Stocks finished lower Thursday amid weak July sales reports from retailers and a gloomy revenue forecast from Cisco Systems (CSCO). Investors cashed in on recent gains and turned cautious ahead of Friday's July jobs report, which will shed more light on the economy, notes S&P MarketScope.
In economic news, weekly jobless claims fell 38,000 to 550,000, better than expected, but continuing claims rose 69,000 to 6,310,000. Some traders are worried that Friday's jobs report will show that the unemployment rate rose to 9.7% from 9.5% in June, says S&P MarketScope. Economists expect nonfarm payrolls to drop by 330,000.
"The better than expected initial claims reading adds support to expectations that the jobs market is starting to recover," wrote Standard & Poor's chief economist David Wyss. "However, the impact will likely be limited, as investors await tomorrow's payrolls report."
On Thursday, the 30-stock Dow Jones industrial average was down 24.71 points, or 0.27%, to 9,256.26. The broad Standard & Poor's 500-stock index lost 5.64 points, or 0.56%, to 997.08. And the tech-heavy Nasdaq composite index declined 19.89 points, or 1.00%, to 1,973.16.
S&P's chief technical strategist Mark Arbeter thinks "the S&P 500 will take another stab to the upside" but thinks "this will represent a topping phase that will eventually lead to a pullback toward the 950/960 zone."
Treasuries turned in a mixed showing in choppy trading. The dollar index rose as the Bank of England extended its stimulus plan and the European Central Bank left interest rates unchanged. Gold and oil futures eased.
Retailers posted generally lower same-store sales for July, but some were above analysts' forecasts. Cooler weather, changes in tax holidays and fewer clearance options because of leaner inventories were reasons for weakness, analysts said. Many discount stores, which have held up in the recession, reported lower results. Costco Wholesale (COST) reported a 2% sales drop in the U.S. (excluding gasoline), and Target (TGT) posted a worse-than-expected 6.5% decline.
According to media reports, the Obama administration is considering an overhaul of Freddie Mac (FRE) and Fannie Mae (FNM) that would strip the mortgage finance giants of hundreds of billions of dollars in troubled loans and create a new structure to support the home-loan market, government officials said. S&P views the proposal positively, and kept hold opinionson FRE and FNM shares.
Among other stocks in the news, Cisco Systems (CSCO) reported sharply lower earnings and revenue for its fourth quarter, but still beat Street estimates. The communications equipment maker reported fiscal fourth quarter EPS of $0.31, $0.02 better than the First Call consensus of $0.29 and down from $0.40 (non-GAAP) a year ago. Revenue fell 17.6% year-over-year to $8.54 billion. However, on its conference call, its CEO forecast first quarter sales down 15%-17% year-over-year, and its CFO said margins could be hurt by increasing shift to consumer products that are less profitable. S&P maintained a buy opinion.
A big loser for the day was MetroPCS Communications (PCS), which skidded 29% to 8.99 after the company posted $0.07, vs. $0.14 a year ago, second quarter EPS as an increase in launch expenses and the ramp up of operations in the Northeast markets offset a 27% revenue rise. It also noted an increase in churn during the quarter. S&P cut estimates and target price, but kept a buy opinion.
Sirius XM Radio (SIRI) reported a loss of 1 cent per share (excluding special items), matching analysts estimates. Second quarter revenue rose 1% to $607.8 million (pro forma), matching Wall Street view. It ended the second quarter with 18.4 million subscribers, down 1%. The radio company raised its income outlook, citing cost cuts and a potential rebound in automobile sales.
American Express (AXP) shares rose after Citigroup analysts upgraded the stock to buy from hold. "We are upgrading the shares as we are now more comfortable that credit has stabilized at AXP. Implicit in this call is an incrementally more positive view on financial stocks," Citigroup analysts said.
Comcast (CMCSA) posted $0.33, vs. $0.21 a year ago, second quarter adjusted EPS on 4.5% consolidated revenue rise. The Street was looking for $0.26.
MBIA Inc. (MBI) posted $4.30, vs. $7.14, second quarter per-share net income available to common shareholders, including $1.1 billion pre-tax estimated recoveries related to certain ineligible mortgages. It says adjusted book value (ABV) per share (a non-GAAP measure) was $40.01 as of June 30, vs. $40.06 as of Dec. 31, 2008. Unadjusted book value per share was $13.30 vs. $4.78, amid $2.0 billion improvement in the fair values of insured credit derivatives and $455 million from all other components of pre-tax income.
News Corp. (NWSA) posted $0.08 fourth quarter loss, vs. $0.43 EPS a year ago, on 10% revenue decline. During the quarter, the company recorded impairment charges and other operating charges of $680 million, primarily related to Fox Interactive Media. Excluding these charges, NWS posts adjusted operating income of $948 million, vs. $1.4 billion. While the Cable Network Programming and Magazines and Inserts segments delivered higher contributions for the quarter, the decline in adj. op. income reflects reduced contributions from company's other business segments.
Macy's (M) posted 11% lower July same-store sales, 11% lower total sales. The department store sees second quarter EPS of $0.15-$0.17, excluding restructuring-related costs associated with division consolidations and localization initiatives announced in February 2009. The Street was looking for $0.05.
Gap (GPS) shares rose after the apparel retailer said it sees second quarter GAAP EPS of $0.30-$0.32, exceeding current First Call estimate of $0.28. It posted 8% lower July same-store sales and 7.4% lower total sales.
United Online (UNTD) shares slumped after the company posted $0.37, vs. $0.29, third quarter adjusted EPS on sharply higher revenues. It sees third quarter revenues of $208-$216 million, adjusted operating Income Before Depreciation and Amortization (OIBDA) of $53-$58 million. Jefferies downgraded the stock to hold from buy.
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