Evening Market Update

Stocks Pare Early Losses to Avoid Another Slide

After falling in early action on Friday, US stocks managed to pare some losses, leaving the major indexes mixed on the day and averting a continuation to yesterday's selloff. There were no major economic reports released today, leaving traders to focus on a slew of corporate earnings. Highlighting the earnings docket was Dow member Hewlett-Packard, which matched the Street's profit expectations and reaffirmed its full-year outlook, while rival Dell managed to beat analysts’ top- and bottom-line estimates. Elsewhere on the earnings front, Marvell Technology Group, Gap, Salesforce.com, and J.M, Smucker all beat EPS expectations, while Intuit posted a smaller-than-expected quarterly loss. Treasuries jumped out to early gains on the weakness in equities, but lost ground as the day progressed and finished lower.

The Dow Jones Industrial Average lost 58 points (0.6%) to 10,214, the S&P 500 Index fell 4 points (0.4%) to 1,072, and the Nasdaq Composite advanced 1 point (0.04%) to 2,180. In moderately light volume, 1.1 billion shares were traded on the NYSE and 1.9 billion shares were traded on the Nasdaq. Crude oil lost $0.97 to $73.46 per barrel, while wholesale gasoline was $0.01 lower at $1.92 per gallon, and the Bloomberg gold spot price fell $4.65 to $1,227.50 per ounce. Elsewhere, the Dollar Index-a comparison of the US dollar to six major world currencies-was 0.7% higher at 83.05. For the week, including dividends, the DJIA declined 0.9%, the S&P 500 Index lost 0.7%, and the Nasdaq Composite gained 0.3%.

Dow member Hewlett-Packard Co. (HPQ $40) reported fiscal 3Q EPS ex-items of $1.08, inline with the Reuters estimate, as revenues rose 11.4% year-over-year (y/y) to $30.7 billion, above the $30.4 billion that the Street had expected. HPQ’s enterprise storage and servers unit as well as its personal systems group showed the biggest percentage growth in revenues, rising 19% and 17% y/y, respectively, and its imaging and printing segment rose a solid 9%, while its services unit revenues inched 1% higher. The company reaffirmed its 4Q and full-year guidance that it provided earlier this month-along with the aforementioned 3Q figures-when it announced the surprising departure of CEO Mark Hurd. Shares were lower.

Dell Inc. (DELL $12) posted 2Q EPS of $0.32, two cents above the consensus estimate of analysts, with revenues rising 22% y/y to $15.5 billion, topping the $15.2 billion that was anticipated. DELL said its commercial customer demand for its enterprise solutions increased "significantly" worldwide in 2Q, driving its revenue growth. DELL reaffirmed its full-year outlook. Shares finished higher.

Marvell Technology Group Ltd. (MRVL $16) reported adjusted 4Q earnings of $0.40 per share, one cent above analysts' forecasts, with revenues jumping 40% y/y to $896 million, but was below the $907 million that was expected. The semiconductor firm said it experienced "significant" revenue growth in its mobile and wireless end market, which increased 50% quarter-over-quarter (q/q), while revenue from its networking market grew 4% over last quarter. MRVL added that despite the challenges of a softening macroeconomic environment for PCs, it continues to deliver best in class profitability on both operating and cash flow margins. MRVL said that "given the long-term confidence we have in our business model," it announced a $500 million share repurchase program. Shares were solidly higher.

Intuit Inc. (INTU $45) reported a fiscal 4Q loss ex-items of $0.05 per share, a narrower shortfall than the $0.10 loss that analysts were expecting, with revenues increasing 18% y/y to $537 million, exceeding that $500 million that was anticipated. The software firm said it is increasing its market share in the small business and consumer tax arenas. INTU issued full-year EPS guidance that topped expectations and announced a new stock repurchase program, in which it has authorized the purchase of $2 billion in stock. INTU was sharply higher.

Gap Inc. (GPS $17) achieved 2Q EPS of $0.36, one penny above the Street's forecast, with revenues rising 2% y/y to $3.3 billion, roughly inline with analysts' forecasts. Same-store sales-sales at stores open at least a year-rose 1%, with online sales increasing 15%. GPS said its economic model helped it deliver both sales and earnings growth, while it navigated some challenges along the way. GPS reaffirmed its full-year guidance and announced a new $750 million share repurchase program. Shares traded lower.

Salesforce.com Inc. (CRM $113) announced 2Q EPS of $0.29, two cents above analysts' expectations, while revenue grew 25% y/y to $394.4 million. The company added about 5,100 net new paying customers during the quarter and reported a 24% increase in deferred revenue, a closely watched metric that indicates the number of new sales during the quarter. CRM also raised its full year EPS target by 2 cents and CEO Marc Benioff noted that the company needs to add more employees to meet demand for its products. Shares of CRM were up over 16%.

Shares of J.M. Smucker Co.'s (SJM $60) also finished higher after the food company posted Q1 EPS of $1.04, which beat the Street’s estimate of $0.96. The company was helped by a lower tax rate and low commodity costs, although the food industry is anticipating newly rising commodity costs, leading SJM to say it would raise prices on a number of goods including coffee products.

Economic calendar quiet to end week that prompted mixed emotions

Treasuries finished lower on Friday after paring early gains that came from the disappointing start in the equity markets and as there were no major economic reports released today. The yield on the two-year note was 1 bp higher at 0.49%, the yield on the 10-year note increased 4 bps to 2.61% and the yield on the 30-year bond was flat at 3.66%. However, this week's economic calendar played a major role in the movements seen in the global equity markets, with a much better-than-forecasted increase in industrial production and continued subdued pricing pressures seen in the Producer Price Index helping to limit the sting of a slew of disappointing jobs, housing, and manufacturing data. Weekly initial jobless claims unexpectedly rose, reaching the 500,000 mark, housing starts and building permits came in below expectations, and the NAHB's homebuilder sentiment report surprisingly slipped, while regional manufacturing activity readings startled sentiment, headlined by an unexpected drop in the Philly Fed Manufacturing Index, which slipped to a level depicting contraction in Mid-Atlantic business activity for the first time since July 2009. Meanwhile, the international front provided some tallies to the negative column of the economic ledger this week, as Japan reported 2Q GDP growth that came in well short of forecasts, and the German ZEW Survey of Economic Sentiment Index-a gauge of investor confidence in Europe's largest economy over the next six months-fell to the lowest level since April 2009.

However, losses for the equity markets this week were limited by some positive earnings reports from the retail sector, and continued major M&A announcements, which boosted optimism that confidence may be growing in the corporate sector. Dow members Wal-Mart Stores Inc. (WMT $50) and Home Depot Inc. (HD $28) both exceeded the Street's profit projections, while Target Corp. (TGT $52) matched earnings and posted soft revenues, but it offered an upbeat outlook for same-store sales and said that the Street's 3Q and 4Q EPS estimates are "reasonable."

Meanwhile, dealmaking continued to ramp up, headlined by BHP Billiton (BHP $67) making and subsequently taking its near $39 billion, $130 per share cash bid to acquire Potash Corp. of Saskatchewan Inc. (POT $150) hostile. Moreover, Dow member Intel Corp. (INTC $19) reached an agreement to acquire security software firm McAfee Inc. (MFE $47) for $7.7 billion, while Dell Inc. signed an agreement to acquire storage solutions firm 3Par Inc. (PAR $18) for $1.15 billion in cash.

There was some economic news elsewhere in the Americas today, with Brazil's consumer prices unexpectedly falling for a second straight month, pushing the annual inflation rate below the government's target for the first time since January. Interest rate futures plunged. Consumer prices as measured by the IPCA-15 Index fell 0.05% in the month through mid-August. The 12-month inflation rate fell below the government's 4.5% target to 4.44%. A 0.68% decline in food prices, after a 0.8% decline last month, accounted for the bulk of deflation.

Euro data on the light side, Australia to hold elections this weekend

The euro-zone economic docket was void of any major releases, but media reports out of France suggested the government could reduce its economic growth outlook, which offered no support to sentiment across the pond. Also, in an interview with Bloomberg, European Central Bank council member Axel Weber said the ECB should help banks through end-of-year liquidity tensions before determining in the first quarter when to withdraw emergency lending measures. Weber is the frontrunner to succeed ECB President Jean-Claude Trichet next year, according to Bloomberg. Elsewhere in the euro-zone, the European Commission said that Greece is ahead of schedule in meeting its deficit-cutting commitments and making structural reforms, putting the country on track to receive its next loan installment on September 7th from the EU and IMF. Greece's goal is to reduce its budget deficit from 13.6% of GDP to within the EU’s limit of 3% by 2014.

In Asia/Pacific news, Australia will hold elections this weekend, and Reuters is reporting that polls are showing the ruling Labor Party is neck and neck with the conservative opposition, prompting concerns about a hung parliament, which could hamstring the nation's ability to make critical policy decisions. Elsewhere in the region, Japan's convenience store sales rose y/y in July, Hong Kong's consumer prices unexpectedly declined on a y/y basis in July, the pace of Taiwan's y/y export orders slowed more than expected in July, credit card spending in New Zealand declined month-over-month (m/m) in July, and growth in y/y department store sales in South Korea slowed, while the pace of gains in the nation’s discount store sales increased.

Next week chock full of economic data

The economic calendar starts off Tuesday with the release of existing home sales, forecasted to drop 14.3% m/m in July to an annual rate of 4.6 million units after falling 5.1% in June and dropping 2.2% in May. Sales of existing homes reflect closings from contracts entered one to two months earlier. The next day brings the release of new home sales, expected to be flat m/m in July to an annual rate of 330,000 after rising a surprising 23.6% in June after falling to a record low in May. Sales of new homes are considered a timely indicator of the housing market as sales are recorded as contracts are signed.

Durable goods orders will also be reported on Wednesday, expected to have risen 3.0% m/m in July after falling 1.0% in June, while ex-transportation, orders are forecasted to have grown 0.5% m/m in July, after declining 0.6% in June.

The week caps off with Friday's second reading of 2Q gross domestic product (GDP), expected to be revised much lower to 1.4% from the initial 2.4% reading, on a quarter-over-quarter annualized rate, after expanding by 3.7% in the first quarter. Personal consumption is expected to remain unrevised at 1.6%, down from the 1.9% pace in 1Q. No adjustments to inflation readings are expected, with the GDP Price Index anticipated to show a rise of 1.8%, while the core PCE Index, which excludes food and energy, is forecasted to increase 1.1%. The first reading was based on some data that was incomplete or subject to further revision. Since the initial reading, net trade data implied a decrease to growth, as imports (a subtraction from growth) outpaced exports, and inventory and construction data were worse than expected.

The economic soft patch that began in May has continued over the summer months, with retail sales and new home construction posting weaker-than-expected results, but manufacturing has continued to be a bright spot, with industrial production posting monthly growth in all but June this year. Retail sales over the summer have fallen from the quicker pace in the first quarter, after pent-up demand had been relinquished, warm weather kept back-to-school shoppers at bay, and consumers continue to be worried about the jobs market. Housing data continues to be distorted by the end of the tax credit, but the return to a more healthy market is contingent on job growth at a sufficient level.

Other US economic releases include the Richmond Fed Manufacturing Index, the MBA Mortgage Applications Index, weekly initial jobless claims, and the final University of Michigan Consumer Sentiment Index for August.

Elsewhere in the Americas, Canada releases retail sales, and Brazil announces employment data.

In Europe, releases include euro-zone PMI reports on manufacturing and services, industrial new orders and consumer confidence, German final 2Q GDP, CPI, consumer confidence and the IFO survey of business confidence. Additional reports include UK preliminary 2Q GDP and France jobseekers.

In Asia/Pacific, releases include Japanese CPI and employment, and the leading indexes for both Australia and China.