Stocks could stumble Friday as investors reassess the market's rapid run, and declines in American Express and Microsoft weigh on the Dow.
The Dow Thursday raced higher, adding 2.1 percent to 9069, its highest close since Nov. 5. The S&P 500 jumped 2.3 percent to 976, its best level since Nov. 4. But the Nasdaq was the star, rising for the twelfth day by 2.4 percent to 1973, in its longest winning streak in 17 years.
The U.S. corporate earnings season has set off a world wide rally in risk assets, as investors once more are willing to bet on an economic recovery this year. Of the 30 percent of the S&P 500 companies reporting earnings so far, 76 percent have beat analysts' estimates even as revenues for many have been dropping.
Stocks Thursday got a boost from a third month of gains in existing home sales, plus a plethora of earnings reports where companies topped Wall Street's weak expectations for the bottom line. News the Senate will not meet its August deadline for a health care bill also helped stocks, traders said. The Dow and S&P 500, in the past nine sessions, have risen more than 11 percent, and the Nasdaq has risen 12.4 percent.
Many traders have been skeptical of the market's run, and some expect investors to take profits Friday on concerns the market has moved too quickly.
Microsoft, American Express and Amazon.com all disappointed after the bell. Microsoft revenue fell steeper than expected and sales of its Windows system fell for the first time ever. Microsoft reported profits of $3.045 billion, compared with $4.397 billion last year. Its sales fell 17 percent to $13.1 billion, below analysts' forecast of $14.48 billion.
American Express profits fell to $337 million, form $653 million a year earlier. Its earnings per share were in line with estimates, after an $0.18 per share charge from the repurchase of preferred shares form the U.S. Treasury. American Express did say fewer card members are falling behind in payments and the volume of bankruptcy filings and loan write-offs were better than expected.
Amazon.com was also a downer after the bell. The company's shares sold off after it reported profits fell 10 percent to $142 million, even as sales rose 14 percent to $4.65 billion. Operating margins fell to 3.4 percent, below the first quarter's 5 percent.
On Friday, just a few major companies report, including Ashland Oil, Black and Decker, Ericsson, Fortune Brands, Ingersoll-Rand and Schlumberger. Traders will also be watching the consumer sentiment number, released at 9:55 a.m.
There is also a key hearing on financial regulatory reform before the House Financial Services Committee. Treasury Secretary Tim Geithner appears before the committee in the morning, and Fed Chairman Ben Bernanke and FDIC Chairwoman Sheila Bair participate in the afternoon.
From 'Fast Money':
As stocks rallied, Treasurys sold off, sending yields higher. Jefferies Treasury bond strategist John Spinello said the government's announcement of a larger than expected auction of notes next week weighed on prices. "It's supply. It's equities. It's foreign selling in preparation for supply next week. This has been the pattern before," he said. Treasurys fell, lifting the yield on the 10-year to 3.706 percent.
Many commodities rose, but the dollar also gained, increasing a slight 0.2 percent against the euro to $1.4194. "It's like a freight train between commodities, equities, all the risk assets," said Win Thin, currency strategist with Brown Brothers Harriman. "There's so much money on the sidelines."
"All these markets correlate. Equities are up, so EM (emerging markets) are up and commodities are up, and the dollar (typically) is down," he said.
From Mad Money:
The rally in U.S. stocks has paralleled rallies in stock markets around the world. For instance, China's stock market is nearly 14 percent higher since the beginning of July; Hong Kong is up 8 percent, and South Korea is up nearly 8 percent. The Bombay Sensex is 5 percent higher for the month, and a stunning 57.9 percent higher for the year.
In Europe, the British stock market is 7 percent higher this month, and the German market is 9 percent higher.
Scott Redler, who watches the stock market's technicals, said late Thursday that stocks may give back as much as half of Thursday's gains on the open Friday, after the disappointing after-the-bell earnings news.
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He said the bulls will be looking to hold onto the area around 955 to 960 on the S&P, an important technical level that the market broke through on Thursday. "If the market can hold that level, the market's bullish composure could remain in tact. If this is considered a breakout failure then potentially the bears could regain some footing and this could turn out to be a another broken pattern," he said.
"The next few sessions will be very important to see if the market can hold the break out," Redler said.
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