What to look for today July 24: The traditional Friday selling after a rally
Thank God it’s Friday.
After moving up so strongly–aother 4% gain on the Standard & Poor’s 500 stock index from Monday to Thursday–the stock market is almost certain to retreat tomorrow.
But because it’s a Friday–and the market almost always sells off on a Friday is stocks have been rallying in the first part of the week–and because Microsoft (MSFT) , Amazon.com (AMZN), and American Express (AXP) delivered bad earnings news after the closing bell, the market can sell off tomorrow and nobody will think much of it.
A sell off tomorrow won’t change investor sentiment or stock market momentum and we’re likely to be off to the races again on Monday.
Friday selling works like this. Investors–well, traders really–who have made good money over in the week tend to sell on Fridays. It’s part human nature and part risk management. Who wants leave gains exposed to the unpredictable nature of the news flow over a weekend when you can’t even trade if something goes against your positions. (The opposite tends to happen on Fridays after a losing week. Traders who have made money betting against the market during the week buy on Friday to bring their portfolios nearer to neutral.)
After a Thursday when the Dow Jones Industrial Average broke 9,000 again–a level not seen since December–and when the S&P 500 index took out its June 12 high–I’d certainly expect selling on that Friday.
Any normal Friday selling that we might have seen anyway will be strengthened of Friday July 24 by the disappointing earnings news announced by Microsoft, Amazon.com, and American Express late Thursday.
Microsoft managed to meet Wall Street earnings projections but revenue fell by 17.3% and wound up almost $1.3 billion short of Wall Street estimates.
Amazon.com disappointed by reporting exactly what Wall Street expected on earnings and revenue and then not saying anything about business improving in the September quarter
American Express beat estimates on earnings by a penny, but came ujp $400 million short on revenue. Revenue fell by more than 18% from the same quarter of 2008.
If stocks go down this Friday, no one will think much of it–it’s just a Friday correction. If they go up, against pattern, investors will read this as a sign that the rally has further to go.
All in all, TGIF.
and Especially since the earnings reports after the close
Update PepsiCo PEP
It’s still the same old story, a song of… Wait. That’s a different story. This one is about the way that a strong dollar has cut revenue and earnings in the second quarter now being reported for the big international consumer companies such as McDonald’s (MCD), Coca Cola (KO),and now PepsiCo (PEP).
Before the open on July 22, the company reported second quarter earnings of $1.06 a share, 6 cents a share above Wall Street estimates, but flat with the second quarter of 2008. Revenue fell $400 million short of Wall Street’s $10.99 billion in projected revenue, dropping about 3% from the second quarter of 2008.
Take out the effect of a stronger dollar, which makes overseas revenues denominated in baht, won, euros or whatever worth fewer dollars when they’fre translated for a U.S. company’s financials, and the story is very different. In constant currencies earnings per share climbed 8% and revenue was up 5.5%. Read more
Things go better–but not better enough–with Coke
Investors didn’t like Coca Cola’s (KO) second quarter earnings reported before the open on July 21. The stock was down around 2% at 1:30 p.m. ET that day.
I’ve got to wonder what they’re been drinking. If you look beyond the problems created by a stronger U.S. dollar Coke turned in a quarter with enough growth to keep the company’s momentum going.
Second quarter earnings came to 92 cents a share, before one-time items. That was 3 cents a share better than the Wall Street consensus but still represents a drop of 9% from earnings in the second quarter of 2008. Revenue flel 8.6% to just $8.27 billion, significantly below the $8.66 billion projected by Wall Street analysts.
The culprit in the case of both revenue and earnings was a stronger dollar. (When the dollar goes up, Coke’s revenue earned overseas in India, China, Europe, wherever, translates into fewer dollars on the company’s books.) Read more
