Intraday Market Update
An unexpected decline in durable goods orders this morning has caused the recent earnings driven rally to shift gears into reverse. All of the major indexes are in the red being led by a -1.0% decline in the Russell 2000. Large caps are faring better with the DJIA losing -0.20%, while the S&P 500 (-0.40%) has bounced off of its lows and NASDAQ has given back about -0.70%. The selling is broad based as only 3 sectors from the core sector list below are posting minor gains. Traders are treading lightly ahead of the Fed's Beige Book scheduled to be released at noon, which is a summary of business activity across the nation. Crude oil has lost another -1% and is trading near its lowest levels of the past 10 sessions as there was a surprise build of more than 7 million barrels of oil (+7.3M vs. -1.6Me) in the DOE's weekly inventory data. Overseas, the Asia-Pacific region was led higher by more than +2% gains in Japan and China while Europe was mostly lower.
Durable goods in June fell -1.0% (m/m) following a -0.8% drop in May. June orders fell well short of estimates calling for a +1.0% boost in orders. Excluding transportation new durable goods orders fell -0.6% following a +1.2% gain in June. Other components were mixed with declines seen in metals, machinery, computers and electronics, and in the "all other" category. Components gaining were fabricated metals and electrical equipment. Motor vehicles rose +2.5% continuing a streak of recent gains. The drop in the headline rate was the second straight monthly decline and adds to the recent reports that suggest manufacturing activity is waning, or at least leveling off.
Dow member Boeing (BA) missed revenue estimates in its earnings report, although bottom line earnings were a bit ahead of the consensus. On the conference call BA said its order backlog is nearly 5 times its current annual revenue projection of $64 to $66 billion which it confirmed today. Executives at BA said, "With our commercial markets recovering, and the priorities of our government customers gaining clarity, we remain well positioned for growth in 2011 and beyond." Shares of BA are down -1.55%. Corning (GLW) beat earnings estimates and was in line with revenue estimates. Executives said LCD sales in the US would be soft this year, whereas China sales are strong and growing, adding that their 2010 profit outlook is "more positive today than it was a few months ago."
ConocoPhillips (COP) beat top and bottom line earnings estimates. Shares have given up early gains but are still slightly positive. Hess (HES -1%) beat on the bottom line but missed revenue estimates by more than $1 billion ($7.8B v $8.9Be). Railroad names Norfolk Southern and Canadian Pacific both beat estimates in their Q2 reports. Norfolk's CEO said he expects continued volume growth across most of the business, with the economic recovery choppy and uneven but clearly underway. NSC is down -2% but well off of its lows, while CP is up +1%.
A slew of insurance names reported earnings. Aetna (AET) and Aflac (AFL) were in line with estimates in their Q2 reports. AET raised its 2010 outlook, although the CEO was cautious about the second half of 2010, warning that results would reflect investments needed to prepare for health care reform and regulatory changes. Aflac guided its 2010 outlook towards the lower end of its prior guidance range and warned that sales next quarter would be lower y/y. Wellpoint beat earnings estimates and slightly raised its 2010 guidance. All names are firmly in the red.
Core Sector List:
Overall reading: 3 sectors advancing, 12 sectors declining
Strongest Sectors: Transportation, Gold Miners, Broker Dealers
Weakest Sectors: Home Construction, Internet, Semiconductors
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