July 31 Premarket Briefing: 10 Things You Should Know

NEW YORK (TheStreet) -- Here are 10 things you should know for Thursday, July 31:

1. -- U.S. stock futures were gloomy Thursday, as Argentina's bonds crashed into a default and another massive earnings day got underway.

European stocks were falling Thursday amid a plethora of earnings reports as eurozone consumer price figures suggested aggressive central bank tactics haven't shaken off the specter of deflation.

2. -- The economic calendar in the U.S. on Thursday is busy, as 419 companies report earnings and as markets brace for Friday's July jobs report.

3. -- U.S. stocks on Wednesday were mixed, as the Federal Reserve maintained its federal funds rate and cut monthly bond buying by $10 billion to $25 billion. Twitter (TWTR) shares enjoyed a post-earnings rally of 21.4% to $46.85.

U.S. second-quarter advanced GDP figures came in a stronger than expected, increasing at an annual rate of 4% vs. the consensus estimate of 3%. The first quarter's GDP result was upwardly revised to a decrease of 2.1%, from the prior estimate of 2.9%, the Commerce Department reported. 

The Dow Jones Industrial Average (DIA) closed down 0.19% to 16,880.36. The S&P 500 (SPY) rose 0.01% to 1,970.07. The Nasdaq (QQQ) rose 0.45% to 4,462.90. 

4. -- Argentina defaulted on bond payments for the second time in 13 years. The default was prompted by hedge funders' legal attempts to claw back money from the initial default more than a decade ago, as Argentina claims that it has tried to pay on the new bonds but has been stopped by U.S. courts.

No last-minute deal was struck to salvage Argentina's debt, as the South American nation blamed "vultures" for impeding the deal. Defaulting on loans is certainly not a good position for Argentina, but the country is still in better shape than when it defaulted in 2001.

Investors were prepared for this possibility, so markets are relatively steady in response. As Forbes put it, "Argentina, in short, is suffering, but is doing so largely alone." The next step may be currency devaluation.

5. -- The Federal Reserve meeting concluded Wednesday, with no big surprises announced. The Fed will continue to taper its monthly bond purchases to $25 billion. The most notable feature of the announcement was its emphasis on employment. The Fed said that the U.S. economy still needs jobs growth to sustain the economic recovery.

The big question is when the Fed will begin raising interest rates, given slow growth and unemployment. Fed chair Janet Yellen gave no real indication when that will be. 

6. -- The Commerce Department announced Wednesday that the U.S. economy had grown at a seasonally adjusted 4% annual rate in April, May and June. Output for the first quarter was revised upward to a shrinkage of 2.1%, from the prior estimate of 2.9%. That figure is still worrisome. 

7. -- A judge ordered Bank of America (BAC) to pay a $1.27 billion fine for mortgage loan malfeasance, and former Countrywide executive Rebecca Mairone to pay $1 million personally. Mairone worked for a loan division, nicknamed "the Hustle," which made substandard loans and sold them to Fannie Mae (FNMA) and Freddie Mac (FMCC).

Bank of America bought Countrywide in 2008 amidst the financial crisis, and so it faces the fines. Mairone's lawyers claimed she was a low-level scapegoat. But the judge found her culpable.

Bank of America said that it would consider an appeal of the ruling.

The ruling may not be as bad as it sounds for Bank of America, which was down only 0.58% in premarket trading.  

8. -- BNP Paribas (BNPQY) has booked a record quarterly loss of $5.8 billion after it agreed to an $8.9 billion fine to the U.S. for doing business with countries under sanction. The bank's chief, Jean-Laurent Bonnafe, said that the bank had learned its lesson.

Aside from the settlement, BNP's net income was up 23% for the quarter, led by the corporate and investment banking division. That performance certainly helps soothe the pain of the massive fines the bank is paying. 

9. -- Samsung (SSNLF) and Sony (SNE) both suffered from a shrinking smartphone market. Sony's mobile devices unit said demand is expected to shrink by 14%, meaning that this year the company won't make money on smartphones. Samsung saw its share of the world smartphone market drop to 25.2%, a decline of 7 percentage points.

Low-cost Chinese phones have presented a challenge to both companies. Huawei and Xiaomi are growing their businesses in the low- and middle-end of the market. 

10. -- Budweiser's manufacturer, Anheuser Busch InBev (BUD), announced that sales and earnings grew over the past quarter, aided by the World Cup and the improving U.S. economy. Revenue was up 15% to $12.2. billion, as beer volume sold increased by 1% and prices rose 4%. 

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TheStreet Ratings team rates BANK OF AMERICA CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate BANK OF AMERICA CORP (BAC) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its attractive valuation levels, expanding profit margins, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The gross profit margin for BANK OF AMERICA CORP is currently very high, coming in at 86.47%. It has increased from the same quarter the previous year. Despite the strong results of the gross profit margin, BAC's net profit margin of 9.28% significantly trails the industry average.
  • BAC, with its decline in revenue, slightly underperformed the industry average of 4.6%. Since the same quarter one year prior, revenues slightly dropped by 5.1%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Commercial Banks industry and the overall market on the basis of return on equity, BANK OF AMERICA CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

Nora Morrison is a researcher, writer and editor on music, popular culture, and business topics. She is an associate editor at TheStreet, and is on Twitter at No Ticker.

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