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Broadgate: Market News 23/7

23 July 2012

The trend of better-than-expected earnings will be put to the test in the coming week when investors hope Apple can exceed already high expectations for the tech giant and Facebook reports its first quarterly earnings.

Apple accounts for a significant proportion of the overall earnings of Standard & Poor’s 500 components. S&P 500 earnings are expected to show a rise of 5.7 percent in the second quarter from a year ago. Excluding the maker of the iPad, the rise is 4.8 percent, according to Thomson Reuters data.

Apple’s results, due Tuesday, could help stocks build on this week’s gains and counter investor worries over the euro zone crisis. More signs of financial stress in Spain on Friday caused stocks to give back some of the week’s increase. The S&P 500 ended 0.4 percent higher for the week.

“Apple can drive the whole (tech) group,” said Daniel Morgan, who helps manage about $3.5 billion at Synovus Trust Company in Atlanta.

“There’s a huge psychological component as it relates directly to Apple. If they just blast numbers like they did last quarter, then obviously the perception will be everybody else did pretty good and Apple did fabulous.”

Apple’s expected strong performance is mainly why technology earnings growth has held up better than other S&P 500 sectors. The expected growth rate for the sector has gone from 6.9 percent in April to 8.7 percent as of Friday, the data showed.

Apple’s earnings for the quarter are seen at $10.38 a share, based on Thomson Reuters I/B/E/S, which includes estimates from 43 analysts. That compares with a profit of $7.79 a share for the year-ago quarter.

Morgan said Apple’s growth has largely depended on the success of its new products. “For the stock, to continue its trajectory at the pace it has, it’s critical that they release these new products,” he said. Apple’s shares are up 49.2 percent for the year so far.

Apple does not give any clues on its future products, but the California company is widely expected to release its next-generation iPhone later this year. Wall Street has also set its heart on Apple launching a new “mini iPad” and the long-awaited television set in the near future.

Investors are likely to be just as keen to hear from Facebook when it reports on Thursday. Facebook’s first results following its market debut could give investors another chance to indicate how they feel about the stock since its disappointing initial public offering.

Shares of Facebook, one of the most closely watched IPOs ever, lost ground after technical problems with its market debut on Nasdaq and as investors questioned its ability to rapidly increase advertising revenue.

Analysts said an earnings miss by Facebook could be disastrous for the stock, which closed Friday at $28.76, below its $38 offering price.

Investors are looking for executives to address a litany of concerns about the business, such as the efficacy of its online ads and the company’s nascent efforts in mobile advertising.

Tech results also will be closely watched for signs of weak demand overseas, particularly from Europe. Other technology companies expected to report next week include Texas Instruments and Amazon.com. Of the S&P sectors, technology has the highest sales exposure to Europe at about 25 percent, according to a Bank of America/Merrill Lynch research note.

Among the other 138 S&P 500 companies reporting earnings are Ford Motor Co, United Parcel Service and Whirlpool Corp.

While the majority of companies have beaten earnings expectations, revenue performance has been the worst for S&P 500 companies since the first quarter of 2009.

With results in from 116 companies, just 43 percent of companies are beating revenue expectations.

Sixty-seven percent of companies are beating earnings estimates, compared with a long-term average of 62 percent, Thomson Reuters data showed.

“With global growth slowing down, it’s not surprising we’re going to see some mixed numbers on the revenue side,” said Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, whose firm manages about $13 billion in assets.

While earnings are expected to dominate stock investors’ attention in the coming week, the euro zone crisis is still capable of taking the spotlight.

“It’s the default thing for people to focus on,” said Eric Kuby, chief investment officer at North Star Investment Management Corp. in Chicago.

Spain will tap the markets Tuesday when it sells three- and six-month bills. It will also sell three- and five-year bonds on August 2. Spain’s 10-year bond yields hit a euro-era high of 7.3 percent on Friday.

The week’s U.S. economic data includes the Markit U.S. Manufacturing Purchasing Managers Index for July, due on Tuesday. June’s reading marked the lowest showing since December 2010.

Commodities

Brent crude slipped to $105 per barrel on Monday as economic concerns returned to the forefront on fresh fears that Spain may not be able to avoid a costly bailout, which could have repercussions on oil demand in the region.

Brent crude was down $1.32 at $105.51 per barrel by 11.12 pm EDT, after posting a fourth straight weekly gain in the previous session.

U.S. crude fell $1.32 to $90.51 per barrel.

Gold edged lower on Monday under the pressure of a stronger dollar, as investors fretted about Spain’s finance after its Valencia region said it might need help from Madrid.

Spot gold edged down 0.2 percent to $1,580.84 an ounce by 0032 GMT, after posting a 0.3-percent loss last week.

U.S. gold futures contract for August delivery inched down 0.1 percent to $1,580.70.

Currencies

Asian shares slid and the euro hovered near multi-year lows hit in early trade on Monday, as Spain sparked concerns about its ability to stave off a sovereign bailout after two indebted regions sought financial assistance from the central government.

The euro extended its fall against the Japanese yen, hitting its lowest since November 2000 around 94.60 yen, and slipped to a two-year low against the U.S. dollar around $1.2103. The single currency also plumbed record lows against the Australian and New Zealand currencies at A$1.1671 and NZ$1.5104 in thin early trade.

The information set out herein has been obtained from various public sources and is by way of information only. Broadgate Financial can accept no liability of any sort in relation thereto and readers should obtain their own verification of any statement before making any decision which may have any financial or other impact.

Neither the information nor the opinions herein constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.

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