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Broadgate: Market News 24/7

24 July 2012

Stocks fell for a second straight session on Monday, as Spain appeared closer to needing a national bailout and poor corporate results weighed on the market.

Weak results from McDonald’s Corp added to the cautious tone on Wall Street. Materials stocks were among the day’s weakest, hurt by across-the-board declines in commodity prices.

Still, stocks ended well off the day’s lows, rebounding from their initial plunge. Stocks appeared to stabilize as the S&P 500 approached its 50-day moving average of 1,332.98, a technical support level that could trigger more losses if convincingly broken.

Overall, three stocks fell for every one that rose on the New York Stock Exchange on Monday, a signal that the afternoon rebound was concentrated among larger-cap shares. On the Nasdaq, about four stocks fell for every one that rose.

“The sell-off this morning was overdone, and obviously, the market felt that way, too,” said Eric Green, senior portfolio manager and director of research at Penn Capital Management in Philadelphia, which oversees $6.5 billion.

“Nothing incrementally negative came out, but obviously, we’re still worried about the situation there.”

The Spanish region of Murcia looked set to follow Valencia in tapping a government program to keep its finances afloat. Local media reported half a dozen regions were ready to follow suit.

Valencia’s move contributed to a 1 percent drop in the S&P 500 on Friday. The benchmark index had appeared on track to exceed those losses on Monday, falling as much as 1.8 percent before recovering some of those losses.

The International Monetary Fund dismissed a weekend news report in German weekly Der Spiegel that it may refuse to continue supporting Greece as it prepares for talks with the new Greek government on its international bailout.

McDonald’s Corp was the latest earnings casualty among large multinational companies after posting a lower-than-expected profit, citing a slower global economy and a stronger dollar. McDonald’s stock slid 2.9 percent to $88.94. It was the biggest drag on the Dow. Shares of Wendy’s Co fell 2.4 percent to $4.51.

After the closing bell, Texas Instruments Inc shares dropped 1.4 percent to $26.44 in extended trading following the company’s results. Texas Instruments reported a drop in its second-quarter profit and sales.

With 23 percent of S&P 500 companies having reported results, 67.5 percent have posted earnings above expectations, although many analysts have cut their forecasts in recent weeks, allowing for easier beats. Over the past four quarters, 68 percent of companies beat estimates.

The high-profile earnings disappointments have taken a toll on third-quarter estimates. Third-quarter S&P 500 earnings growth is now expected to come in at 0.9 percent, down from 3.1 percent at the beginning of the month.

The Dow Jones industrial average fell 101.11 points, or 0.79 percent, to close at 12,721.46. The Standard & Poor’s 500 Index declined 12.14 points, or 0.89 percent, to 1,350.52. The Nasdaq Composite Index shed 35.15 points, or 1.20 percent, to close at 2,890.15.

At its session low, the Dow was down as much as 239.16 points, or 1.9 percent, at 12,583.41. The S&P 500 fell as low as 1,337.56, down 25.1 points, or 1.8 percent, at its session low. The Nasdaq had touched a session low at 2,852.88, down 72.42 points, or 2.5 percent from Friday’s close.

Energy shares slumped as fears of a global slowdown prompted investors to sell oil as U.S. crude fell 3.8 percent. Chevron Corp dropped 1.1 percent to $107.95. The NYSE Arca oil index lost 1.7 percent.

The CBOE Volatility Index (VIX) jumped 14.4 percent to 18.62 at the close. According to the VIX Open Interest Put-to-Call ratio, VIX options traders are holding only 50 puts for every 100 calls outstanding on the VIX. The last time this ratio hit this level was early August of 2011, just before a huge volatility spike that lasted nearly four months, he said.

The euro slid to a two-year low against the dollar and a near 12-year trough against the yen, pressured by fears that Spain may eventually need a full sovereign bailout.

The yield on the Spanish 10-year bond was last at 7.496 percent, well over what analysts consider a sustainable level.

Peet’s Coffee & Tea Inc soared 27.8 percent to $73.05 after striking a deal to be acquired by Joh. A. Benckiser for about $1 billion.

Volume was light, with about 6.13 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year’s daily average of 7.84 billion.

Commodities

Brent crude climbed above $104 per barrel on Tuesday as China, the world’s top energy consumer, showed signs of improvement in its economy though fears of a Spanish bailout curbed gains.

Brent crude gained 81 cents to $104.07 a barrel by 01.17 a.m. EDT, while U.S. crude increased by 58 cents to $88.72.

Brent fell more than 3 percent on Monday after Spain’s central bank said the euro zone’s fourth-largest economy sank deeper into recession in the second quarter, stoking fears the country was headed for a bailout.

Gold slipped on Monday as Spain’s economic troubles fueled euro zone debt fears, but safe-haven bids pulled bullion off session lows, as it outperformed equities and other commodities.

Spot gold was down 0.5 percent at $1,576.10 an ounce by 3:18 p.m. EDT (1918 GMT).

“When gold gets down to a certain range around $1,550-60, investors often consider it a safety play and an inexpensive hedge in their portfolios,” said Daniel Tee, broker at TraderXP.

U.S. COMEX August gold futures settle down $5.40 at $1,577.40 an ounce, with trading volume in line with its 30-day average, preliminary Reuters data showed.

Currencies

The embattled euro languished at multi-year lows versus the yen and greenback on Tuesday, having been dealt another setback after Moody’s changed to negative its outlook for Europe’s biggest economy, Germany.

The news saw the euro give up about 30 pips to $1.2108, not far off Monday’s trough around $1.2067 — a low not seen since June 2010. The euro last stood at $1.2117.

The Aussie was last at $1.0262, having fallen some 1.2 percent on Monday to be well off last week’s peak of $1.0445.

On the yen, the dollar bought 78.29, having slid to an eight-week low just under 78.00 on Monday.

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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