Market Update: Nasdaq Rebounds to Finish in Positive Territory
(Updated from 2:37 p.m. EDT)
More big-name additions to the earnings-confession brigade and a
dour note on tech from
Goldman Sachs
dunked stocks early today. The
Nasdaq Composite fought back in afternoon trading to close higher.
The
Dow Jones Industrial Average shook off the bulk of its earlier losses, but it still finished 32 lower to 10,472.
Applied Micro Circuits
(AMCC)
lowered its performance targets for the second quarter last night and
Merrill Lynch
(MER)
did the same this morning, aggravating worries about the economy and battered corporate earnings.
The market did get a dose of better-than-expected economic news.
Durable goods orders in May unexpectedly rose 2.9%, while the Conference Board's consumer confidence index climbed in June, marking its second straight improvement.
The Dow was off about 100 points earlier in the day. The Nasdaq closed up 14 to 2064. And the
S&P 500, which tracks the broader market, was off 2 to 1217.
Stocks often rally ahead of a
Federal Reserve interest-rate decision, and some traders had said a late-afternoon snapback was a possibility.
The Fed kicked off a
two-day meeting today, and its decision on where to take interest rates will be released tomorrow afternoon. Investors remain pretty evenly split on whether they expect a half-point or a quarter-point cut to the federal funds target rate. Earlier this morning,
fed funds futures were pricing in as much as 60% odds of a half-point cut, but that fell to 55% odds of a half-point cut after the better-than-expected economic data was released. The Fed has already cut short-term rates cut five times this year, to 4% from 6.5%.
Earnings Brigade
Many sectors closed lower, with some of the biggest losses among brokers. Several others, including chips, bounced back from earlier losses. Brokers were dragged lower after Merrill Lynch said it expects second-quarter earnings to miss current analyst estimates of 82 cents a share. The company, which now expects earnings to come in between 52 cents to 57 cents per share for the quarter, was off 11.4% to $58.91.
Old Economy names and Dow components
3M
(MMM) - Get Report
and
Home Depot
(HD) - Get Report
were also lower. These and other mainline companies have been hard hit in recent trading sessions as profit concerns about non-tech companies escalate. That weakness has dragged the Dow sharply lower over the past two trading sessions: Between Friday and Monday, the blue-chip index lost 2%.
Applied Micro Circuits ended higher even though it is one more addition to the long line of tech companies that have warned they will miss performance targets this quarter. After the close of regular trading Monday, the chipmaker
said its first-quarter earnings would fall below expectations, "current business conditions continue to be very poor" and the process of reducing excess inventory is slower than expected.
Last week, the stock market was able to shrug off several earnings warnings from tech companies. Conservative estimates initially put the chipmaker's revenues at $400 million for the quarter -- but now it looks like the company will bring in $150 million at best.
Applied Micro, which was off earlier in the day, closed up 3.7% to $14.72.
Microsoft
(MSFT) - Get Report
closed higher even though Goldman Sachs
slashed estimates it and a host of other software and tech names. In a note this morning, Goldman analyst
Rick Sherlund said a recovery in the software industry would be slower than anticipated. All told, Goldman lashed out against 39 companies.
Earnings confession season -- when companies let investors know if they expect to fall short of previously set performance targets -- entered its fourth week yesterday. The past three weeks have seen a flurry of confessions from many heavy hitters and smaller fry, particularly in the tech sector. At this point, market pros say Wall Street seems to have given up on a third-quarter acceleration in earnings, while hopes for the fourth quarter
are dimming.
The Data
This morning's surprising monthly
durable goods orders
data showed a strong increase during May in demand for goods designed to last at least three years. Overall, durable goods orders rose 2.9% for the month vs. expectations there would be no change. The indicator is volatile, but is an important measure of health in the factory sector and could indicate a turn in manufacturing.
The consumer confidence index rose to 117.9 for June, up from a revised 116.1 in May. That's its second consecutive rise and the third increase in confidence levels over the past nine months.
Meagrow said the stronger data lowered expectations for more aggressive rate cuts. "The market would rather have a stronger rate cut." Even if the data is improving, he said, investors know it's going to take a long time for earnings to shape up. "The overall picture is that things are not fantastic. It's going to take a decent amount of time for things to get better."
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