Wednesday Look Ahead: Bernanke, Earnings and Chatter around European Bankers
Apple proved once more its iProducts make for a powerful earnings machine, but that may not add much juice to tech shares Wednesday.
Traders are quick to note that Apple outshines, and it may not reflect a bigger trend for the market beyond showing that consumers are willing to spend on its high-end tech products.
Apple also reported better-than-expected earnings and revenues after other high profile techs - IBM and Google - disappointed. IBM was short on revenues when it reported late Monday, and on Tuesday, it was joined by a string of companies with lighter-than-expected revenues, including Goldman Sachs, Johnson and Johnson, Yahoo and Seagate Technology.
Companies reporting ahead of Wednesday's opening bell include Coca-Cola, United Technologies, Morgan Stanley, Wells Fargo, Altria, AMR, BlackRock, EMC, Airgas, Genzyme, Textron, USBancorp, Stanley Black and Decker, Abbott Labs and Manpower. eBay, Starbucks, Baidu, Xilinx and Netflix report after the market close.
"With a market that's dealing with these daily double dip debates, we need to see more revenue upside. Earnings season is great. Revenues season is more mediocre. Revenues become more of a focus in a market that's worried about economic growth," said Peter Boockvar, equities strategist at Miller Taback.
Stung by IBM and disappointing earnings from Goldman, stocks traded lower early in the day. Housing starts declined by 5 percent in June, the lowest level since October, but building permits rose 2.1 percent. After the early negative reaction, Goldman shares reversed.
"Goldman's been trading okay since their conference call. Goldman fought back after the first hour of declines, and as that gained, people in the market took their cues," Boockvar said. Goldman profits declined 82 percent, hurt by its $550 million SEC settlement and the U.K. payroll bank tax.
Art Cashin, director of floor operations at UBS, said there wasn't much conviction behind the early IBM-led market decline Tuesday. "The bears didn't press the bet. Even when the market was down, the advancing volume was beating declining volume," he said.
Stocks bounced higher midafternoon as a rumor swirled that the Fed would stop paying interest rates on reserves. Even after CNBC's Steve Liesman reported the rumor was untrue, stocks held the high ground after initially falling on his report. The Dow finished at 10,229, up 75 points, and the S&P was up 12 at 1083. The Nasdaq rose 24 to 2222.
"I don't think it happens anytime soon," said Boockvar of the Fed rumor. "It reminds people that if the economy takes another sharp leg down, the Fed is going to try to pull another rabbit out of the hat."
Besides earnings, markets will be watching Fed Chairman Ben Bernanke, who speaks on the economy before the Senate Banking Committee at 2 p.m., in the first of two days of Congressional testimony.
"I don't think he veers from the script from the last minutes," said Larry Kantor, head of research at Barclays Capital. "..I think he's going to be very cautious in that environment and emphasize the economy is still growing." The Fed, like many economists, downgraded its outlook for growth this year as economic data hit a soft patch. It released the new forecast for growth of 3 to 3.5 percent with its meeting minutes last week.
Wednesday will also be significant in that President Barack Obama signs the new financial regulatory reform bill into law, sweeping in the biggest changes for the financial industry since the 1930s.
BP could also sway sentiment. The oil giant said late Tuesday that it had reached a deal to sell $7 billion in assets to Apacheas the British oil company raises money to cover costs related to the oil spill in the Gulf of Mexico. BP shares were higher in extended trading. There was also a newspaper report saying CEO Tony Hayward will step down withing 10 weeks which BP has since denied.
Focus will shift to Europe Wednesday, as European Central Bank President Jean-Claude Trichet meets with bankers ahead of Friday's release of stress tests on 91 European banks. The process has been surrounded by rumors and speculation about the state of banks, and it's mostly that they are passing the test. The euro lost 0.4 percent to the dollar Tuesday. It was at $1.2893 in late trading.
As stocks took a roller coaster ride, Treasury prices rose Tuesday and then erased some gains. But during the day, the 2-year note hit a record low yield of 0.56 percent. The 10-year saw its yield fall to 2.90, the lowest level since April, 2009 but it was at 2.95 percent late in the day.
Boockvar said the 2-year's declining yield illustrates how concerned the market is about growth. "The lower the 2-year yield goes is just a sign that people think the Fed rates will stay there for a longer period of time..It's not really that much of a surprise the market is betting the Fed is doing nothing for a while. If the economy was really collapsing, it would be sending a message and the 10-year yield would be collapsing," he said.
Kevin Ferry of Cronus Futures said he believes the 2-year yield should be higher. "If you own that note, you believe in the end of the world. That's what it's priced for," Ferry said.
Apple's Secret Sauce
Apple stock shot higher late Tuesday after it said itearned profits of $3.51 per share on $15.7 billion in revenues and said it expects to see fiscal fourth quarter revenues of $18 billion, a billion more than analysts expected. Its earnings per share guidance, however, was slightly lower than expected.
Mac computers and iPhone sales were the big contributors to Apple profits. Macintosh sales rose 33 percent, to 3.5 million, a new quarterly record. iPhone sales jumped 61 percent to 8.4 million units, and revenues from the phones and related-services rose 74 percent to $5.33 billion. It sold 3.3 million units of its new iPad during the quarter, which generated $2.17 billion in revenues.
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