Strong earnings news is helping push credit market fears back into the shadows this morning, and stocks are poised to spring higher at the opening. Some Asian markets sold off after yesterday's bad day on Wall Street and Europe is mostly lower.
A super-strong profit report from Amazon.com is one catalyst helping to turn the Street's dark mood. The Internet retailer reported a surprising 250% jump in net profit to $78 million and raised its forecast for full-year sales. The target of naysayers, Amazon's stock rallied, jumping 21% in after hours trading. This morning, the company is the subject of no fewer than six analyst upgrades, says CNBC's Joe Kernen on "Squawk Box."
Big Dow component Boeing is also getting some liftoff from its much-stronger-than-expected earnings report. The company reported second-quarter profit of $1.1 billion and beat Wall Street's per-share estimate handily. Of special interest today will be Apple's report after the bell. Apple stock took a hit yesterday after AT&T reported disappointing numbers on activations of Apple's iPhone.
Yesterday, Nasdaq volume was the highest in a month and volume at the New York Stock Exchange was the highest since February. Stocks sold off starting at the opening, and traders found plenty of reasons to keep the negative momentum going, including Countrywide Financial's dismal earnings announcement and forecast. The largest mortgage lender said it sees delinquencies and defaults rising across all mortgage product categories, not just subprime.
"The Countrywide (analysts) conference call went on for three hours," said CNBC's Bob Pisani. He said the company pushed forward its forecast for a rebound in housing. "They said what KB said -- basically we think 2008 is going to be a recovery year. Now KB, Countrywide and U.S. Gypsum all said they think 2008 can be a recovery year too."
The Dow finished down 226 points or 1.6%, its biggest one-day decline since March 13 and its third-biggest point and percent decline this year. The Dow is off 2% from its record close of 14,000, hit just last Thursday, but month to date it is up 2.3%. The S&P 500 also lost 2%, scoring its biggest one day decline since Feb. 27. The Nasdaq took a 1.9% dive, losing 50 points, its biggest one day point and percentage decline since March 13.
Two key releases come today. First, existing home sales is reported at 10 am New York time. Then, the Fed's beige book is released at 2 p.m. Mortgage applications were reported today, falling for the first time in four weeks to a five-month low.
"Existing home sales will be the data of the day ... but even the housing data isn't as important as the Countrywide thing because that is the validation for the fears moving the credit market," said CNBC's Rick Santelli.
"As for the beige book, it is not going to give us any new information that will assuage our fears about the credit market," said Santelli.
The dollar rebounded from its lows this morning after falling 0.1% against the euro and 0.9% against the yen yesterday. The dollar was at $1.3818 against the euro yesterday.
Yesterday, buyers continued to move into Treasurys and the 10-year rose 5/32 points, lowering its yield to 4.944%. It stands at the level this morning.
Mergers and Apprehension
When it comes to deals, David Faber is CNBC's expert, and he says the credit market has scared away some private-equity buyers for now.
The Street has been watching and worrying about Chrysler's efforts to tap the debt market for $20 billion in loans, and it looks increasingly like this money will come from Wall Street's brokers in the form of a bridge loan. Chrysler is being acquired from Daimler Chrysler by Cerberus Capital Management.
"I think you have to think about it in different ways. I think people are going to want to spread the rumor that some of the existing deals aren't going to get done, and that's just not going to be the case. If that were to happen, that would be cataclysmic," said Faber.
Faber said while some private equity deals are on hold that won't stop corporate buyers. "Corporations are not having trouble borrowing. They have tons of cash," he said, noting there will be strategic deals between companies. "I think we're going to see a lot of them."
"There's a situation right now. It's not the end of the world but it's a situation" in the debt market, he said.
Interestingly, CNBC's Erin Burnett interviewed Pimco's Bill Gross yesterday who said he was stepping back from some corporate paper right now. The bond market guru also made some dramatic statements about the markets.
"Stock investors that use the Fed model and correlate it to Treasury yields should really be using a model that correlates it to corporate yields and to high-yield yields and to the extent that those yields are up 150 basis points. That's comparable in Fed talk of the Fed raising the Fed funds rate from 5.25 to 6.75 or 7%. That's a tremendous push in terms of higher expense and higher cost," said Gross on "Street Signs."
"We've had a dramatic earthquake of about 8.0 magnitude in the high-yield market in the last six weeks and ultimately equities are going to have to take cognizance of that," said Gross.
Oil is weaker again after losing 1.8% yestreday to $73.56 per barrel. Oil inventory data is due today and traders are expecting a build in gasoline and distillates and a decrease in crude.
"That is because of the number of refineries that have restarted operations in the last week," says CNBC energy correspondent Sharon Epperson. She says supply should be helped by added refining capacity at British Petroleum's refinery in Whiting, Indiana; Exxon's Beaumont, Texas refinery and Chevron's El Segundo facility.
"The numbers, according to Platt's, are estimated at crude down 1.9 million barrels; gasoline up 400,000 barrels, and distillates up 950,000 barrels. Refinery runs will be at 91.5 % capacity, up a half percent," said Epperson. She said utilization is 2-3% below the five year average.
"Several analysts say they think the increase in gasoline output is going to overshadow...The peak of the summer driving season is over and we're building supply much later than we normally do," Epperson said.
"Right now gasoline has really been weighing on crude. We're at $2.03-$2.04 right now. Any more weakness in gasoline could keep crude lower," she said. She noted traders have been focused on technicals. "It just seems the market was overbought and they've been watching the charts," she said.
Wasting Time at Work?
You're not alone. Sixty-three percent of workers in a new survey say they wasted 1.7 hours a day while at the office. Their main distractions were the Internet, socializing and conducting personal business.