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Breather Time? Stock Market Breaks from Selling, Turns to Earnings

Print
July 9, 2015

Wall Street’s sellers look likely to come up for air in an expected recovery session on Thursday. That’s after stock averages were battered on Wednesday, including the deepest percentage loss in almost five months for the S&P 500 (SPX) (figure 1). Lingering jitters from Greece’s debt scramble and a deep price cut for Chinese shares drove global stocks lower.

Add in a big technical glitch on the New York Stock Exchange and the release of Federal Reserve meeting minutes that may have raised as many doubts as conclusions. There was no real guidance from Janet Yellen and crew on what specific data points might push them to interest-rate action, but I don’t think many on Wall Street have adjusted expectations away from a hike later this year. Interestingly, the Fed made note of Greece and China a month ago, and that was well before these two trouble spots really blew up. The macro-picture excitement clouded the reaction to a handful of cautiously upbeat earnings reports but that looks to change today.

SPX-breaks-support

FIGURE 1: SPX 2050 CRACKED.

The closely watched support area at 2050 was punctured in Wednesday’s volatile trading but stock indicators point up early Thursday. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

On That Outage. Strange trading on Wednesday for sure. A computer malfunction was said to have knocked out trading for close to four hours on the New York Stock Exchange. Bloomberg Television reported it was due to a software upgrade. It’s unfortunate for traders and investors, for sure. But keep in mind the NYSE does only about 20% of all stock trading volume on daily basis. TD Ameritrade clients were routed to other venues, and to our knowledge, were largely unaffected for any length of time.

Revenue Matters. We’ve only tiptoed into this earnings season but already revenue is the important measure. Revenue, after all, will help us paint the picture of global economic health. Investors know that companies and analysts have lowered revenue expectations given global growth bumps but upbeat revenue news is still heartily embraced. Alcoa (AA), for one, delivered and its shares are drawing heavy volume this morning. The aluminum giant said late Wednesday that it recorded Q2 revenue of $5.9 billion compared with the estimate of $5.8 billion from analysts surveyed by FactSet. Shares of Alcoa closed down over 5% in the pre-release, regular session Wednesday. PepsiCo (PEP) is an early Thursday gainer after its Q2 adjusted profit of $1.32 beat Street expectations. Revenue fell 6% to $15.92 billion but beat forecasts of $15.80 billion. PepsiCo raised its full-year core constant currency earnings per share growth outlook to 8%, from 7% expected previously.

Coming Next Week. Next week’s major report, I believe, will be Tuesday’s retail sales data. This report continues to reveal a moody consumer. Will the latest installment better match up with upbeat housing and hiring data? And next Friday: the consumer price index (CPI). It’s still expected to show the kind of mild inflation reading that could give the Federal Reserve the cover its needs to go slow with interest rate hikes.

Good trading,

JJ
@TDAJJKinahan

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