Corporate earnings were once again the catalyst for improving investors’ mood and eventually led the benchmarks to their third consecutive victory. However, markets had to endure another round of weak economic readings, as initial claims rose, manufacturing contracted and existing home sales came in below expectations. The dismal readings did limit the gains, but economic stimulus hopes lingered on to somewhat help the benchmarks’ uptrend.
The Dow Jones Industrial Average (:DJI) gained 0.3% and closed at 12,943.36. The Standard & Poor 500 (S&P 500) edged up 0.3% to finish yesterday’s trading session at 1,376.51. The tech-laden Nasdaq Composite Index outperformed the fellow benchmarks as it rose 0.8% to end at 2,965.90. The fear-gauge CBOE Volatility Index (:VIX) dropped 4.4% and settled at 15.45. Consolidated volumes on the New York Stock Exchange, the Nasdaq and the American Stock Exchange were roughly 6.5 billion shares, lower than the 50-day moving average of 6.7 billion shares. The advancers had a better run over the declining stocks in the NYSE; as for 51% of the gainers, 45% stocks closed in the red.
Expectations had not been anything robust with the onset of the earnings season this time. However, some behemoth companies so far have delivered encouraging figures and have helped the markets turn positive on certain days. Last Friday, it was the encouraging figures from financial bellwether JPMorgan Chase & Co. (NYSE:JPM) that helped markets to reverse its six-day losing streak.
This week too things have looked somewhat bright on the earnings front. Through this week, The Goldman Sachs Group, Inc. (NYSE:GS) Citigroup, Inc. (NYSE:C), The Coca-Cola Company (NYSE:KO) and Mattel, Inc. (NASDAQ:MAT) reported encouraging numbers. The technology sector too joined the party following the positive earnings release by Intel Corporation (NASDAQ:INTC).
Yesterday, it was yet again the corporate result that drove the market. Another tech-heavyweight International Business Machines Corporation (NYSE:IBM) cheered the mood following its second quarter earnings beat. The company’s shares rose 3.8%. However, what looked more encouraging was the fact that IBM upped its earnings forecast for fiscal 2012. IBM hiked its earnings forecast at a time when we witnessed other tech companies including Advanced Micro Devices, Inc. (NYSE:AMD), Applied Materials, Inc. (NASDAQ:AMAT) and Infosys Ltd ADR (NASDAQ:INFY) slashing their estimates.
Thus, the earnings beat and the upward revision was sure to lift investors sentiment. The tech sector enjoyed an upward rally and the Technology Select Sector SPDR (XLK) gained 0.9%. Other tech companies such as Oracle Corporation (NASDAQ:ORCL), Red Hat, Inc. (NYSE:RHT), Apple Inc. (NASDAQ:AAPL) and Dell Inc. (NASADQ:DELL) jumped 1.2%, 3.1%, 1.3% and 1.3%, respectively.
Separately, eBay Inc. (NASDAQ:EBAY) also added to the cheer following encouraging second quarter numbers. The company managed to beat both the top and bottom-lines’ expectations. Meanwhile, eBay chopped its third-quarter earnings estimate, but that did not stop the share’s upward rally of 8.6%.
Amidst the positive numbers, Morgan Stanley’s (NYSE:MS) second quarter figures were grim as it failed to beat the earnings as well as the revenue estimates. The shares lost 5.3% and Morgan Stanley. Another financial firm American Express Company (NYSE:AXP) fell 3.5% as its second quarter results failed to cheer the mood.
While corporate results hogged the limelight yesterday, a round of economic readings also paved its way. However, the economic readings were mostly discouraging and somewhat tainted the cheery mood. The U.S. Department of Labor suggested an uptrend in initial claims. The report noted the advance figure for seasonally adjusted initial claims increased 34,000 from previous week to 386,000 in the week ending July 14. Consensus estimates had projected the initial claims to be 367, 000.
Housing data too was on the negative side. National Association of Realtors reported that total existing home sales dropped 5.4% from 4.62 million in May to 4.37 million in June. Consensus estimates projected it to be 4.64 million.
Separately, Philadelphia Federal Reserve’s Business Outlook Survey for July continued to suggest manufacturing to be in the negative zone. It was the third-consecutive contraction as the “survey’s broadest measure of manufacturing conditions, the diffusion index of current activity” moved to a negative 12.9 from negative 16.6 last month. It was far short of consensus estimates that projected the index to improve to a negative 6.22.
This week markets have remained upbeat about the economic stimulus. Federal Reserve Chairman Ben Bernanke was critical about the economy in his congressional testimony and he noted that the pace of decline in unemployment rate remains “frustratingly slow. However, the dismal economic conditions, and the acknowledgement of it by Bernanke, helped to spark of fresh hopes of the third quantitative easing (QE3). On the second day of the testimony he commented: “It may be possible that we will take additional action if we conclude we are not making progress towards higher levels of employment”. Thus the hopes of QE3 were once again raised and it lingered on to partially help the benchmarks’ green finish. Eventually, coupled with the positive corporate results, the benchmarks are trading higher for the week. With just a day more to go, the Dow, S&P 500 and the Nasdaq are up 1.3%, 1.5% and 2.0%, respectively.
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