Evening Market Update

Stocks Quietly Move Higher

After falling into negative territory in early trading following a larger-than-expected drop in homebuilder sentiment and mixed 2Q earnings reports, stocks gradually gained strength throughout the day and finished higher. Earnings reports were mixed with Delta Air Lines and Hasbro missing revenue forecasts, while Halliburton easily beat the Street’s top and bottomline forecasts. Meanwhile, Dow member Boeing said that Emirates Airlines plans to order 30 aircraft with a value of about $9.1 billion, while BP Plc was given the go ahead to compete testing of the cap that was installed over its damaged oil well in the Gulf of Mexico. Treasuries finished mostly lower on the disappointing housing report with the mid-to-long end of the curve steepening.

The Dow Jones Industrial Average rose 57 points (0.6%) to close at 10,154, the S&P 500 Index added 6 points (0.6%) to finish at 1,071, and the Nasdaq Composite gained 19 points (0.9%) to 2,198. In lighter volume, 956 million shares were traded on the NYSE and 1.7 billion shares were traded on the Nasdaq. Crude oil rose $0.53 to $76.54 per barrel, wholesale gasoline was up $0.01 to $2.06 per gallon, while the Bloomberg gold spot price declined $8.90 to $1,184.10 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was 0.3% higher at 82.58.

Dow member Boeing Co. (BA $63 ¹) reported that Dubai-based Emirates Airlines announced that it plans to order 30 Boeing 777-300ERs at the 2010 Farnborough International Airshow, with a value of about $9.1 billion. Emirates is already the world’s largest 777 operator, per the press release by the two companies. BA was higher.

Delta Air Lines Inc. (DAL $11) reported 2Q EPS ex-items of $0.65, compared to the $0.63 Reuters estimate, but estimates varied widely on the Street, due to different forecasts for special items, with analysts surveyed by Bloomberg suggesting a one penny profit miss by the airline. Revenues increased 17% year-over-year (y/y) to $8.17 billion, compared with the Street’s forecast of $8.22 billion. The company said its passenger unit revenue increased 19.4% y/y driven by a favorable yield and an improvement in load factor. Shares were solidly lower.

Hasbro Inc. (HAS $39) reported 2Q EPS of $0.29, five cents above the consensus estimate of analysts, with revenues declining 7% y/y to $737.8 million, short of the $750 million that the Street was looking for. The toy company reaffirmed its second-half revenue forecast, saying that it continues to expect its revenues to be more heavily weighted to the second half of the year as its major initiatives are beginning to launch. Shares of HAS were lower.

Halliburton Co. (HAL $29) announced 2Q EPS ex-items of $0.52, much higher than the $0.37 that analysts were anticipating, with revenues increasing 26% y/y to $4.4 billion, above the $4.1 billion that was expected. The energy firm said the tragic incident that occurred in the Gulf of Mexico and the subsequent suspension of deepwater drilling, it believes, will usher in a new regulatory climate and will have a “profound impact” on how deepwater drilling is performed. HAL said it is taking appropriate actions to mitigate the impact of reduced activity in the Gulf business. Shares of HAL were nicely higher.

After talks between BP Plc. (BP $36) and energy company Apache (APA $86), regarding the sale of some of BP’s assets to APA stalled over the weekend, CNBC is reporting discussions between the two firms have resumed. However, CNBC is also reporting that the companies’ stance on price is the sticking point, and the likelihood of a deal being inked has diminished. The companies did not comment on the report. Additionally, concerns over the possibility of oil and methane seepage at other locations along its damaged well in the Gulf of Mexico pressured the stock. However, retired Coast Guard admiral Thad Allen, who is leading the US government’s efforts to manage the spill, gave BP the green light to keep the cap in place for an additional 24 hours in order to continue its integrity testing after the British oil firm provided new promises to the government’s science team. BP finished over 3% lower in US trading.

Housing sentiment sours to over a year low

Treasuries finished lower with the yield on the two-year note flat at 0.59%, and both the 10-year note and 30-year bond yields gaining 4 bps to 2.97% and 3.99%, respectively.

The lone economic report on today’s docket was the NAHB Housing Market Index, which the gauge of homebuilder sentiment fell to a level of 14 in July, from a downwardly revised reading of 16 last month and where economists had expected the index to come in at. Any reading below a level of 50 indicates more respondents feel conditions are poor and the index sits at the lowest level since April 2009. The report showed homebuilders’ sentiment toward current and future sales of single-family homes worsened, while the assessment of traffic—prospective buyers—fell the most among the components that make up the index.

Today’s report will be followed by tomorrow’s release of housing starts for June, expected to show a decrease of 2.9% m/m to an annual rate of 576,000 units, after plunging 10.0% in May. Meanwhile, building permits, one of the leading indicators tracked by the Conference Board, and included in the housing starts report, are forecasted to rise 0.2% m/m in June after falling 5.9% in May. Thursday caps the week of housing data, with the release of existing home sales, forecasted to drop 9.9% m/m in June to an annual rate of 5.1 million units. Sales of existing homes reflect closings from contracts entered one to two months earlier.

Moody’s downgrades Ireland

Moody’s Investors Service downgraded its credit rating of Ireland to Aa2 from Aa1, citing a “significant loss of financial strength,” but the ratings firm moved Ireland’s outlook to stable from negative. The move by Moody’s comes ahead of a debt auction tomorrow in Ireland. In other euro-zone debt related news, the International Monetary Fund (IMF) and the European Union (EU) suspended talks with the Hungarian government regarding its 20 billion euro ($25.9 billion) bailout package, saying that the debt-laden nation must take tougher measures to cut its budget deficit in order to comply with requirements to receive the rescue capital.

Economic news overseas was light, with a reading of UK home prices declining month-over-month (m/m) in July, and the euro-zone current account deficit widening, while a separate report showed euro-zone construction output declining in May. Further east, the only item worth a mention was political news out of Australia, where its new Prime Minister Julia Gillard called an August 21st election over the weekend, beginning a five-week period of campaigning in the region.

Tomorrow’s international economic calendar will include Japan’s Leading Index, PPI out of Germany, Italian industrial production, while Canada’s central bank will meet to discuss monetary policy.