Disappointing results arrived from Merrill Lynch, Google, and Microsoft, but Citigroup and IBM topped expectations
Major stock indexes closed mixed Friday as better-than-expected quarterly financial results from Citigroup (C) and IBM (IBM) – and a move in crude oil below $130 per barrel – competed with disappointing earnings from big names including Google (GOOG), Merrill Lynch (MER) and Microsoft (MSFT).
Bonds were lower, while the dollar index was higher. Gold was lower. Oil futures closed lower for a fourth consecutive day.
On Friday, the Dow Jones industrial average finished higher by 49.91 points, or 0.44%, to 11,496.57, led by strength in Citigroup, Boeing (BA), and IBM (IBM). The broader S&P 500 edged higher by 0.36 points, or 0.03%, to close at 1,260.68. The bad news from Google and Microsoft hurt the tech-heavy Nasdaq, which ended down 29.52 points, or 1.28%, to 2,282.78.
On the New York Stock Exchange, 17 stocks advanced in price for every 15 that declined. The ratio on the Nasdaq was 16-13 negative. Trading was active and volatile as options were set to expire, notes S&P MarketScope. Traders were looking for a short-term bottom after strength in the major indexes on Wednesday and Thursday.
After a rough start to the week, things didn’t turn out so badly for the blue chips. The Dow posted a 3.9% gain for the week, while the S&P 500 was up 2.6%.
“With a sense of calm returning to the financial markets after the Fed and Treasury rescued the GSEs last weekend, traders and investors have been unwinding safe haven bets and shifting cash from Treasuries back into riskier stocks,” said Action Economics in a Website posting Friday.
Earnings reports were dominating the market's attention Friday in the absence of significant economic reports.
Citi reported a 54 cents per share loss, vs. earnings of $1.24 a year ago, and revenue fell 29%. But the results were better than many investors had expected from the giant bank, hit hard by the financial crisis.
While Citi surprised investors, Merrill Lynch felt the full damage of the crisis. After the close of trading Thursday, Merrill posted a $4.95 per share loss, compared to earnings of $2.10 a year ago, as revenues added up to a negative $2.1 billion. In the second quarter, Merrill took $9.4 billion in losses on mortgage-backed securities and other investments that turned sour, adding up to a total hit from the credit crisis of about $40 billion in the past year. Moody's cut Merrill's debt rating as a result. To raise capital, the brokerage house will sell its stake in Bloomberg LP for $4.4 billion and its subsidiary Financial Data Services for $3.5 billion
Google disappointed investors despite earnings of $3.92 per share, vs. $2.93 a year ago, and a 39% jump in revenue.
Microsoft also fell short of analyst expectations, posting earnings of 46 cents per share, vs. 31 cents a year ago as revenue rose 18%. Analysts predicted earnings of 47 cents per share. The firm took a $1.1 billion charge related to the Xbox 360's warranty coverage.
After falling $15 over the past three trading sessions, the price of a barrel of oil was lower again Friday. On the NYMEX, crude oil for August delivery fell 57 cents to $128.72 per barrel.
Among other stocks in the news Friday, IBM reported earnings of $1.98 per share, vs. $1.55 a year ago, as revenue rose 13%. That beat Wall Street expectations of earnings of $1.82 per share.
Freddie Mac (FRE), the troubled mortgage financier, is reportedly considering raising $10 billion in new capital by selling new equity shares. The Wall Street Journal says the move would help avoid a government bailout. Shares of Freddie and fellow GSE Fannie Mae (FNM) were higher Friday.
Mattel (MAT) posted earnings of 3 cents per share, vs. 6 cents a year ago. Higher expenses offset an 11% rise in revenue.
Schlumberger (SLB) reported earnings of $1.16 per share, vs. $1.02 a year ago. Revenue increased 20%.
Manpower (MAN) posted earnings of $1.34 per share, vs. $1.20 a year ago, as revenue rose 17%.
Honeywell International (HON) reported earnings of 96 cents per share, vs. 78 cents a year ago. Sales rose 13%.
Major European indexes moved higher Friday. In London, the FTSE 100 index rose 1.7% to 5,376.40. In Paris, the CAC 40 gained 1.74% to 4,299.36, while Germany's DAX index added 1.78% to 6,382.65.
In Asia, Japan's Nikkei 225 lost 0.65% to 12,803.70, while Hong Kong's Hang Seng Index rose 0.64% to 21,874.19.
Treasuries finished modestly lower Friday. Despite the steep drop in oil, recent readings of consumer and producer prices that were above expectations are supporting speculation that inflation will get worse in the future, which in turn is driving Treasury market psychology, says S&P MarketScope.