US equity markets kicked off the trading session in negative territory today despite the release of better-than-expected second-quarter earnings results from Goldman Sachs.
The company reported a record second-quarter net income of $3.44 billion, equivalent to earnings of $4.93 per share, surpassing Bloomberg’s average analyst estimate of $3.65 a share by 35% and Meredith Whitney’s earnings forecast of $4.65 a share by 6%.
Goldman’s robust earnings, which would have been substantially higher after stripping out the dividend paid to the government, were helped by a surge in trading income (which jumped 93% in the second quarter from the same period a year ago) and record stock underwriting income, which came in at $736 million.
One may have expected Goldman’s share price to rally on the announcement. Yet, shares shares fell 0.2% to $149.19 during the first 30 minutes of trading. Perhaps today’s reaction is a reflection of that ‘buy on the rumour, sell on the fact’ cliché, with yesterday’s 5.3% gain, which came on the back of Meredith Whitney’s upgrade, pricing-in today’s results.
Rival banks were also trading lower this afternoon following yesterday’s gains, with Bank of America down 0.6% to $12.91 and Wells Fargo 2.8% lower at $24.11. JP Morgan Chase fell 1.3% to $34.25 and Morgan Stanley sank 1.4% to $27.52.
In the meantime, Citigroup (which is scheduled to report its second quarter earnings on Thursday) managed to buck the negative trend in the banking sector, surging almost 4% to $2.89 a share.
CIT Group, the century-old commercial lender, made the headlines again today after saying it was in ‘active’ discussions with regulators over a possible government rescue before $1 billion worth of bonds mature next month. The company’s shares jumped 5.9% to $1.43 on the back of renewed optimism.
Retail companies didn’t fare too well either, with Wal-Mart Stores down 0.2% to $47.74, Costco Wholesale 0.4% lower at $44.8 and Target falling 1% to $37.96 a share following the publication of this afternoon’s US retail sales data.
An official government report released today showed US retail sales rising more than anticipated in June. At face value this sounds like a good outcome, but a closer look at the report revealed that they were boosted by incentives at auto dealers and higher gasoline prices.
The data unveiled a 0.6% rise in retail sales for June, better than Bloomberg’s expectations for a 0.4% rise following a 0.5% gain in May. However, after excluding automobiles, retail sales rose by only 0.3% in June, weaker than May’s 0.4% gain and Bloomberg’s median analyst estimate for rise of 0.5%.
‘Consumers are still very cautious,’ said James O’Sullivan of UBS Securities. ‘We need the labour market to pick up for the improvement to continue. The economy is still on track for a weak recovery in the second half of the year.’ [1]
Dell, the world’s second-largest PC maker, was another casualty this afternoon, sliding 6.8% to $12.13 after saying that profitability will be weaker this quarter after a lack of consumer demand for higher margin (more expensive) computers. The news also weighed on rival Hewlett-Packard, which sank 1.4% to $36.78.
On the other side of the leaderboard were miners, which benefitted from an earlier report unveiling a 29% surge in Chinese iron ore imports during the first half of 2009 as compared to the year before. Shares in Freeport-McMoRan Copper & Gold were seen advancing 0.8% to $48.30 and Newmont Mining was up 0.6% to $38.67, bucking the negative trend in the market.
By around 3.30pm (London time) the Dow Jones Industrial Average was trading 9.83 points (-0.12%) in the red while the broader (more representative) S&P 500 was 0.71 points (-0.08%) lower at 900.34. The Nasdaq was also struggling, down 2.62 points (-0.18%) to 1445.08.
It is important to note that chip-maker Intel is also scheduled to report results today, while IBM and JPMorgan Chase will publish their second-quarter earnings on Thursday, followed by Citigroup, Bank of America and General Electric on Friday.
[1] Source: Bloomberg News (14 July 2009)
By Anthony Grech, Research Analyst, IG Index.
Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.
IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.