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TSC 21: Summertime Blues Descend

The index sells off on mixed bag of earnings, but market watchers aren't fretting yet.

After a mixed bag of earnings reports, 21shed 1.5% in a good old-fashioned summertime selloff.

The TSC 21, a new index of 21 components designed to be a leading indicator of the economy's direction for the rest of the year and beyond, was dragged down Thursday by accelerated selling in the afternoon to close off 15.22 points to 985.75. It was the lowest finish for the index since its July 3 inception with a 1000 starting point. The broader

S&P 500

, meanwhile, shed 12.17 1.23% to 981.73. Technology stocks, which have posted outsize gains since mid-March, took a pounding, as the

TST Recommends

Nasdaq Composite

dropped 49.95, or 2.9%, to 1698.02.

While there have been rumblings that the latest round of earnings fail to support the market's rally since March, many market watchers took a more sanguine read on the recent weakness.

"We've had a nice run since March, people are taking some profits," said Lou Piantedosi, co-manager of the Eaton Vance Large Cap Core fund. "Things are good and they're getting better, but earnings aren't blowing everybody away just yet."

Two TSC 21 components --


(IR) - Get Report



(CAT) - Get Report

-- did post blowout earnings Thursday, thanks to a combination of surprising strength in key businesses and a weak dollar. The two stocks prevented the index from falling even further.

Caterpillar surged $5.25, or 9%, to $63.54 after the maker of tractors and other industrial equipment posted second-quarter earnings that more than doubled, crushing expectations. While the company is seeing "signs that a replacement cycle has begun in our machinery business after a long waiting period," Caterpillar also benefited from the weaker dollar boosting its overseas sales. Currency swings accounted for $221 million of the company's $5.93 billion in sales.

Likewise, Ingersoll-Rand handily beat estimates as its oilfield-services unit posted a bang-up quarter. The weakening dollar also boosted the bottom line. The company's shares surged $3.81, or 7.8%, to $52.38.

Three other TSC 21 components posted earnings, and the market found little to love.

Continental Airlines

(CAL) - Get Report

posted a modest profit with a big hand from the government -- it would've posted a loss without it. The carrier's highflying shares shed 8.8% to $14.11

Bank of New York

(BK) - Get Report

earnings declined in line with Wall Street expectations, but the company's securities-processing business came in better than expected. Shares eased 1.4% to $30.77.

Staffing concern Manpower shed $2.61, or 7%, to $34.90 after the company posted second-quarter earnings that topped expectations but lowered its second-half guidance and painted a grim picture of the U.S. economy.

Meanwhile, the tech components of the TSC 21 faded as investors dropped anything with a whiff of a tech company leveraged to a roaring second-half recovery. TSC 21 components



shed 3.9%,



fell 6.1% and


(CSCO) - Get Report

eased 2.6%.

Thursday's selloff, and some less-than-rosy guidance trickling out, didn't deter some market participants and analysts from their bullish stance on this rally. "I have little doubt we're going to see a much better second half in terms of economic growth, thanks to what's been an unprecedented liquidity infusion," wrote Liz Ann Sonders, Charles Schwab's chief investment strategist in a letter Friday morning. Sonders said second-quarter earnings reports should provide "a clearer sense of the justification for this rally," adding, "this rally still feels like it has legs."

The index, which was assigned an opening value of 1000 based on the closing prices of the 21 components on July 3, is off 1.5% since its inception. No TSC 21 components post earnings Friday.

For the index, selected 21 companies well-suited to serve as a reality check for the rally. The 21 companies represent a diverse range of industries, but unlike indices designed to represent the broader market, such as the Dow Jones Industrial Average or the S&P 500, 21 doesn't represent every sector of the economy.

Our goal in choosing the 21 was to select stocks that were hypersensitive to the times. If the economic landscape truly has improved, 21 should reflect it first, and rise accordingly. If the economy is stalling, the index will decline -- a harbinger of bad news to come.

Want to know more about TSC 21? Click here for an introduction, here to view the latest stories and here to view the entire chart of 21 components, including the reasons for their inclusion.

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