IBM's disappointing second quarter results will compete with a barrage of corporate earnings reports ahead of Tuesday's opening bell.
Stocks finished higher Monday, as an early string of positive earnings news countered a negative report on home builder sentiment. However, after the bell results from IBM and Texas Instrument went against the trend.
A member of the Dow 30, IBM stock fell sharply after the tech giant reported weaker-than-expected revenues, even after it reported higher-than-expected profits and raised its profit outlook for the second half. IBM's report was followed by Texas Instruments, which also slightly missed analysts' revenue targets and saw its stock decline 6 percent.
IBM net rose to $3.4 billion, or $2.51 a share, from $3.1 billion or $2.32 per share on revenues of $23.7 billion. IBM said foreign exchange rates shaved $500 million from revenues, which were expected to be $24.17 billion.
Tuesday's earnings reports come from a variety of big names, including Goldman Sachs, sometimes viewed as a stock market proxy. Goldman will be examined carefully to see if its business suffered any reputational damage from the SEC case against it for its role in a mortgage-securities derivatives deal.
Goldman settled with the Securities and Exchange Commission last week and agreed to pay a $550 million fine. Investors will also be watching to see how the second quarter's rocky markets impacted trading results.
Other companies reporting Tuesday morning include Pepsi, State Street, Bank of New York Mellon, United Health, TD Ameritrade, Whirlpool, Peabody Energy, Biogen Idec, Harley-Davidson, and Illinois Tool.
Johnson and Johnson also reports Tuesday morning. Late Monday, the company revealed that regulators found problems at a third manufacturing plant. J & J has recalled several over-the-counter medicines, due to issues at two other plants. The latest is in Lancaster, Pa.
Tech darling Apple reports after Tuesday's bell. Apple shares slumped Monday on worries about its margins and concerns that the rival Droid phone is making gains, as it defends its i-Phone for faulty antennas.
Double Dip vs. Soft Patch
Economic reports Tuesday include just June housing starts, expected to be a very weak number.
"We'll have weak sales May, June, July and by August, we'll be seeing sales pick up and people will be saying housing is coming back. I think the $8,000 tax credit affected peoples' timing, but it didn't affect decisions," said Milton Ezrati of Lord Abbett senior economist and market strategist.
Ezrati said the anticipated expiration of the housing tax credit, and then extension until April, has had a big impact on buyer behavior.
Economists have blamed the deterioration in housing for some of the other softness in recent economic reports. Ezrati is not in the camp that sees a double dip recession and he laid out a list of reasons, including stronger imports and relative strength of the consumer.
"We've gotten a couple of bad retail sales numbers, but retail sales had run ahead and now they're adjusting down. But if you look at the broad consumption numbers, they're beginning to show modest growth and more importantly we're seeing growth in income," said Ezrati. "The overtime and temp employment is actually boosting overall income. The retail sales weakness we've gotten for the past two months are a false signal."
Deutsche Bank Chief U.S. economist Joseph LaVorgna said the housing tax credit story is interesting in that it shows consistency in consumer behavior. "If you give consumers something they perceive as a deal, people will buy it," he said.
LaVorgna trimmed his second quarter GDP growth to 3 percent from 4 percent due to weaker data. "I think the issue really is what happens with the labor market. The labor market has got to improve," he said. LaVorgna also does not expect a double dip, but noted investor gloom is thick and it's keeping the idea of double dip top of mind.
"We're romancing the double dip," he said.
"I'm still going to argue that corporate profits are still up in the second quarter, and the economy is okay. But right now nobody believes it, and the pessimism is running high. That will continue until we get the double dip, or obviously won't get it, and then sentiment will come back," LaVorgna said.
The Dow finished up 56 at 10,254 Monday, while the S&P 500 rose 6 to 1071. Defensive utilities were the best performers, up 1.4 percent followed by tech, up 1 percent. The euro gained 0.12 percent against eh dollar, to a level of $1.2942 but it had been sharply lower earlier after Ireland's debt was downgraded and on concerns about Hungary's fiscal condition.
"The biggest buyers of the euro were U.S. players in the European session. That's what took the euro back up," said Boris Schlossberg of GFT Forex.
"Tomorrow we're going to get another batch of weak data. That really favors the euro because people are worried about holding dollars," he said. Schlossberg said though he sees the euro's move higher as temporary.
"I think coming up to the 1.30/1.32 level, it's facing a lot of resistance. I think the stress tests could halt the move," he said. European banks are expected to reveal results of stress tests on Friday.
"I think they'll probably reveal very, very liberal assumptions, and the market will see it as a loss of credibility," he said.
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