Wednesday saw stocks valiantly attempt to extend their winning streak, but the release of the minutes from the latest meeting of the Federal Open Market Committee (FOMC) forced the bulls to pull in their horns. It was one key phrase in particular that rankled investors -- a line confessing that the FOMC "would need to consider whether further policy stimulus might become appropriate if the outlook were to worsen appreciably." The group also trimmed its 2010 growth forecast for the first time in more than a year, citing the persistently weak jobs market for its cloudy outlook. As a result, the major market indexes ended with a mix of modest gains and slim losses.
"After six straight up days, a flat day isn't anything to get overly upset with," noted Senior Technical Strategist Ryan Detrick at Schaeffer’s Research. "So far, earnings have been strong -- but it'll be interesting to see how the financials perform, since some of the big banks have reports coming up."
Even though Wall Street closed well off its session highs and managed to only barely to extend the Dow's big winning streak, traders didn’t seem too concerned about the performance.
“We’re very encouraged by the market. Obviously the market has gone into a bull stage,” said NYSE trader Maier Tarlow of Raven. “Of course the market is going to come in for breathing space. The Fed minutes were bearish today… but for the market to shake it off and consolidate here, we find it to be very bullish.”
Wall Street had been solidly higher earlier in the day in the wake of Intel's (INTC) big earnings beat and a rallying euro. However, stocks came under pressure after the Federal Reserve renewed some economic jitters by lowering its economic forecast.
The flat close comes after the Dow soared nearly 150 points on Tuesday to cap off its strongest six-day performance in almost a year. Boosted by optimism surrounding earnings season, the benchmark index surged almost 700 points over that span.
“I was expecting a little bit of a pause,” said Frank Davis, director of sales and trading at LEK Securities. “We moved to the upper side of this range and you would expect us to pause and teeter until we have some kind of break through.”
Results for Major Market Indexes
The Dow Jones Industrial Average (DJIA – 10,366.72) finished with a small gain of 3.70 points, or 0.04%.
The S&P 500 Index (SPX – 1,095.17) had a small loss, on the day, of 0.17 points, or 0.02%.
The Nasdaq Composite (COMP – 2,249.84) also a gain of 7.81 points, or 0.35%.
The Russell 2000 Index of smaller companies had a loss of 2.66 points, or 0.41%, to settle at 640.16.
The Dow's seven-day rally marks its longest winning streak since March 18. Half of the blue chip stocks closed higher led by tech giants Intel (INTC) and Cisco Systems (CSCO) . The index's worst performers were American Express (AXP) and Home Depot (HD) .
Boosted by Intel's results, the Nasdaq Composite outperformed the broader markets and closed in the green for the seventh day in a row. Tech stocks like SanDisk (SNDK) and Nvidia (NVDA) posted steady gains.
The consumer discretionary sector .GSPD was among the S&P 500's biggest losers, giving up 0.5 percent. Shares of youth-oriented retailer Abercrombie & Fitch (ANF) lost 0.8 percent to $35.93.
Bank stocks also ranked among the biggest drags, with the KBW Bank Index .BKX down 1.6 percent. JPMorgan Chase & Co (JPM), which reports results on Thursday, slipped 0.3 percent to $40.35.
Smaller banks also fell, including Zions Bancorp (ZION), which lost 3.6 percent to $23.33, while Regions Financial (RF) dropped 3.1 percent to $7.15.
About 7.59 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, sharply below last year's estimated daily average of 9.65 billion.
Losing stocks were ahead of gainers by 4 to 3 on the New York Stock Exchange. Volume came to 1.06 billion shares.
Notes of Interest….
• The Dow Jones Industrial Average’s (DJIA) touched an intraday peak of 10,400.10, as the looming century level continues to cap its progress.
• The S&P 500 Index’s (SPX) stalled out after encountering round-number pressure in the 1,100 neighborhood.
• The Nasdaq Composite (COMP), the tech-rich index, notched a second consecutive daily close atop its 20-day moving average.
• Crude futures for August delivery was down 11 cents, or 0.1%, at $77.04 per barrel. The release of the FOMC meeting minutes also weighed on oil futures, with black gold reversing early gains to settle in the red. The commodity caught an early lift from bullish inventory data, as the Energy Information Administration (EIA) revealed that crude supplies fell by a steeper-than-forecast 5.1 million barrels during the past week. However, the enthusiasm sparked by that report was more than offset by the FOMC's lowered growth forecast.
• Gold futures for August delivery ended the day off $6.50, or 0.5%, to finish at $1,207 per ounce. Unfortunately, gold was unable to capitalize on the market's late-breaking case of economic jitters. The malleable metal took its cue from tame early action in the equities market, with traders perceiving no particularly pressing reasons to snap up the safe-haven investment.
• Bonds: Treasury prices rose, and the yield on the 10-year note fell to 3.05%.
The Commerce Department said retail sales fell 0.5% in June after dropping 1.1% in May, while sales excluding autos slipped 0.1%.
Economists surveyed by Briefing.com expected total sales to have fallen 0.2%, and sales excluding autos were forecast to have held steady after falling 0.8% in May.
Wall Street managed to mostly shrug off the Commerce Department report. However, retailers like Bed Bath & Beyond (BBBY) and Macy’s (M) closed lower on the data.
Mortgage applications fell last week to their lowest level in more than 13 years, according to the Mortgage Bankers Association.
The markets weren't helped by new report showing business inventories rose by just 0.1% in May, missing expectations for a rise of 0.3% and triggering more worries about consumer spending. Sales declined by 0.9%, the largest decline since March 2009.
Fed: According to the minutes of their June meeting, Fed officials discussed contingency plans to further stimulate the economy "if the outlook were to worsen appreciably."
The minutes also showed that the central banker reduced its outlook for U.S. gross domestic product. GDP is now projected to grow between 3.0% and 3.5% this year, down from an earlier forecast of 3.2% to 3.7%. In the first quarter, GDP rose at an annual rate of 2.7%.
In addition, the Fed predicts the unemployment rate will range between 9.2% to 9.5% this year, slightly worse than the 9.1% to 9.5% range it forecast in April. Unemployment was 9.5% in June, but has averaged 9.7% over the first half of the year.
"The Fed believes that the economy has recovered from disaster but is still extremely weak," said Doug Roberts, chief investment strategist for Channel Capital Research. "There is virtually no danger of higher rates in the near future." Analysts said investors were initially unnerved by the Fed's long-term outlook.
"The Fed is talking about 5 to 7 years time before the economy gets back to the old modus operani," said Joseph V. Battipaglia, market strategiest for the Private Client Group at Stifel Nicolaus & Co. "This is the government admitting that the coast is not clear because the outlook is a slower environment and unemployment stays doggedly high."
In currencies: The dollar rose against its main trading partners, including the euro, the British pound and the Japanese yen.
European Markets: were mixed in active trading. Britain's FTSE 100 slipped 0.3% and France's CAC 40 fell 0.1%. The DAX in Germany gained 0.3%
Asian Markets: Japan's Nikkei surged 2.7%, the Shanghai Composite added 0.8% and the Hang Seng in Hong Kong rose 0.6%.
Company Earnings Reports
There have been some positive notes today, particularly from the earnings arena.
Marriott International Inc (MAR)
Marriott International Inc (MAR), operator of Marriott, Residence Inn and Ritz-Carlton hotels, posted a higher second-quarter profit on Wednesday, helped by a rise in room rates in North America.
"Corporate demand is stronger," Laura Paugh, senior vice president of investor relations, said in an interview. "We're having to discount less in order to get business into the hotel."
The Bethesda, Maryland-based hotelier posted earnings of $119 million, or 31 cents per share, for the second quarter ended June 18. A year ago, the company reported net income of $37 million, or 10 cents per share.
The company -- the largest U.S. hotel company by market value-- earlier forecast earnings between 25 cents and 29 cents per share.
Revenue for the quarter was $2.8 billion, up 8.2 percent from $2.6 billion a year ago and roughly even with analyst expectations, according to Thomson Reuters.
Total expenses rose 3.3 percent to $2.5 billion.
In the second quarter, revenue per available room for the company's hotels worldwide rose 8.5 percent.
Marriott shares were flat in after-hours trading at $32.35. The stock is up 18 percent so far this year.
Company News and Movements:
• Comcast’s (CMCSA) acquisition of a majority stake in a new joint venture holding General Electric’s (GE) NBC Universal was cleared by the European Commission. The green light shifts the focus to the U.S., where lawmakers have expressed more concern about the deal.
• Jackson Hewitt (JTX) surged as much as 20% after beating the Street with a 16% rise in net income and non-GAAP EPS of $1.14. Analyst had projected EPS of $1.06. The second-largest U.S. tax preparer’s revenue sank 11% to $125.6 million, topping estimates for $120.32 million.
The following companies had some impressive options movements:- Watch the following companies for options activity due to their backwards swing.
Aon Corporation (AON)
Since the start of the week, both near-term call and put open interest have skyrocketed substantially higher on the security. More specifically, within the front three months of options, we find that call open interest has nearly tripled from fewer than 3,000 contracts to nearly 11,200 calls outstanding. In the same vein, we've seen near-term put open interest practically double since Monday, from fewer than 5,000 contracts to roughly 9,700 open put positions.
Dell Inc. (DELL)
Calls were especially popular on DELL on Tuesday, as some 27,000 of these bullishly biased options changed hands -- nearly double the tech stock's usual daily call volume of around 14,000 contracts.
Texas Industries, Inc. (TXI)
Prior to the sudden stall of its report, options speculators were betting on positive post-earnings price action for TXI. During the past couple of weeks, traders on the International Securities Exchange (ISE) had bought to open nearly three TXI calls for every put, as indicated by the security's 10-day call/put volume ratio of 2.95.
The Dow Chemical Company (DOW)
Put speculators have swarmed The Dow Chemical Company (DOW) today, after Goldman Sachs slashed its rating on the U.S. chemicals sector to "neutral" from "attractive." Furthermore, the analysts trimmed their price target on DOW to $35 from $40, but maintained the stock's "conviction buy" status.
Just after midday, the security has already seen roughly 9,800 puts cross the tape – about four times its expected single-session put volume. Most active have been the August 24 and August 26 strikes, which have each seen about 3,800 puts change hands.
AK Steel (AKS) - Options volume is running 2.5X the average daily, with 25K calls and 2600 puts traded.
Gamestop (GME) - Shares are now down 20 cents to $19.31 and 9780 calls traded on the retailer. Some speculators are focused on the July 20 calls, which have traded 3187X (74% Ask). August 21, August 24, and July 16 calls are busy as well.
Dow Chemical (DOW)
Lexmark (LXK) - Options volume is running 2X the usual, with 7240 puts and 1140 calls traded.
Intel (INTC) options activity is 4X more than normal, with 433,000 contracts traded and call volume representing 69 percent of the action.
Cisco Systems (CSCO) options volume is 2.5X the recent daily average, with 163,000 contracts traded and call volume accounting for 67 percent of the activity.
Vivus Pharmaceuticals (VVUS) options volume is 4X the recent average daily, with 145,000 contracts traded and call volume accounting for 56 percent of the activity.
Increasing volume is also being seen in DELL, EMC, and Nvidia (NVDA)
Traders said the tone was more cautious Wednesday, with several more companies due to post results this week. A dour report on retail sales and a big drop in mortgage applications also weighed on the market.
"At the moment the economic news is trumping the earnings news," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.
Earnings news could be back in focus early Thursday when JPMorgan Chase (JPM) reports second-quarter results before the market opens. Analysts surveyed by Thomson Financial expect the bank to report a profit of 70 cents per share, up from 28 cents per share a year ago.
Bank of America (BAC) and Citigroup (C) are also due to report this week.
"If the financial's participate and we have good earnings, we're going to move higher," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.
In addition, Internet giant Google (GOOG) is slated to report quarterly results after the market closes Thursday.
Some 21 S&P 500 companies will announce results this week, with most of the rest spread out over the next three weeks.
Second-quarter earnings are expected to be up 27%, according to trackers at Thomson Reuters. But investors are particularly focused on what corporate leaders expect for the second half of the year.
"Earnings have been quite outstanding, and the market has been in pretty good shape lately, but markets can't like everything about all the earnings reports," said Robert Brusca, chief economist at Fact and Opinion Economics. "At some point you're going to have to look for this to settle down."
While the Fed's statement contained no real surprises, investors are particularly cautious after the advances of the past week and because so much of corporate earnings reports are still ahead, said Rob Lutts, president and chief investment officer of Cabot Money Management in Salem, Mass.
"It's been a very strong last three or four days. And at this point, valuations are a little higher and a little more of a challenge," he said.
And after the beating stocks took this spring, he said, investors remain more cautious than in any down investment cycle in memory. That caution is reflected in how they are continuing to move money into bonds.
"We need time to heal, more than anything else," Lutts said. On the economic front, reports due Thursday include weekly initial jobless claims, consumer and wholesale inflation data as well as a regional manufacturing report.
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