Daily Wrap
DJIA –138.85 (-0.94%) to 14,700.95; S&P 500 -14.87 (-0.93%) to 1,582.70; NASDAQ -14.09 (-0.49%) to 2,873.35
Mixed economic data including a bad ADP and construction spending number as well as poor economic data out of China helped send the major indices lower on the open. After midday, the Fed helped spark a small rally after reiterating their stance to be accommodative and even mentioned they will increase or decrease the pace of purchases in the future as necessary but this only provided a brief recovers and the market proceeded to sell off into the close.
In economic news today the calendar was pretty full and started with a disappointing ADP report which showed 119K new jobs after expectations of 154K. Manufacturing PMI and ISM Manufacturing both came in roughly inline with analysts expectations but Construction spending came in below estimates posting a -1.7% reading when a small gain was expected. The Federal Reserve left the interest rate target unchanged and also said it will continue the $85B in monthly bond purchases.
As was noted yesterday after Pfrizer’s (PFE) disappointing report, Merck (MRK) had their chance to show PFE’s numbers were company specific but unfortunately fell short. MRK actually beat current quarter EPS estimates but fell slightly short of revenues and then guided full year 2012 numbers below consensus estimates. Helping MRK move of the lows of the day was the announcement the board authorized additional purchases of up to $15B of Merck’s common stock. After closing down 2.79% today, MRK’s board will be able to put some of that $15B to work at lower prices.
Another big name moving on earnings today, but in the opposite direction as MRK, was Ultimate Software (ULTI) which closed up 12.44% after reporting EPS that handily beat analysts expectations on revenues that came in inline.
Today we had Total Vehicle sales with Ford (F) reporting an 18% increase from the prior year. General Motors’ (GM) and Chrysler’s (FIATY) both reported sales rose roughly 11%.
From the most actives list, Regeneron (REGN) gained over 10% after Allergan (AGN) announced a delay to a drug which is in direct competition with REGN’s Eylea. AGN also delayed another drug and reported EPS and revues which beat estimates but lowered full year 2013 guidance. AGN lost 13.10% on the day.
The following noteworthy companies are scheduled to report earnings before tomorrow’s open: EL, K, PCG, MMC, IP, CME, SRE, PPL, CI, BDX, XEL
In analyst notes today, Amgen (AMGN) received an upgrade to Conviction Buy at Goldman Sachs with a $130 price target and Freeport McMoRan (FCX) was upgraded to Buy at Nomura with a $38 price target. In the downgrades, Biogen (BIIB) was removed from the Conviction buy list (to make way for AMGN) and often downgraded names will remain with a Buy rating but Goldman went to a Neutral on BIIB. Some of these and other upgrades and downgrades for the day can be found each morning when I post my 9 @ 9 in the Upgrades/Downgrades section.
We all know the markets are stretched and have been on a tear of late. We also can all SEE the divergences in place as well as the lack of enthusiasm to immediately buy on each dip. Today could have market what we later look back at and call a doubt top in the S&P 500 but my only caution is that there have been many cases where we SAW a potential top and yet the trend remained the markets friend and we ultimately went higher. Remember my personal stance and suggestion as to how to trade this market since around March (actually was right around Easter). Continue to play the rally (best stock set-ups) but keep decreasing size so as you take a trade off, allocate less capital to new trade and therefore decrease risk. Why? Because even after everything I just noted about the trend, there will be that day it ends and having decreased exposure and locked in gains at that time will feel good and in my opinion is prudent. I think in the short term we will see a bounce, it likely won’t challenge the highs and ideally we might spend tomorrow down and even part of Friday before making a move and that next rally will be telling. What seems certain is we are in pattern where the swings will be large while the market goes through price discovery and if that scares you then maybe cash is your best position until there is more clarity.
