Bloomberg News

U.S. Stocks End Week Little Changed on Mixed Earnings

July 26, 2014

During a week in which earnings reports pushed Amazon.com Inc. to its biggest slide in three years and Facebook Inc. to an all-time high, the Standard & Poor’s 500 Index ended about where it began.

The S&P 500 (SPX) rose less than one point to 1,978.34 for the period. The gauge pared gains in the final session after closing consecutive days at a record. The Dow (INDU) Jones Industrial Average sank 139.61 points, or 0.8 percent, to 16,960.57 after finishing the previous week above 17,000 for the first time.

“This week was about earnings and it failed to move the overall markets even though there was a lot of movement underneath the surface,” Joe Bell, a senior equity analyst at Schaeffer’s Investment Research Inc., said in a phone interview. “Within the specific sectors and stocks themselves you’re definitely getting movement in reaction to specific reports.”

Goldman Sachs Group Inc. said equities are at risk of a temporary selloff, citing rising bond yields and high valuations for lowering its rating on stocks.

Facebook rallied 9.9 percent as mobile advertising revenue surged, while Amazon sank 9.7 percent after its loss unexpectedly widened. Apple Inc. rose 3.4 percent after the world’s most valuable company stoked anticipation for new products. D.R. Horton Inc. sank 9.6 percent to lead homebuilders lower as data showed a drop in new home sales. Chevron Corp. rallied 2.4 percent to lead energy producers higher as the conflict in Ukraine raised tension between Russia and the West.

Economic Reports

The S&P 500 ended the week 0.5 percent below its all-time high of 1,987.98, reached July 24. The index has rallied 7 percent this year, as the economy shows signs of recovering from a 2.9 percent drop in the first quarter amid renewed pledges from the Federal Reserve to continue stimulus.

Economic reports were mixed in the week, with jobless claims unexpectedly declining, while orders for business equipment rose in June. Inflation data signaled the Fed won’t be compelled to raise rates in the near future.

The U.S. central bank announces its next policy decision at the conclusion of a two-day meeting on July 30. Investors will get a reading on second-quarter growth that same day, while the government’s labor report on Aug. 1 may show employers added 231,000 jobs this month.

Global equities advanced, with the MSCI All-Country World Index adding 0.3 percent, as data showed euro-area manufacturing and services grew in July while Chinese factory activity rose to an 18-month high.

Europe, Asia

The data helped drive the Stoxx Europe 600 Index 0.7 percent higher in the period, even as the gauge tumbled on the final day of the week as companies from LVMH Moet Hennessy Louis Vuitton SA and Statoil ASA posted results that missed forecasts.

The MSCI Asia Pacific Index rallied 1.4 percent to the highest since June 2008, as China’s Shanghai Composite (SHCOMP) Index capped its best week in three months and Japan’s Topix index climbed 1.4 percent.

Tensions remained high over the crisis in Ukraine, a week after a Malaysian jet carrying 298 people was downed in the eastern part of the country.

The European Union is preparing to intensify sanctions against Russia, while the U.S. has accused President Vladimir Putin’s government of sending heavier weapons to separatists. Ukraine and Russia traded accusations of cross-border shelling, as the pro-rebel stronghold of Donetsk awaits a possible onslaught by Ukrainian government forces.

Goldman Call

Goldman Sachs cut its rating on stocks to neutral, the equivalent of hold, for the next three months, according to a quarterly research report from its portfolio strategy group on July 25.

“The acceleration in economic growth is largely behind us and geopolitical risks are elevated,” a group of 11 strategists, including David Kostin, Kathy Matsui and Peter Oppenheimer, said in the report, known as the global opportunity asset locator.

The Chicago Board Options Exchange Volatility Index (VIX), known as the VIX, rose 5.2 percent to 12.69 for the week. The gauge, sometimes called the fear index, has declined 7.5 percent in 2014 as equities entered the fifth year a bull market.

Chevron rose the most in the Dow, as energy producers in the S&P 500 added 0.8 percent as a group with U.S. crude trading near $102 a barrel. Russia is the world’s biggest energy exporter.

More than 140 companies in the broader equity gauge reported earnings in the five days. Of the 228 members that have posted results so far, 79 percent have beaten analysts’ estimates for profit and 66 percent have exceeded projections for sales.

Earnings Growth

Quarterly profit growth is poised for the fastest increase in almost three years. Companies in the S&P 500 have reported an 11 percent gain in second-quarter earnings, data compiled by Bloomberg show. Should the pace continue, the gain would exceed all periods since the third quarter of 2011.

Technology shares advanced 0.7 percent as a group, as rallies of more than 8.3 percent from Facebook (FB:US) and Yahoo! Inc. paced gains. Facebook climbed 9.9 percent to a record $75.19. The operator of world’s biggest social network said mobile advertisements helped profit more than double as sales surged.

Apple Inc. added 3.4 percent to the highest since September 2012 as it stoked anticipation for new devices on a conference call. Apple earlier reported a drop in iPad demand and projected third-quarter revenue below analysts’ predictions.

Biotech, Amazon

Intuitive Surgical Inc. rallied 21 percent, the biggest gain in the S&P 500 and its steepest rise in five years. The maker of robotics used in surgeries reported profit that surpassed analysts’ estimates.

Biogen Idec Inc. jumped 10 percent. The world’s biggest maker of multiple sclerosis drugs raised its 2014 profit forecast after quarterly results beat forecasts.

Consumer-discretionary stocks, which include Amazon.com, tumbled 1 percent in the week for the worst performance among the 10 main S&P 500 groups.

The world’s largest online retailer fell 9.7 percent after its loss widened as its cloud-computing business showed signs of cooling and investments in new distribution warehouses and gadgets curtailed earnings.

D.R. Horton dropped 9.6 percent to lead an S&P index of homebuilders lower. The largest U.S. builder by revenue said its fiscal-third quarter earnings declined as the company’s sales margin shrank, while government data showed fewer new U.S. homes were sold in June than forecast.

Caterpillar Inc., the world’s leading manufacturer of mining machinery, fell 4.8 percent after saying there’s no sign of an upturn in the industry in 2014 and forecasting sales that fell short of estimates.

To contact the reporter on this story: Jacob Barach in New York at jbarach1@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net Jeremy Herron, Michael P. Regan


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