Earning reports overpower cautionary statements at Wall Street

Dow and Nasdaq manage to erase all their year to date losses

US stocks registered strong weekly gains for the week that ended on Friday, 23 July 2010. Mixed earning reports from big companies overpowered Federal Reserve Chairman Ben Bernanke's cautious statements regarding the recovery of US economy. With this week's gains, Dow and Nasdaq erased all their year to date losses and are back in the unchanged territory mark for the year.



For the week, that ended on Friday, 23 July 2010, Dow ended higher by 326.72 points (3.2%) at 10,424.62. Nasdaq ended higher by 90.42 points (4.1%) at 2,269.47. S&P 500 ended higher by 37.78 points (3.5%) at 1,102.66.

The week kicked off with earning report from IBM and Goldman Sachs. Dow component IBM fell short of the topline and thus disappointed Street. The company revealed that soft service bookings contributing to a disappointing revenue number. In the tech sector, Texas Instruments issued upside guidance amid in-line earnings. Yahoo! reported a rather unimpressive revenue figure that overshadowed its upside earnings surprise. Better-than-expected earnings from Apple provided some support, though.

Dow component, Johnson and Johnson too issued a downside forecast though the company's earnings beat expectations. Fellow Dow component Coca Cola bested earnings expectations. The company reported selling more soft drinks and juices in every part of the globe other than Europe during the second quarter.

UPS bested expectations for the bottom line, and came out with an increased outlook. Dow components 3M and Caterpillar reported better-than-expected bottom line results. 3M issued upside guidance, while Caterpillar raised its forecast so that it is in step with what Wall Street has forecast. Among other blue chips, AT&T posted an upside surprise and raised its outlook, but Travelers came short of the consensus earnings estimate and even cut its forecast.

In the financial sector, better-than-expected results came from Morgan Stanley, Wells Fargo and US Bancorp ahead of the adoption of new financial regulation into law.

During the week, Fed Chairman Bernanke, made his semiannual monetary policy report to the Senate Banking Committee. Bernanke spoke of continued uncertainty in the economy and made note of the Fed's preparations to take more policy actions as needed.

Among economic data expected for the week, The Labor Department reported on Thursday, 22 July 2010 that the number of people submitting initial applications for state unemployment insurance benefits jumped 37,000 to stand at a higher-than-expected 464,000 for the week ended 17 July 2010. Market had expected first-time claims to come in higher around a level of 450,000.

Also, the National Association of Realtors reported on Thursday, 22 July 2010 that resale of U.S. homes fell 5.1% in June to a seasonally adjusted annual rate of 5.37 million units. That is a better rate than the 5.09 million units that had been widely expected.

On Friday, 23 July, 2010 U.S. stocks ended strongly higher after a shaky start. On that day, the Dow Jones Industrial Average ended higher by 102.32 points at 10,424.62. Nasdaq ended higher by 23.58 points at 2269.47. S&P 500 ended higher by 8.98 points at 1,102.65. The latest round of earnings announcements and strong results from European bank stress tests were met with a muted response by market participants. However, an afternoon bounce by the euro helped bring about a broad-based bid that drove the major averages above some key hurdles.

Among the major earning reports expected for the day on Friday, better-than-expected bottom lines came from Dow components American Express, McDonalds, Microsoft and Verizon. Among the more widely held names to report, Amazon.com was the only one that came short of the consensus estimate.

In the much awaited bank stress tests, most European banks passed the tests. Of the 91 that were assessed, only seven failed. Spain's Espiga Savings Bank and Germany's Hypo Real Estate were among the few that failed. But market participants were generally unfazed by the midday announcement. That was largely because the stringency of the tests was unclear and the tests didn't really do anything to address concerns about the pace of the economic recovery.

In the currency market on Friday, the dollar index, which measures the strength of the dollar against a basket of six other currencies, remained steady.

Crude oil prices ended lower on Friday, 23 July 2010 at Nymex. Prices dropped despite quite a few better than expected earning reports. Steady dollar and mixed results from European bank stress forum provided no clear direction to the oil prices. On Friday, crude oil futures for light sweet crude for September delivery closed at $78.64/barrel (lower by $0.67 or 0.8%).

Among other energy products on Friday, reformulated gasoline for August delivery lost 3 cents, or 1.4%, to $2.11 a gallon. Also, on Friday, natural gas for August delivery, the thinly traded front-month contract, retreated 7 cents, or 1.5%, to $4.56 per million British thermal units.

Bullion metal prices ended little lower on Friday, 23 July 2010 at Comex. Prices remained somewhat near the unchanged mark despite quite a few better than expected earning reports.

On Friday, gold for August delivery ended at $1,187.8 an ounce, lower by $7.8 (0.7%) on the New York Mercantile Exchange. During intra day trading, prices rose to a high of $1,203.9. Prices closed below the $1,200 mark for six consecutive sessions. For the week, gold ended lower by a mere 0.1%. September Comex silver futures ended lower by 2 cents (0.1%) at $18.1 an ounce.

Indian ADRs ended mixed on Friday. Rediff.com and Dr Reddys were the main gainers soaring 6.2% and 2.2% respectively. Wipro Tech and HDFC Bank were the main losers shedding 0.1% each.

For the year, Dow and Nasdaq are unchanged till date. S&P 500 is lower by 1.1%. The upcoming week has plenty on the docket. The number of companies reporting second quarter earnings will include big names like Boeing, Exxon Mobil and Visa. Economic data will pick up later in the week with Durable Orders and the Fed Beige Book due on Wednesday and the Advance reading for Q2 2010 GDP due on Friday.