Morning Update

Rally Wanes as Street Harvests Gains

After yesterday's advance that pushed the S&P 500 Index to close above the 1,000 level for the first time in 2009, stocks are lower as traders are taking the opportunity to book some profits while determining how much further the economic recovery has to go. Treasuries are higher in morning action as equities pullback and following a mixed economic report that showed personal income declined more than expected, while spending rose slightly more than anticipated. Some earnings reports continue to roll in, with CVS Caremark topping both top and bottom line expectations, but Archer Daniels Midland missed its profit projections. Overseas, markets are mixed as commodity-related issues buoyed Asian action, while banking shares and profit taking in basic materials are pressuring European trading.

As of 8:49 a.m. ET, the September S&P 500 Index Globex futures contract is 6 points below fair value, the Nasdaq 100 Index is 11 points below fair value, and the DJIA is 43 points below fair value. Crude oil is down $1.32 at $70.26 per barrel, and gold is down $1.00 at $955.80 per ounce.

CVS Caremark (CVS $34) reported adjusted EPS of $0.65, one penny ahead of the Reuters estimate, as revenues jumped 17.6% to $24.9 billion, topping the Street's estimate, which called for the prescription and healthcare services firm to post sales of $24.4 billion. CVS said its pharmacy benefit management network revenues surged 27.4%, its mail service sales climbed 12.5%, and its retail same-store sales increased 6.1%. The company also raised its full-year EPS guidance.

Archer Daniels Midland (ADM $30) reported fiscal 4Q net earnings fell 83% to $0.10 per share, much lower than the Street's forecast of $0.44, and revenues fell 24% to $16.5 billion, but topped analysts' expectations. The agricultural firm said decreased average selling prices reduced net sales and other operating income by about $5.8 billion, partially offset by higher sales volumes.

Personal outlays data mixed

Personal income (chart) fell 1.3% in June, versus the Bloomberg estimate of a 1.0% decline, and May was revised from 1.4% to 1.3%. Personal spending rose 0.4% in June, above the Bloomberg expectation of a 0.3% advance, while May's 0.3% rise was revised to 0.1%. The savings rate fell from a downwardly revised 6.2% in May to 4.6%.

Also, the PCE Price Index, which is released with the income and spending data, fell 0.4% year-over-year in June, compared to the consensus forecast of a 0.2% increase, and May's gain was downwardly revised from 0.1% to a 0.3% decline. The core PCE Price Index, which excludes food and energy, gained 0.2%, inline with expectations. Year-over-year, core prices moved 1.5% higher, versus the consensus of economists surveyed by Bloomberg, which called for the index to show a 1.7% gain. Treasuries are higher after extending early gains following the consumer outlays data.

Later in morning action, traders will get a glimpse of the pipeline of existing home sales, with the release of pending home sales for June, forecast to increase 0.7% (economic calendar).

Profit-taking pressuring Europe

Stocks in Europe are under pressure in afternoon action as traders are taking the opportunity to book profits in commodity-related issues that have had steep gains recently as economic and earnings reports have stoked optimism about the global economic recovery. Banking issues are also weighing on sentiment across the pond, led by Switzerland's largest bank UBS (UBS $15), which is under pressure after posting its third-straight quarterly loss, even though it was narrower than what analysts forecasted by Bloomberg had expected, as its CEO said a halt in redemptions at its wealth management unit will probably lag behind a financial recovery at the firm. Additional pressure in the group is coming from a 5% decline in UK bank Standard Chartered (SCBFF $25) after it announced a plan to raise $1.7 billion in a share sale. The soured sentiment toward financials is overshadowing France's largest bank BNP Paribas' (BNPQY $38) better-than-expected profit report on higher investment banking revenue and the acquisition of Belgium's Fortis. BMW (BAMXY $16) is also close to 5% lower after the luxury automaker said its 2Q net income fell 76% amid sluggish demand for SUVs and higher-priced sedans.

Asia rally pauses

Stocks in Asia were modestly higher following yesterday's advance on better-than-expected manufacturing reports from China, the US, and the eurozone as commodity-related issues continued to move higher, while disappointing earnings in the car and motorcycle manufacturing sector kept sentiment in check. Metals, mining, and energy issues were higher as commodity prices rose solidly yesterday following the manufacturing data, which boosted optimism that the global economy is on the road to recovery. However, the Nikkei 225 Index rose only 0.2% as the advance was limited by pressure in the automotive sector, led by a 10% drop in shares of Yamaha Motor (YAMHF $12) after it provided a forecast for a first-half loss that was four times wider than the company's previous forecast. Adding to the disappointment, shares of Suzuki Motor (SZKMF $25) fell 5% after posting a 92% drop in net income. Shares of Toyota Motor (TM $87) could not escape the pressure following the aforementioned disappointment in the sector and they fell 1.5%, but the world's largest automaker announced a smaller-than-expected 1Q loss and narrowed its full-year net loss forecast after trading was closed in Japan. Elsewhere, the solid advance in the commodity group helped Australia's S&P/ASX 200 Index advanced 1.1%, China's Shanghai Composite and South Korea's Kospi Index both posted modest gains, while Hong Kong's Hang Seng Index came under modest pressure, led by weakness in developer stocks on a report that transactions in Shanghai declined for the first time in seven months, per Bloomberg News.