The last day of July turned mixed for stocks following a GDP report that showed a steeper decline in economic growth in previous quarters, but a smaller drop than expected for the second quarter, supporting investor hopes that the economy is on the road to recovery.
In other news, the International Monetary Fund predicted a "gradual recovery" in the U.S. economy, and the House approved a measure to add $2 billion to the Cash for Clunkers car purchase incentive program.
Friday's big news was an update on the health of the economy. U.S. second quarter GDP growth declined 1.0%, which was much better than the 1.7% decline that markets expected. First quarter GDP was downwardly revised to a -6.4% rate from -5.5%, and fourth quarter was revised up to a -5.4% pace from -6.3% previously reported. Real consumption declined at a 1.2% clip (weaker than expected), after a sharply upwardly revised 0.6% increase in the first quarter. The BEA also reported that real GDP increased 0.4% for 2008, rather than the 1.1% gain previously calculated.
"While benchmark revisions changed the trajectory of the data, the sharp slowdown in the rate of decline in the second quarter offers support to market expectations that the recession has troughed," wrote S&P economist Beth Ann Bovino in a note Friday. "The better than expected GDP report will add more fuel to market beliefs that the recession is behind us."
In other economic news, the employment cost index rose 0.4% in the second quarter, slightly stronger than the 0.3% pace markets expected. The July Chicago PMI rose to 43.4 from 39.9.
On Friday, the 30-stock Dow Jones industrial average rose 17.15 points, or 0.19%, to 9,171.61. The broad Standard & Poor's 500-stock index edged up 0.73 point, or 0.07%, to 987.48. The tech-heavy Nasdaq composite index fell 5.80 points, or 0.29%, to 1,978.50.
The dollar index fell 0.91 to 78.36, after touching a low of 78.22, which was the lowest level since Dec. 18. The better-than-expected U.S. second quarter GDP report sparked dollar selling and stock market buying, says S&P MarketScope.
Treasuries rose on the economic data, sending the 10-year note up 25/32 to 96-28/32 for yield of 3.512%. Gold and oil futures moved higher in volatile trading. Crude oil rose $1.23 to $68.17 per barrel.
Investors enjoyed a nice summer rally in July. The S&P 500 rose 7.3% for the month through July 30, the best July performance since 1997, and well-above its average advance of 0.81% since 1945, according to Sam Stovall, chief investment strategist at Standard & Poor's. "But since we are in the period following a bear market bottom, it should come as little surprise that we saw performance fireworks in this otherwise lackluster month," wrote Stovall in a note Friday.
All 10 sectors rose, led by the cyclical Materials, Financials and Industrials sectors, which posted increases of 18.8%, 16.1% and 14.9%, respectively. "It appears as if the bulls have a firm grasp on this market's steering wheel and gas pedal, as the fundamental trend continues to show improvement," Stovall wrote.
Next week brings a flock of earnings reports, including from Cisco Systems (CSCO) on Wednesday, and Friday's employment report for July.
Among stocks in the news Friday, Walt Disney (DIS) reported third quarter earnings of $0.52 per share, vs. $0.62 a year ago (excluding items), on 6.9% lower revenue. Including items, GAAP EPS totaled $0.51, vs. $0.66. S&P kept a buy opinion on the stock, while JP Morgan reportedly downgraded to underweight from neutral.
Synaptics (SYNA) shares got crushed after the company posted $0.47, vs. $0.30, fourth quarter non-GAAP EPS on 19% revenue rise. It sees first quarter revenue of $113-$119 million, noting PC based revenue will decline, primarily reflecting the expected decrease in revenue from multi-media control applications, as well as a generally lower priced touchpad product mix. It sees fiscal year 2010 revenue $495-$525 million, with the first half roughly flat year-over-year. Caris and Jefferies downgraded the stock.
PerkinElmer (PKI) posted $0.28, vs. $0.33 a year ago, second quarter EPS on 14% revenue decline. It now sees 2009 EPS, excluding items of $1.18-$1.24; Street was looking for $1.27. Baird reportedly downgraded the stock to neutral from outperform.
Gen-Probe (GPRO) shares were falling after the company posted $0.38, vs. $0.45, second quarter GAAP EPS as $0.07/share of costs tied to Tepnel acquisition offset 2.7% revenue rise. It trimmed the top end of 2009 revenue and EPS guidance to reflect lower-than-expected blood screening revenue in the second quarter and slower anticipated blood screening growth going forward. It sees $1.85-$2.00 2009 EPS on revenue of $490-$510 million, vs. earlier view of $1.85-$1.95 EPS on $490-$503 million revenue. S&P keeps hold, while Baird and William Blair downgraded the stock.
AutoNation (AN) reported second quarter (June) earnings of $0.29 per share (excluding non-recurring items), $0.05 better than the First Call consensus estimate of $0.24, while revenues fell 28.8% from a year ago to $2.61 billion, vs. the $2.8 bln consensus. "
ITT Industries (ITT) reported second quarter EPS of $1.06 (excluding non-recurring items), $0.26 better than the First Call forecast of $0.80. Revenues fell 9.3% from a year ago to $2.78 billion, vs. the $2.7 bln consensus. It raised guidance for fiscal year 2009-- it sees EPS of $3.50-3.70 vs. $3.44 consensus, prior guidance $3.20-3.60.
NICOR (GAS) reported second quarter EPS of $0.50, $0.08 better than the forecast of $0.42. Revenues fell 36% to $447.6 million, vs the $589 million estimate. The company reaffirmed guidance for fiscal year 2009- it sees EPS of $2.54-2.74 vs. $2.56 consensus.
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