Opening View: Investors Ignore Upbeat Earnings as German GDP Weighs on Sentiment

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The Dow notched its third straight victory on Monday, as M&A mania swept the Street. However, as we've seen in recent weeks, the bulls shouldn't get too comfortable in the driver's seat, as the market has been prone to sharp upswings and downswings from day to day. That being said, futures on all three major indexes are pointing lower this morning, as downbeat data from Germany has taken the wind out of the bulls' sails. Specifically, it was reported that Germany's economy expanded just 0.1% in the second quarter from the preceding three months -- a discouraging reversal from the 1.3% growth posted in the first quarter. This news has simply bolstered fears of a global economic downturn, with futures on the Dow Jones Industrial Average (DJIA) pointing to a starkly lower open. However, a duo of upbeat reports from retail titans Wal-Mart Stores (WMT - 49.98) and The Home Depot (HD - 31.46) may help boost sentiment, as could today's reports on housing and industrial production.

Dow, S&P and Nasdaq futures

In earnings news, retail heavyweight WMT reported that its second-quarter net income climbed to $3.8 billion from $3.6 billion, with earnings coming in at $1.09 per share. Meanwhile, net sales jumped 5.5% to $108.64 billion, while net revenue rose 5.4% to $109.37 billion. Analysts had predicted WMT to post a slightly slimmer profit of $1.08 per share on $108.1 billion of revenue. Wal-Mart's U.S. comparable-store sales fell 0.9%, marking the ninth straight quarterly decline, as consumers have tightened their belts as a result of the still-struggling economy. However, it seems traders have taken a glass-half-full approach to the report, with WMT up 2% ahead of the open.

HD said its second-quarter net income rose 14% as a result of higher net sales and comparable-store sales. For the quarter, HD reported a profit of $1.36 billion, up from $1.19 billion in the year-earlier period, while earnings jumped to 86 cents per share. Meanwhile, revenue arrived at $20.23 billion. Analysts had predicted HD to post a profit of 83 cents per share on revenue of $19.97 billion. What's more, the home improvement retailer also upped its outlook for the year, saying it now expects a profit of $2.34 per share; analysts had forecast slimmer fiscal-year earnings of $2.30 per share.

Agilent Technologies (A - 37.50) reported a fiscal third-quarter profit of $330 million, or 92 cents per share, up 61% from its year-ago earnings of $205 million, or 58 cents per share. Excluding items, Agilent earned 77 cents per share, while revenue climbed 22% to $1.69 billion. The results topped analysts' expectations for a profit of 73 cents per share on $1.66 billion in revenue. Looking ahead, the company raised its full-year forecast, with Agilent now predicting adjusted earnings of $2.90 to $2.92 per share on revenue of $6.64 billion to $6.66 billion. For comparison, Wall Street's consensus estimates are calling for a fiscal 2011 profit of $2.88 per share on $6.62 billion in revenue.

Urban Outfitters (URBN - 29.69) confessed that its second-quarter profit fell 21% to $56.7 million, or 35 cents per share, even as revenue improved 10% to $609.2 million. Gross margin for the quarter contracted to 37.9% from 42.5%, due to deeper discounts at its Anthropologie and Urban Outfitters chains. However, the results actually topped analysts' expectations, with Wall Street looking for a profit of just 32 cents per share on $604 million in revenue.

Earnings Preview

Today's earnings docket will feature reports from Saks ( SKS ), Dick's Sporting Goods ( DKS ), TJX Companies ( TJX ), Dell ( DELL ), Analog Devices ( ADI ), JinkoSolar (JKS), and Perrigo (PRGO). Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

Today's docket includes July housing starts, import/export prices, industrial production, and capacity utilization. Inflation data starts to hit the Street on Wednesday, with the release of the producer price index (PPI) and core PPI for July. Initial and continuing jobless claims are on the calendar for Thursday, along with the consumer price index (CPI) and core CPI for July. Traders will also hear about existing home sales and the Conference Board's index of leading economic indicators for July, as well as the August Philadelphia Fed index. There are no major economic reports on Friday.

Market Statistics

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 976,356 call contracts traded on Monday, compared to 680,288 put contracts. The resultant single-session put/call ratio arrived at 0.70, while the 21-day moving average was 0.73.

NYSE and Nasdaq summary

Volatility indices

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Overseas Trading

Asian markets ended mixed today, as troubling economic data kept some bulls on the sidelines. Taking their cues from Wall Street, Seoul-listed equities enjoyed their biggest daily percentage gain in two years after a long holiday weekend. Meanwhile, Google's bid to acquire Motorola Mobility provided a boost for smartphone stocks across the region. However, Shanghai snapped a four-day winning streak, as lingering macroeconomic anxieties prompted a round of profit-taking. By the close, China's Shanghai Composite lost 0.7%, Hong Kong's Hang Seng gave up 0.2%, Japan's Nikkei added 0.2%, and South Korea's Kospi rallied 4.8%.

European shares are solidly lower at midday, as traders respond to a lackluster reading on Germany's gross domestic product (GDP). In fact, frustratingly sluggish growth in Germany also translated to a softer-than-anticipated reading on the broader euro zone's GDP, which edged up only 0.2% during the three months ended in June. As a result, the bears are firmly in control, as German Chancellor Angela Merkel prepares to meet with French President Nicolas Sarkozy to discuss ongoing debt concerns. At last check, the German DAX is down 2.7%, the French CAC 40 has shed 2%, and London's FTSE 100 is off 1.5%.

Overseas markets

Currencies and Commodities

Crude has surrendered a portion of Monday's gains, when M&A mania and an upbeat GDP report from Japan boosted black gold to a close above $87 for the first time since Aug. 3. However, weak data out of Germany is weighing heavily this morning, with crude futures currently 1.2 points, or 1.4%, lower. Meanwhile, the dollar has edged higher this morning -- a factor which also tends to have a negative effect on black gold. Ahead of the open, the U.S. dollar index is up 0.3 point, or 0.4%. Finally, gold is looking to resume its rally to record highs amid an uncertain economic climate, with the precious metal up 21.3 points, or 1.2%, in pre-market trading.

Currencies and commodities

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This article appears in: Investing , Options

Referenced Stocks: ADI , DELL , DKS , SKS , TJX

Schaeffer's Investment Research

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