US equity markets commenced today’s trading session in negative territory, as investors continued to sell equities ahead of the upcoming second-quarter earnings kick-off.
Today’s market reaction acknowledges that investors fear that current equity market valuations may be a bit too stretched relative to their second-quarter expectations. This uncertainty is negative for the market and, perhaps, encouraging those investors who got in on a piece of the action in March to lock in gains. A clearer direction will be obtained tomorrow, however, when Alcoa releases its second-quarter results.
According to a survey compiled by financial news provider Bloomberg, analysts are expecting earnings on the S&P 500 to fall by an average of 34% in the second quarter followed by a further 21% drop in the third quarter of this year. That compares with a 60% plunge in first-quarter earnings.
Sentiment was also tainted by suggestions for a second stimulus package; Laura Tyson, an advisor to President Barack Obama, has publicly stated that the US should consider drafting a second stimulus package focusing on infrastructure projects, as the first $787 billion plan approved in February was ‘a bit too small.’ [1] Didn’t Vice President Joe Biden yesterday say that it was too premature to be discussing other stimulus packages?
By around 4.00pm (London time) the Dow Jones Industrial Average was trading 78.37 points (-0.94%) in the red at 8246.50 while the broader (more representative) S&P 500 was 7.53 points lower (-0.84%) at 891.19. The Nasdaq, meanwhile, was faring slight worse, down 17.03 points (-1.18%) at 1429.04.
Financial shares were again feeling the brunt of investor pessimism today, with Citigroup 1.4% lower at $2.75 and Bank of America down 0.35% to $12.11. JPMorgan Chase was also struggling, losing 0.43% to $32.46 a share.
In wider financial news, credit card company Discover Financial Services tumbled 11.8% to $9.26 after unveiling plans to issue $500 million worth of new shares in order to buy back some of the government stake. The company also said that it expects the third-quarter default rate on credit cards to rise by 9%.
Oil services firms, which had rebounded earlier today, were again heading south with the likes of Schlumberger and Halliburton declining around 2% to $35.95 and $18.98 a share respectively. Oil producers performed marginally better, with Chevron falling only 1.3% to $63.27 and Exxon Mobil down 1.4% to $67.12 share.
There were a few equities that managed to buck the negative trend dominating Wall Street so far today however. Microchip maker Intel rose 1.5% to $16.80 after Bank of America upgraded the company’s stock on the back of better-than-expected industry growth and improving demand for electronics. According to Bank of America, the microchip industry may expand by 21% next year, up from an earlier projection of 14% growth.
Marvell Technology Group, LSI Corp and National Semiconductor Corp benefitted from a Bank of America upgrade as well; Marvell advanced 4.1% to $11.87, LSI Corp gained 4.6% to $4.76 and National Semiconductor added 0.3% to $12.31.
Palm Inc, the maker of the Palm pre-phone, also made the headlines today, announcing that its new phones will be available in the UK and Germany exclusively through O2 and in Spain via Movistar. Its shares were down by nearly 2% to $15.43 however.
[1] Source: Bloomberg News (7 July 2009)
By Anthony Grech, Research Analyst, IG Index.
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