Stock Market News for July 30, 2014

Benchmarks settled in the red zone on Tuesday after a choppy session as the U.S. and the European Union expanded economic sanctions against Russia. Geopolitical concerns overshadowed Tuesday’s better-than-expected corporate results and upbeat consumer confidence data. United Parcel’s dismal earnings outlook also affected transportation stocks.

For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article

The Dow Jones Industrial Average (DJI.V) dropped 0.4% to close Tuesday’s trading session at 16,912.11. The Standard & Poor 500 (S&P 500) declined almost 0.5% to finish at 1,969.95. The tech-laden Nasdaq Composite Index closed at 4,442.70; declining a meager 0.05%. The fear-gauge CBOE Volatility Index (:VIX) went up 5.7% to settle at 13.28. Total volume for the day was roughly 5.59 billion shares, somewhat higher than this month’s average of 5.54 billion. Decliners outpaced advancing stocks on the NYSE. For 58% stocks that declined, 38% advanced.

Benchmarks had a choppy session yesterday, swaying between gains and losses. The blue-chip index had hit a high of 17,056 before settling below the 17,000 mark. The S&P 500 ended below its 14-day moving average for the second-straight day after hitting an intra-day high of 1,985.

Benchmarks ended lower after U.S. and the European Union expanded sanctions against Russia. President Barack Obama announced on Tuesday that the U.S. is extending its economic sanctions on Russia. Additional sanctions will hit Russia’s energy, defense and finance sectors. New sanctions will also target Russia’s three state controlled banks and its shipping firms. Some of the entities which will be affected are VTB Group, Bank of Moscow and Russian Agricultural bank.

President Obama said the U.S. has evidence that Russia is supplying arms to pro-Russian separatists in eastern Ukraine. He said: “The issue is how to prevent bloodshed in eastern Ukraine…and the main tool we have to influence Russian behavior is influence over its economy.” However, he said: “It's not a new Cold War,” adding “What it is a very specific issue related to Russia's unwillingness to recognize that Ukraine can chart its own path”.

The European Union also announced a new round of sanctions against Russia. New sanctions restrict Russia’s largest banks from raising finances in European Union and places a trade bar on arms. It will also restrict export of military sensitive goods and equipment used in unconventional oil production to Russia.

Further, the European Union added at least five individuals and two entities to its Ukraine sanctions list. For the first time, Russian oligarchs have been targeted since they are believed to have supported and benefited from the violence in Ukraine.

Coming back to domestic events, United Parcel Service, Inc. (UPS) reported second-quarter 2014 adjusted earnings per share of $1.21, missing the Zacks Consensus Estimate of $1.24. The company lowered its 2014 adjusted earnings per share projection to $4.9 -$5, from the previously estimated $5.1-$5 a share. Shares of the logistics company dropped 3.7%.

United Parcel’s dismal performance weighed on transportation stocks. Stocks such as Delta Air Lines Inc. (DAL), Southwest Airlines Co. (LUV), Norfolk Southern Corporation (NSC) and Union Pacific Corporation (UNP) decreased 1.3%, 1.7%, 1.8% and 1.0%, respectively. The Industrial Select Sector SPDR (XLI) declined almost 1.3%, the highest among the S&P 500 sectors.

The day’s initial gains, largely a result of better-than-expected earnings results and encouraging consumer confidence data, were eroded by the end of the trading session.

Major players in the medical sector posted upbeat second-quarter results. Merck & Co. Inc. (MRK) reported second quarter 2014 earnings of 85 cents per share, beating the Zacks Consensus Estimate of 81 cents. Pfizer Inc. (PFE) posted second quarter 2014 earnings of 58 cents per share, a couple of cents above the Zacks Consensus Estimate. Aetna Inc. (AET) reported second-quarter 2014 earnings of $1.69 per share, beating the Zacks Consensus Estimate of $1.61 per share. Shares of Merck went up 1.1%. However, shares of Pfizer and Aetna dropped 1.2% and 3.5%, respectively.

Honda Motor Co., Ltd. (HMC) reported first quarter fiscal 2015 earnings per share of 80 cents, beating the Zacks Consensus Estimate by a penny. Shares of Honda Motors increased 2.4%.

Shares of Wynn Resorts Ltd. (WYNN) gained 3.1% after the company posted second quarter 2014 adjusted earnings of $2.11, beating the Zacks Consensus Estimate of $2.08.

Economic data on consumer confidence was positive. The Conference Board reported Consumer Confidence Index increased from 86.4 in June to 90.9 in July. The rise was in contrast to the consensus estimate predicting a drop to 85.4. The Expectations Index went up from 86.4 to 92.7. The Present Situation Index increased to 88.3 from 86.3.

Separately, the S&P/Case-Shiller Home Price Indices revealed that 20-City composite index, the leading measure of U.S. home prices, rose 9.3% year on year in May. However, the rate of growth was down from April’s year-on-year rise of 10.8%.

Meanwhile, gains in telecom stocks limited the broader markets’ losses. Telecom stocks rallied on Tuesday after Windstream Holdings, Inc. (WIN) was allowed by the Internal Revenue Service to spin off its assets into a tax-efficient publicly traded real estate investment trust. Shares of Windstream Holdings surged 12.4%. Other telecom stocks such as AT&T, Inc. (T), Verizon Communications Inc. (VZ) and Frontier Communications Corporation (FTR) gained 2.6%, 0.8% and 14.3%, respectively.

Nasdaq’s decline was limited by a rally in bio-tech stocks. Bio-tech stocks such as Gilead Sciences Inc. (GILD), Amgen Inc. (AMGN) and Biogen Idec Inc. (BIIB) increased 1.7%, 0.5% and 1.6%, respectively.

Nine out of 10 sectors of the S&P 500 ended in the red. The Utilities Select Sector SPDR (XLU) declined 0.9%, the second highest among the S&P 500 sectors. Top holdings from the Utilities sector such as Duke Energy Corporation (DUK), Dominion Resources, Inc. (D), NextEra Energy, Inc. (NEE), Southern Company (SO) and Exelon Corporation (EXC) decreased 0.6%, 1.3%, 1.2%, 1.1% and 1.6%, respectively.

Read the analyst report on UPS

Read the analyst report on MRK

Read the analyst report on PFE

Read the analyst report on AET

Read the analyst report on HMC

Read the analyst report on WYNN

Read the analyst report on WIN

Read the analyst report on T

Read the analyst report on VZ

Read the analyst report on FTR

Read the analyst report on GILD

Read the analyst report on AMGN

Read the analyst report on BIIB


Zacks Investment Research