Stocks: Flat Day, Strong July
The Wall Street Journal – July 29, 2010
U.S. stocks traded in a tight range, as a handful of strong earnings reports clashed with disappointing revenues from utilities and consumer companies.
Even so, the Dow Jones Industrial Average remained on track to close out the best month since July 2009.
A flurry of disappointing second-quarter revenue and guidance reports stung the utilities, consumer staples and technology sectors, but financial companies strengthened in the wake of encouraging earnings. With only one full session of trading left in July, the major benchmark indexes are each poised to notch gains of more than 6.5%.
The Dow has climbed more than 7% so far in July, on pace to post its biggest monthly gains since July 2009, when it surged 8.6%. On Thursday, the measure fluctuated in choppy trading and recently was up 2 points to 10500.
Investors said some earlier enthusiasm around second-quarter earnings was waning ahead of Friday’s release of a new second-quarter gross domestic product estimate and key data points next week.
“We’ve had a really strong overall earnings season and today you saw some numbers that were either just OK or the guidance was a little soft going forward,” said Bill Vaughn, portfolio manager at Evercore Wealth Management.
Others worried that the remaining companies reporting second-quarter earnings may be smaller companies that have been less able to capitalize on global demand.
“We have yet to see reports out from some of the retailers and we know consumer spending was a little soft in the second quarter, relative to the first,” said John Canally, economist and investment strategist at LPL Financial.
The Nasdaq Composite edged down 0.1% to 2263. The Standard & Poor’s 500-stock index shed 0.1% to 1104. The measure’s declines were led by the utilities and consumer staples sectors, while financials climbed.
Utilities stocks weakened on the heels of disappointing quarterly reports. Constellation Energy Group tumbled 5.7% after Macquarie downgraded the company to “neutral” from “outperform” in part based on concerns over its retail business, one day after its earnings report. Natural-gas and energy company EQT fell 3.3% after its second-quarter earnings missed analysts’ expectations.
Consumer-staples companies also lagged. The Dow’s decline was led by a 2.4% drop in Kraft Foods and a 2.1% loss in Procter & Gamble following a string of disappointing quarterly reports from other consumer companies.
Colgate-Palmolive slid 7.1% after its second-quarter earnings rose 7.3%, but sales missed analysts’ expectations. Kellogg‘s second-quarter profit fell 15% on weakness in cereal sales in the U.S. and U.K. and impacts from a recent recall. The cereal maker also cut its 2010 growth target, sending shares down 6.4%.
Financials helped keep some of the losses in check. Financial-services company Ameriprise Financial jumped 12% after its second-quarter earnings more than doubled, beating analysts’ expectations. Moody’s gained 5.7% after the credit-research firm’s second-quarter earnings rose 11%, beating analysts’ estimates, as revenue from U.S. operations helped offset weakness in international markets.
Citigroup added 0.4% after agreeing to pay $75 million to settle regulatory charges with the Securities and Exchange Commission that it failed to disclose $40 billion in subprime exposure to investors in 2007.
Demand for Treasurys was mixed. The two-year note edged up, while the 10-year note crept down, pushing its yield up to 3.01%.
The U.S. dollar index, which tracks the performance of the U.S. currency against a basket of six others, fell 0.7%. The euro held above the $1.30 level, boosted by data showing that economic sentiment in the 16-nation euro zone rose in July and the number of unemployed in Germany declined. The euro was recently trading at $1.3085, up from $1.2986 late Wednesday in New York.
Crude-oil prices edged up, while gold futures advanced.