Caution prevails. The opening bell saw stocks in retreat as investors pull back ahead of the start of earnings season, pulling the Dow Jones Industrial Average back below the 17,000 level it cleared for the first time last week.
S&P 500 — down 8, or 0.4%, at 1,970
DJIA — down 72, or 0.4%, at 16,951
Nasdaq Composite — down 16, or 0.4%, at 4,435
With earnings season set to kick off, one of the market’s prevailing themes is that investors want to see signs the improving economy is finally starting to deliver sales and earnings growth.
As Jerry Webman, chief economist at Oppenheimer Funds, put it in a note: “After all, valuations are looking fuller as share prices continue to creep higher, companies will need to justify those valuations in coming quarters by delivering results.”
All well and good, but Webman goes on to note that there’s a downside on the earnings from private-sector jobs growth. After all, “every private-sector job created is some company’s payroll expense.”
Webman writes:
While it’s encouraging to see businesses growing confident enough to make new hires (and spend on capital equipment), these expenditures could hurt profit margins in the short to medium terms. That’s why, for the last several months, I’ve been recommending that equity investors focus on shares in companies that (a) don’t rely on overwhelming economic growth to prosper and (b) can thrive without the need to spend heavily on new employees and equipment.
As the U.S. economy picks up steam, who is leading the pack?
Check out this look at the country’s fastest-growing state economies. We’d note that some states on the list, like South Dakota and Idaho, were propelled by their agricultural sectors. Grain prices are now in retreat.
Stocks are adding to early losses, with the Dow putting further distance between itself and the 17,000 level as it’s decline extends to triple digits.
S&P 500 — down 11, or 0.5%, at 1,967
DJIA — down 100, or 0.6%, at 16,925
Nasdaq Composite — down 40, or 0.9%, at 4,412
Shares of AbbVie Inc. /quotes/zigman/13067932/delayed /quotes/nls/abbv ABBV are in retreat after the biopharmaceutical firm raised its offer for U.K.-based Shire PLC by 11%.
It’s not much of a market mover, but data showed May job openings rose to 4.64 million from 4.46 million a month earlier.
The Dow remains down 117 points, or 0.7%, at 16,907, while the S&P 500 is off 12, or 0.6%, at 1,966. The Nasdaq Composite leads the way lower, down 1.1% at 4,404.
We need to talk about Germany.
The euro zone’s largest economy is starting to sputter. That’s a concern as the Teutonic powerhouse has been the engine of growth for the euro zone. And while the region’s sovereign debt crisis has been resting on the back burner, growth and the threat of deflation have forced the European Central Bank to take ever more extraordinary actions and to edge toward the path of outright quantitative easing.
MarketWatch’s Sara Sjolin has a must-read take on Germany’s run of less-than-stellar data and why it matters.
Speaking of earnings growth, Philip van Doorn has a breakdown of 6 companies that should report big-time earnings gains.
Rob Stein, CEO of Astor Investment Management said that Tuesday’s pullback is mostly due to technicals rather than fundamentals.
“When markets reach new peaks, investors tend to take opportunity and lighten up and rebalance.
We think the economy is in its mid cycle and has more room to grow. All recent economic data point to acceleration. In this environment our risk reward model is still favoring stocks with decent expected returns for the next several quarters.”
Brian Andrew, chief investment officer at Cleary Gull, says investors should go beyond economic cycles when deciding whether to buy a fund. He talks to Chuck Jaffe.
Irwin Kellner, MarketWatch’s chief economist writes that stocks are way overdue for a correction.
“When good news is good news, and bad news is good news, it’s time to take some money off the table.
Call it irrational exuberance, part two. Like old man river, the stock market just keeps rolling along. Last week it was Dow 17,000. Will this week see the market go even higher?
… there are a number of warning signs out there that suggest the party may soon be over.”
Ah, with the heat of summer upon us, what could be more refreshing for your portfolio than a cool beer stock or two? See what our experts have to say about investing in the brewery sector.
Market update: Stocks are at session lows and are continuing to fall. 9 of 10 main sectors on the S&P 500 are trading lower, with investors favoring only the utilities stocks.
S&P /quotes/zigman/3870025/realtime SPX -0.78%
Dow /quotes/zigman/627449/realtime DJIA -0.80%
Nasdaq /quotes/zigman/12633936/realtime COMP -1.6%
Russell 2000 /quotes/zigman/2759624/delayed RUT -1.5%
Via Philip van Doorn: 6 companies that should report huge earnings gains:
After the worst U.S. winter in decades, scores of companies will show plenty of quarter-over-quarter sales and earnings improvements starting this week.
But looking beyond the weather will be of more interest, because many companies that suffered the worst earnings declines in the first quarter are also expected to show hugeyear-over-year earnings growth for the second quarter.
From Mark Hulbert: This M&A boom is going to end badly
If splitting up creates value, might mergers and acquisitions be destroying value?
“Yes” is the answer of a large body of academic research over the years. Much of that research relies on a valuation measure known as the Q Ratio, which was introduced by the late James Tobin, the Yale University finance professor and 1981 Nobel laureate in economics. A firm’s Q Ratio is calculated by dividing its total market cap by the replacement value of its total assets.
Shares of Boeing /quotes/zigman/220026/delayed /quotes/nls/ba BA are off Tuesday in the wake of a warning from Standard & Poor’s that the aeronautics company faces headwinds if the U.S. Congress does not renew the charter for the Export-Import Bank.
S&P said:
Boeing, the largest beneficiary of Ex-Im’s activities, could face long-term credit risks, especially if it responds by significantly expanding the direct loans and guarantees it provides to its airline customers in order to remain competitive.
Boeing fell 2.2% and is down 7.5% for the year.
Getty Images
Tesla got a double dose of bad news out of China overnight.
The Chinese government’s plan to build 10,000 charging stations by 2017 is likely to leave Tesla out of the loop as China is not likely to support stations that to not meet its standard, according to Caixin Online.
The electric car maker is also being sued for trademark infringement. A Chinese businessman registered the “Tesla” trademark and took the company to court, demanding ti to stop sales in China.
Shares are off 2.9% on Tuesday.
So-called momentum stocks, many of them biotechs and Internet names, continue to be battered amid a lack of fresh incentives for investors.
The Global X Social Media ETF /quotes/zigman/7289836/delayed /quotes/nls/socl SOCL , which serves as a proxy indicator, are off 4.3% while the iShares Nasdaq Biotech ETF /quotes/zigman/85342/delayed /quotes/nls/ibb IBB fell 2.4%.
TripAdvisor /quotes/zigman/7619815/delayed /quotes/nls/trip TRIP , Netflix /quotes/zigman/87598/delayed /quotes/nls/nflx NFLX , and Facebook /quotes/zigman/9962609/delayed /quotes/nls/fb FB are among the notable losers.
The tech-heavy Nasdaq Composite Index /quotes/zigman/12633936/realtime COMP underperformed other major indexes, down 1.5%, compared to 0.7% declines on the S&P 500 Index /quotes/zigman/3870025/realtime SPX and the Dow Jones Industrial Index /quotes/zigman/627449/realtime DJIA .
Those tech losses were apparent in the biggest decliners on the S&P 500. Leading the index lower were shares of First Solar Inc. /quotes/zigman/102025/delayed /quotes/nls/fslr FSLR , Salesforce.com Inc. /quotes/zigman/338061/delayed /quotes/nls/crm CRM , TripAdvisor Inc. /quotes/zigman/7619815/delayed /quotes/nls/trip TRIP , Netflix Inc /quotes/zigman/87598/delayed /quotes/nls/nflx NFLX ., and Facebook Inc. /quotes/zigman/9962609/delayed /quotes/nls/fb FB
At last check:
FSLR: down 6.5%
CRM: down 5.1%
TRIP: down 5%
NFLX: down 3.7%
FB: down 3.6%
Momentum stocks were being hit hard especially.
Rick Lake, portfolio manager at the Aston/Lake Partners LASSO Alternatives Fund, says the market is in a “wait-and-see pattern” with second quarter earnings season about to start. He says the market needs substantive earnings to justify current valuations.
As stocks pull back from record highs, here are some of the year’s best performers that were giving some back Tuesday:
Keurig Green Mountain Inc. /quotes/zigman/30382045/delayed /quotes/nls/gmcr GMCR , down 2.8%, up 62% year-to-date.
Electronic Arts Inc. /quotes/zigman/71356/delayed /quotes/nls/ea EA , down 2.9%, up 53% YTD.
SanDisk Corp. /quotes/zigman/54370/delayed /quotes/nls/sndk SNDK down 2.7%, up 47% YTD.
Avago Technologies Ltd. /quotes/zigman/111993/delayed /quotes/nls/avgo AVGO down 1.9%, up 38% YTD.
Under Armour Inc. /quotes/zigman/388552/delayed /quotes/nls/ua UA down 2.6%, up 32% YTD.
After the closing bell Tuesday, former Dow component Alcoa Inc. /quotes/zigman/246295/delayed /quotes/nls/aa AA is scheduled to release quarterly earnings results. With shares rising 0.5% on the day, here’s what you should look out for in the report.
Also reporting earnings after the bell:
Container Store Group Inc. /quotes/zigman/22608280/delayed /quotes/nls/tcs TCS Shares were down 1.2%.
Bob Evans Farms Inc. /quotes/zigman/71631/delayed /quotes/nls/bobe BOBE Shares slid 0.2%.
AeroVironment Inc. /quotes/zigman/104484/delayed /quotes/nls/avav AVAV Shares were down 1.1%.
Via Greg Robb:
One of the Federal Reserve’s leading doves downplayed recent higher readings on inflation on Tuesday, saying he expects the price level to stay below the central bank’s target for several more years, possibly even until 2018.While inflation has climbed over the past three months and is now up 1.8% over the past year, “many large fluctuations in [the personal consumption expenditure index] inflation end up being purely transitory,” said Narayana Kocherlakota, the president of the Minneapolis Fed, in a speech to the Minnesota Business Partnership.
“I currently see the probability of inflation’s averaging more than 2% over the next four years as being considerably lower than the probability of inflation’s averaging less than 2% over the next four years,” he said. Low inflation means that resources are being wasted, Kocherlakota added, notably in the form of unemployed workers. “There is still significant underutilization of our country’s most important resource – its people,” he said.
The unemployment rate, which fell to 6.1% in June “could well overstate the degree of improvement in the U.S. labor market,” he added. As a result, the Fed is undershooting its price stability objective and underperforming its maximum employment objective, he said. Kocherlakota is a voting member of the Fed policy committee this year.
ales of small businesses are picking up. Stocks are not. Adrienne Mitchell reports.
Oil futures settled lower for their eighth trading session in a row, with expectations of more exports from Libya and a lack of disruptions to Iraqi output feeding the decline.
August oil /quotes/zigman/2196851/delayed CLQ4 fell 13 cents, or 0.1%, to settle at $103.40 a barrel on the New York Mercantile Exchange. That was the lowest close for a most-active contract since June 6.
Earlier, gold futures settled lower for a third straight session, at their lowest closing level in more than two weeks. August gold /quotes/zigman/11829489/delayed GCQ4 fell 50 cents to end at $1,316.50 an ounce on the Comex division of Nymex.
John Canally, Investment Strategist and Economist at LPL Financial said that it is not unusual for markets in the middle of a business cycle to go without a correction for long stretches of time. But…
“We are due for a correction, however we expect the next correction and or pullbacks to be bought pretty quickly.
There are many people out there who are waiting for an entry point and we suspect any dip at this point will be bought.
We still stand by our year-end projection of 10-15% of full-year growth for the S&P 500.”
Stocks look set to close down for the second day in a row. About 15 minutes before the closing bell:
S&P 500 -0.68%
Dow -0.66%
Nasdaq -1.33%
Cullen Roche — a financial adviser with quite a Twitter following (@cullenroche) — has just penned an Outside the Box column for MarketWatch.
He writes:
“Planning a portfolio around the ideas of ‘buy and hold’ and ‘stocks for the long run’ looks nice inside of an academic study based on 12% annualized gains, but in reality often causes more financial pain than anyone deserves.”
Read more: 7 market myths that make investors poorer
Photo credit: Shutterstock
Stocks close broadly lower; Dow ends below 17,000
Dow, S&P 500 both fall 0.7%; Nasdaq loses 1.4%
In terms of point drop, the Dow lost about 118 points today, according to preliminary FactSet data.
The trend today was decidedly negative, but things are looking up after hours.
Alcoa /quotes/zigman/246295/delayed /quotes/nls/aa AA — which kicks off earnings season each quarter — is seeing its stock in late trading following its upbeat earnings report.
Go here for more.
On the downside, Container Store /quotes/zigman/22608280/delayed /quotes/nls/tcs TCS is falling hard in extended trading after its earnings report.
That’s a wrap for today’s live blog. Thanks for checking it out.
Photo credit: Bloomberg