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Stocks End Lower; Geopolitical Worries, Earnings Eyed

Jeremy Glaser

U.S. Market
Stocks ended sharply lower today as the market reacted to news of a jet crash in the Ukraine, a ground invasion of Gaza, new economic data and earnings.

Initial unemployment claims fell by a larger-than-excepted 3,000 last week to 305,000. The less volatile four-week moving average was also down by 3,000 claims to 309,000. The data is another sign of a steadily improving labor market.

Housing starts fell 9.3% last month to a seasonally adjusted annual pace of 893,000. Economists were expecting starts to come in at more than 1 million. Building permit applications also came in below expectations, falling 4.2% to a seasonally adjusted annual rate of 963,000.

The Philly Fed Index, which measures the health of the Mid-Atlantic manufacturing sector, came in at 23.9 in July, well above the 17.8 level seen in June. The index last hit these levels in March of 2011.

At market close the Dow, S&P 500 and Nasdaq were down 0.9%, 1.2% and 1.4% respectively.

Stocks on the Move
Microsoft (MSFT) announced this morning that approximately 18,000 employees will be laid off over the next year, with the vast majority of the layoffs coming from redundancies created from the recent Nokia acquisition. The remainder of the layoffs will be at Microsoft, in an effort to streamline the organization and quicken the pace of development and innovation. Management stated earlier in the year that it expected to realize $600 million in synergies from the Nokia acquisition, so it is not surprising that approximately 70% of the planned layoffs are from the Nokia business. With layoffs of 14% of its total work force, we believe short-term turmoil in execution is unavoidable. Shares were up 1% at market close.

Shares of Canadian Pacific Railway (CP) were up 2.3% after the firm reported outstanding quarterly results. CP increased reported second-quarter revenue and EBIT 12% and 40%, respectively, even as the period contained some lingering congestion following the vicious, costly winter weather and the firm contended with a sharp influx of volume in several commodities, including domestic intermodal (up 18%), coal (up 9%), and particularly Canadian grain (up 28% year over year). Overall carloads improved 3% and revenue per carload expanded 9%.

EBay's (EBAY) second-quarter update, announced late Wednesday, confirmed that the one-two punch of a data breach and changes to Google's search algorithm in May hurt Marketplaces volume, with gross merchandise volume growth slowing to 7% in June after starting the quarter in low-double-digit territory on a constant currency basis. Marketplaces issues overshadowed impressive payment volume (up 26% on a constant currency basis to $55.0 billion), mobile volume (up 68% to $12.3 billion, which now represents 20% of total enabled commerce volume), and cross-border payment volume. Ebay shares were up less than 1% at market close.