Stocks caught a break on Monday, bouncing back from the largest loss this month as investors shrugged off weak housing data to focus on earnings from marquee energy and technology names. The gains were small in comparison to Friday's losses, but they were gains nonetheless with the Dow Jones Industrial Average adding over 56 points to settle 10,154. The S&P 500 gained just over six points to close at 1071 and the Nasdaq barely made a dent in last Friday's decline, adding 19 points today for close of 2198.23. Small-caps remained unimpressive with the Russell 2000 crawling higher by just 2.7 points to finish the day at 613.
Earlier in the trading session, stocks were plagued by a drop in the National Association of Home Builders/Wells Fargo confidence index, which fell to 14 this month from 16 in June. The July reading is the lowest since April 2009, according to Bloomberg News. The median estimate called for a drop to 16 and readings below 50 mean participants in the survey believe conditions are not encouraging. Of course the expiration of the housing tax credit may be to blame here, but even if the credit was still in place, it appears doubtful that the July number would have come in at or above 50.
While stocks notched only moderate gains, gold continued its precipitous decline, falling $6.30 to $1181.90 an ounce, the lowest close for a front-month contract in almost two months. Gold has retreated 6% from its June highs as speculators have unwound long bets on the yellow metal due to increasing signs of stability in the Eurozone and a rally in the Euro itself.
Gold's decline is interesting to say the least given that the uncertainty that permeates the current market environment should be a boon to gold prices. The $1200 level did not act as support and if gold continues to lose its safe haven status, more declines could be on the way.
After being punished last Friday, financials were weaker again today. JPMorgan Chase (JPM) and Citigroup (C) both eked out small gains on the day, but Goldman Sachs (GS), PNC Financial (PNC) and Wells Fargo (WFC) all closed in the red. Bank of America (BAC), the largest U.S. bank by assets, was a drag on the Dow, losing almost 2.7%.
BofA was hammered last Friday when it reported second-quarter revenue results that were less than impressive to investors. Today, Goldman Sachs took BofA off its ''conviction buy list.'' ISI Group chimed in with a downgrade of its own, lowering BofA to ''hold'' from ''buy.'' The stock closed below $14 for just the second time in the past six months, but it bares noting that both times have been this month. This was a $19 stock as recently as mid-April. Ouch.
Bank of America Chart
The energy sector won some relief on Monday on the back of a strong second-quarter earnings update from oil services giant Halliburton (HAL). Halliburton, the second-largest oil services firm behind Schlumberger (SLB), has been caught up in the middle of the Gulf of Mexico oil spill because the company was a services provider to the Deepwater Horizon rig and the stock has been taken to task as a result.
This was a $35 stock on April 20, when the Deepwater Horizon exploded. Halliburton proceeded to traded as low as $21.10 in early June, but has rebounded nicely and with today's gain of more than 6%, the stock closed above $29 for the first time since May.
Halliburton said its second-quarter profit surged 83% and that demand for services from onshore projects should help offset the effects of the government's moratorium on deepwater offshore drilling. The Houston-based company earned 52 cents a share compared with an estimate of 37 cents. Halliburton CEO David Lesar said he believes that rigs that have left the Gulf in the wake of the moratorium to move to international locations will not ''return to the Gulf for some time, if at all.'' He expects 17 deepwater rigs to be operating in the Gulf at this time in 2011, but that is down from 33 before the moratorium was imposed.
Dow component International Business Machines (IBM) was another widely-followed name to step into the earnings confessional on Monday and judging by the after-hours reaction to the results, investors were less than impressed. IBM traded higher by $1.76 to close at $129.79, but is down $5.44, or 4.19%, to $124.35 in after-hours trading as of this writing.
The company did say that its second-quarter profit rose 9% to $3.39 billion,or $2.65 a share, from $3.10 billion, or $2.34 a share, a year earlier. Sales rose 2% to $23.7 billion from $23.3 billion. Analysts were expecting a profit of $2.58 a share on revenue of $24.2 billion and top-line miss could be troubling. IBM said foreign currency changes weighed on revenue to the tune of $500 million, while noting analysts did not factor that into estimates.
More importantly, IBM said the value of signed services contracts tumbled 12% in the second quarter, a fact that highlights uncertainty about the global economic recovery. The company did issue new guidance for 2010, calling for a profit of at least $11.25 a share, five cents above previous estimates, but below the $11.27 per share estimate analysts had forecast. IBM has posted higher earnings growth for 30 consecutive quarters, but eight cents of the per share gains in the second quarter was attributable to share repurchases, according to the Associated Press.
Semiconductor maker Texas Instruments (TXN) was another bellwether tech name to report after the close and the reception for TI's earnings was even worse than what IBM endured. In the after-hours session, Texas Instruments is down $1.34, or 5.24% to $24.21 after closing up 78 cents at $25.55 during traditional market hours.
The company said its second-quarter profit almost tripled to $769 million, or 62 cents per share, from $260 million, or 20 cents a share, a year earlier. That was in line with analysts' expectations. Revenue surged 42% to $3.5 billion, meeting Street forecasts. TI expects to earn 64 cents to 74 cents a share during the third quarter on sales of $3.55 billion to $3.85 billion. Analysts had been expecting a third-quarter profit of 64 cents on revenue of $3.65 billion.
While those numbers may appear bullish, investors probably wanted to see more out of TI following the blowout quarter delivered by Intel (INTC) last week. Speaking of Intel, the company delivered what was probably the best quarter in its history and the stock barely moved. TI provided what appears to be a small disappointment and that is why the shares are swooning tonight.
Texas Instruments Chart
Looking at the charts, the S&P 500 has obviously corrected its overbought condition in a meaningful way, bringing support at 1060 into play as a pivotal level. A violation of 1060 brings 1020 into play and from there, 950-975 could be an issue. Adding woes to those worries is that earnings reports can hardly be counted on to bolster stocks these days. Great quarters are barely rewarded, if it all, while any hint of disappointment has traders hitting the sell button and running for the exit.
S&P 500 Chart
The Dow found support around 10,100 and has another 70-80 points before bumping into resistance, but with the glum reaction to IBM's numbers, we may not have to worry about resistance on Tuesday. Johnson & Johnson (JNJ) reports before the bell and even if it beats and guides higher, chances are that will not be enough to make people just forget about IBM. Ten more Dow constituents report after Tuesday and that should make for an action-packed week. A week of big gains is a different story altogether.
The Nasdaq was punished last Friday as the market absorbed lackluster results from Google (GOOG), sending the index well below support at 2220. IBM and Texas Instruments are not Nasdaq stocks, but those reports will probably keep investors on the sidelines when it comes to tech on Tuesday as they wait for Apple (AAPL) to report after the close.
This is a big week for Nasdaq earnings with eBay (EBAY), Qualcomm, Amazon (AMZN) and Microsoft (MSFT) among others all due to report. I doubt that resistance at 2300 will be challenged, but a flurry of bad reports could bring support at 2140 into play.
The Russell 2000 shed 4% on Friday, so a ''rebound'' of just 0.44% today is not too impressive, but on the bright side, the 610 area acted as support again. More damage to the Russell 2000 could bring 590 into play and if 590 does not hold, the mid-500s may not be far off.
Russell 2000 Chart
Overall, I get the feeling this week could be the bull's last best hope for the rest of the summer. Look at the earnings calendar and you will see that this is a star-studded week. Tech bulls need Apple to do its thing tomorrow and ALL bulls need Goldman Sachs to finally provide some good news. I would also be carefully watching Caterpillar (CAT) and Microsoft (MSFT) on Thursday for any signs that the global recovery is gaining steam.