four-day winning streak in crude oil. Oil futures fell more than 2% to under $67 a barrel. This is weighing on the oil sector in addition to some negative comments from Valero Energy (VLO). The country's largest oil refiner, VLO managed to squeeze out a better than expected earnings report with a loss of 48 cents versus estimates of -0.50. Yet management said they don't expect much improvement with inventories high, demand still slack, and margins contracting. Shares of VLO are giving up 3.6%. The OIX oil index is off 1.8% and the OSX oil services index is off 3.0%.
Elsewhere in the news IBM Corp. (IBM) announced it was buying SPSS Inc. (SPSS) for $50 a share or $1.2 billion. Sprint Nextel Corp. (S) said they were buying the 87% of Virgin Mobil USA Inc. (VM) they didn't already own for $483 million. This increases Sprint's market share in the pre-paid mobile phone market.
The bond market will remain in the spotlight this week. The U.S. Treasury department sold $42 billion in two-year notes today. The yield rose to 1.08% with a bid-to-cover ratio of 2.75. Overall analysts felt the auction was successful but many expected a stronger bid-to-cover. The U.S. is trying to sell a record breaking $235 billion in debt this week and so far demand for our debt remains strong. Stock market analysts are somewhat worried that a 3.7% yield on the 10-year note and the 4.5% yield on the 30-year note might be too tempting for money managers with stocks looking overbought. Plus, the massive debt auctions this week could be drawing money away from equity markets, which could limit the amount of fuel stocks have to keep the rally going.
Thus far the U.S. markets remain resilient. The S&P 500 index is down less than 5 points at 977.85 and bouncing from its lows of the day. The NASDAQ composite is actually positive by more than 4 points at 1972 with a bounce from the 1950 region (actually 1947.89). The Dow Industrials are off 24 points near 9083. The small cap Russell 2000 index is almost unchanged at the 550 mark.
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:
Scanning the OptionInvestor.com play list I see that Genzyme (GENZ) is climbing higher. This isn't a surprise given the strong AMGN earnings news and we cautioned traders yesterday that GENZ might hit our stop loss and it has.