Another Monday at the office for U.S. stocks as investors departed riskier assets in favor of gold and other safe havens such as the Swiss franc as the market once again fretted over the debt ceiling stalemate on Capitol Hill. Monday's action was predictable to say the least. If you own a smart phone and get those real-time alerts from CNBC, you got at least three text messages over the weekend (I stopped counting after the third) regarding the debt ceiling talks, and with little progress being made on that front, it was obvious Monday would be a down day.
Again, the deadline is August 2nd for a deal to emerge on the debt ceiling and counting that day, there are six trading days left for a deal to surface. Until that happens, Wall Street will be held hostage by Capitol Hill. I will not get in the business of critiquing and endorsing the various plans being floated on both sides of the aisle because I do not want to offend anyone's personal politics, but for those that opt to see the forest through the trees, this debt ceiling imbroglio has highlighted a fact that few from either party want to address.
That is there are really only two ways to salvage Uncle Sam's ugly balance sheet: Raise taxes or dramatically cut spending on Medicare, Medicaid and Social Security. The politician that suggests either will be seeking new employment opportunities after November 2012.
And if debt is being discussed, our friends on the other side of the Atlantic always have something to say about the matter. European policymakers reached another last-minute deal to avoid an outright Greek default and (hopefully) stave off contagion. That did not stop Moody's Investors Service from downgrading Greek sovereign by several levels to Caa1 from Ca, a move that all but guarantees banks and other private sector owners of Greek sovereigns will lose money on those investments.
As myriad press reports noted, this is basically pre-default status. In terms of other beleaguered peripherals, Moodyâ€™s noted that while they would be buoyed by the possibility of borrowing at substantially lower rates, and by positive market reaction, the precedent of restructurings casts a shadow over their outlooks, according to Forbes.
As the chart below indicates, the decline in the quality of Greek debt has been nothing short of dramatic.
Greek Credit Ratings
Back here in the U.S., there was some good news from a familiar source that being Apple (AAPL). Shares of the iPad and iPhone maker touched an all-time high of exactly $400 before falling back a bit, the stock closed higher by 1.3%. That is no small feat when considering the broader market and the Nasdaq were in the red and Bloomberg News reported, citing a note from Strategy Analytics, that Samsung may have sold more smartphones than Apple in the second quarter.
The research firm estimates South Korea-based Samsung sold between 18 million and 21 million smartphones in the quarter compared with 20.3 million iPhones for Apple. No matter. Apple's run is nothing short of jaw-dropping. The day before the 9/11 terrorist attacks, Apple was trading around $8, yet even with a dip below $80 during the financial crisis the shares have gained about 4,050% since Sept. 10, 2011. And that does not include dividends or splits because Apple engages in neither activity.
In earnings news, consumer products maker Kimberly-Clark (KMB) said its second-quarter profit slid 18% to $408 million, or $1.03 per share, from $498 million, or $1.20 per share, a year earlier. Revenue climbed 8% to $5.26 billion. On an adjusted basis, Texas-based Kimberly-Clark earned $1.18 a share. Analysts were expecting $1.14 a share on revenue of $5.11 billion.
Kimberly-Clark reiterated full-year profit guidance of $4.80-$5.05 a share, but said it expects revenue growth of 5%-7% compared with a previous forecast of revenue growth of 4%-6%. Analysts expect a full-year profit of $4.85 a share on revenue of $20.73 billion. The stock fell more than 2% on volume that was more than 50% above the daily average, but Kimberly-Clark deserves this much credit: Its stock has sharply outperformed rival Procter & Gamble (PG) this year.
There were several marquee names reporting earnings in the after-hours session and I will start with the better of the two reports that I am going to cover. Anadarko Petroleum, the second-largest U.S. independent oil and natural gas producer, said its second-quarter profit jumped to $544 million, or $1.08 a share, reversing a loss of $40 million or 8 cents a share, in the year-earlier period. Revenue rose 46% to $3.5 billion.
''We expect the next six to nine months to be the most active period of deepwater exploration and appraisal drilling in our company's history,'' said CEO Jim Hackett in a statement. ''Our exploration program is designed to deliver upon our goal of discovering more than 500 million BOE of net risked resources this year. We are continuing to advance our deep inventory of high-impact prospects, and the new rig agreements reinforce our long-term commitment to the safety and success of our global exploration program.''
Anadarko shares were slightly higher in the after-hours session, but there was no news on any settlement talks with BP (BP) regarding Anadarko's 25% non-operating interest in the Macondo well project. Energy names dominate the earnings calendar this week, making now a great time to register for a free trial of the OilSlick daily newsletter (HERE).
In the ''red alert'' section of today's market wrap we have Netflix (NFLX), a stock that has put in Apple-esque run of its own over the past year or more, but unlike Apple, Netflix has its fair share of detractors that have been taken to the woodshed by shorting the stock. Today might be the day of reckoning for Netflix bulls and offer up some vindication for those that have dared get in the way of this juggernaut. Or it could be a buying opportunity.
I will let you draw your own conclusions, but this much is clear: Netflix posted some impressive second-quarter results, but no one is going to care about those because the online and DVD-by-mail provider committed the ultimate sin for richly valued tech stocks: It guided lower on third-quarter profits and revenue, citing its own recent voluntary price hikes as cutting into subscriber growth.
California-based Netflix projected a third-quarter profit of 72 cents to $1.07 a share on revenue of $828.5 million, well below the $1.11 on revenue of $842.9 million Wall Street was forecasting. Trading at nearly 81 times trailing earnings and almost 43 times forward earnings with a price to book value of almost 54 makes Netflix extremely vulnerable to a beating on any disappointing news. After closing at $281.53, the stock was down to $255 in the after-hours session.
Looking at the charts, the S&P 500 pulled back from resistance at 1345, but support at 1325 did not come into play either. There are no shortage of earnings catalysts this week, particularly from the energy patch, but the reality is the debt talks will probably the drag or the spark the market deals with this week. In a best of both worlds scenario, solid earnings and outlooks combined with the debt ceiling being extended, the S&P 500 could make a run to 1365, though asking for both may be asking for too much.
S&P 500 Chart
With today's loss, the Dow did fall below some support at 12,600, but a firmer floor is found at 12,400. Resistance remains at 12,700 and 12,800. There is not a large amount of Dow members reporting earnings this week, but the ones that are are of the high price-tag variety (MMM, XOM, CVX). Upside from guidance from MMM and increased production outlooks from XOM and CVX would be headlines that could help the Dow navigate debt-talk waters.
The Netflix report could weigh on the Nasdaq tomorrow and the Index has been finding stiff resistance at 2860. Support is still a ways off at 2800 and then again around 2765. AMZN reports after the close Tuesday and since that is a much larger company than Netflix, positive guidance could undo any damage from Netflix by Wednesday. Or Apple could just keep chugging the long, motivating new buyers to get involved with tech.
The Russell 2000 is kind of in no man's land right now, resting in between support at the 50-day moving average at 818 and below resistance at 855 (the 2007 high) and more resistance above 865. The biggest issue facing the Russell 2000 this week is not earnings, but how much money managers decide to scale back risk as these debt talks wear on.
Russell 2000 Chart
While I remain skeptical of the ability of most politicians to understand even basic tenants of how financial markets function, a deal on the debt ceiling will likely materialize before the Aug. 2nd deadline. The folks on Capitol Hill may not be wizards of Wall Street, but they sure know how to read a calendar. Before we know it, it will be 2012 and no politician wants to head into an election with the burden of trying to defend a weak stock market. That will be the primary impetus behind an agreement on the debt ceiling.