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Sliding Wall Street Pauses Even as China Drops Again

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July 28, 2015

Early stock action points to cautious gains on Tuesday, the first after a five-session slide that has tracked China’s stock market retreat and a washout in commodities markets. China’s main stock average limited its fall on Tuesday, staging a late-day recovery. That set European stocks off on a strong footing that carried to U.S. sentiment.

Chart accomplishments likely helped the mood. The S&P 500 (SPX) held the 200-day moving average of 2064 after the five-day crumble.

Largely upbeat earnings and/or guidance from Ford Motor (F), UPS (UPS), and Pfizer (PFE) Tuesday morning despite continued dollar drag perhaps justified the broad market’s selling breather. But more key earnings are on tap, including Twitter (TWTR) after the closing bell. Earnings-linked volatility will likely continue.

What’s more, today kicks off a two-day session for the Federal Reserve. A statement is due at 2 p.m. Eastern on Wednesday and could stir increased volatility heading into that release. Investors are watching closely for clues to the timing of the Fed’s first interest rate hike since 2006. Chair Janet Yellen has previously indicated that a rate increase is possible as early as September. But expectations for that hike have cooled slightly in recent days partly because of stock market turmoil in China and the rout in commodities prices. Most would agree that rates are headed higher sooner versus later, but the timing remains elusive for Wall Street. 

stock-volatility-climbs

FIGURE 1: VIX CLIMBING.

The CBOE Volatility Index (VIX) jumped over 13% in Monday’s session, the fifth straight slide for stocks. VIX pushed above 15 for the first time in more than two weeks but is lower early Tuesday as the S&P 500 (SPX) pauses its retreat.  Data source: CBOE. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Pharma Optimistic. Merck (MRK) reported adjusted Q2 earnings of $0.86 per share, beating the Street’s $0.80 per share and the year ago period’s $0.85. Sales fell 11% from the year-ago comparison, to $9.79 billion thanks to a strong dollar’s drag; that’s about in line with Street expectations. Pharmaceutical sales fell 6% but increased 3% excluding the effect of currency translation; sales were helped by strength in Merck's hospital acute care, oncology, and diabetes businesses. The dollar was expected to drag on Pfizer’s (PFE) results, too, and it did, but this drug giant still beat the Street view and boosted its outlook. Pfizer is now expecting $2.01 to $2.07 a share in adjusted earnings for the full year, up from its previous forecast for $1.95 to $2.05. The company lifted the bottom end of its revenue outlook, now expecting $45 billion to $46 billion in revenue.

North America Drives Ford Earnings. Ford Motor Co. (F) reported a 46% jump in Q2 net income, boosted by its North America unit’s largest quarterly profit ever. That followed a sluggish Q1. The No. 2 U.S. auto maker recorded EPS of $0.47 per share to beat the Street view by a wide 10 cents. Revenue was essentially flat overall with the company selling more cars in North America and Europe than it did a year earlier.

UPS Delivers. Brown beat the Street’s consensus with its $1.35 per share earned in Q2. Repeating a familiar theme, however, revenue fell 1.2% from the year-ago comparable to $14.1 billion, below the Street view. UPS is a de facto play on retail stocks and the broader economy. The package delivery firm, which is a for-sure beneficiary of retreating gas prices, affirmed its full-year 2015 EPS outlook of $5.05 to $5.30.

Good trading,
JJ
@TDAJJKinahan

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