Corporate earnings were once again the catalyst for renewed investor confidence and eventually led the benchmarks to their third consecutive day of gains. However, markets had to endure another round of weak economic readings, as initial claims rose, manufacturing contracted and existing home sales came in below expectations. These dismal readings did limit gains, but economic stimulus hopes lingered on to somewhat help the benchmarks' uptrend.
The Dow Jones Industrial Average (DJI) gained 0.3% and closed at 12,943.36. The Standard & Poor 500 (S&P 500) edged up 0.3% to finish yesterday's trading session at 1,376.51. The tech-laden Nasdaq Composite Index outperformed the fellow benchmarks as it rose 0.8% to end at 2,965.90. The fear-gauge CBOE Volatility Index (VIX) dropped 4.4% and settled at 15.45. Consolidated volumes on the New York Stock Exchange, the Nasdaq and the American Stock Exchange were roughly 6.5 billion shares, lower than the 50-day moving average of 6.7 billion shares. The advancers had a better run than declining stocks on the NYSE, as for 51% of the gainers, 45% stocks closed in the red.
Expectations had been anything but robust during the onset of earnings season this time. However, till now some market majors have delivered encouraging figures and have helped the markets end in the green on certain days. Last Friday, it was encouraging figures from financial bellwether JPMorgan Chase & Co. (NYSE: JPM ) that helped markets to reverse their six-day losing streak.
This week too things have looked somewhat bright on the earnings front. Through the week, The Goldman Sachs Group, Inc. (NYSE: GS ) Citigroup, Inc. (NYSE: C ), The Coca-Cola Company (NYSE: KO ) and Mattel, Inc. (NASDAQ: MAT ) reported encouraging numbers. The technology sector too joined the party following a positive earnings release from Intel Corporation (NASDAQ: INTC ).
Yesterday, it was yet again corporate result that drove the markets upward. Another tech-heavyweight International Business Machines Corporation (NYSE: IBM ) boosted sentiment after its second quarter earnings surpassed estimates. The company's shares rose 3.8%. Even more encouraging was the fact that IBM upped its earnings forecast for fiscal 2012. IBM hiked its earnings forecast at a time when other tech companies including Advanced Micro Devices, Inc. (NYSE: AMD ), Applied Materials, Inc. (NASDAQ: AMAT ) and Infosys Ltd ADR (NASDAQ: INFY ) have slashed their estimates.
The tech sector enjoyed an upward rally and the Technology Select Sector SPDR (XLK) gained 0.9%. Other tech companies such as Oracle Corporation (NASDAQ: ORCL ), Red Hat, Inc. (NYSE: RHT ), Apple Inc. (NASDAQ: AAPL ) and Dell Inc. (NASADQ: DELL ) jumped 1.2%, 3.1%, 1.3% and 1.3%, respectively.
Separately, eBay Inc. (NASDAQ: EBAY ) also added to the cheer following encouraging second quarter numbers. The company managed to beat both the top and bottom-line expectations. Meanwhile, eBay chopped its third-quarter earnings estimate, but that did not stop the share from gaining 8.6%.
Amidst the positive numbers, Morgan Stanley's (NYSE: MS ) second quarter figures were grim as it failed to beat earnings as well as the revenue estimates. Consequently, shares lost 5.3%. Another financial firm American Express Company's (NYSE: AXP ) shares slipped 3.5% as its second quarter results failed to impress.
While corporate results hogged the limelight yesterday, some economic readings were also released. However, these were mostly discouraging and somewhat tainted the cheery mood. The U.S. Department of Labor indicated an uptrend in initial claims. According to the report, the advance figure for seasonally adjusted initial claims increased 34,000 from previous week to 386,000 in the week ending July 14. Consensus estimates had projected the reading to come in at 367, 000.
Housing data too was on the negative side. The National Association of Realtors reported that total existing home sales have dropped 5.4% from 4.62 million in May to 4.37 million in June. Consensus estimates projected the figure to be 4.64 million.
Separately, Philadelphia Federal Reserve's Business Outlook Survey for July continued to indicate that manufacturing numbers were in the negative zone. It was the third-consecutive contraction as the "survey's broadest measure of manufacturing conditions, the diffusion index of current activity" moved to a negative 12.9 from negative 16.6 last month. This was far short of consensus estimates that projected the index to improve to a negative 6.22.
This week, markets have remained upbeat about fresh economic stimulus. Federal Reserve Chairman Ben Bernanke was critical about the economy in his congressional testimony and he noted that the pace of improvement in unemployment remains "frustratingly slow. However, the dismal economic conditions, and the acknowledgement of this situation by Bernanke, helped to spark of fresh hopes about a round of third quantitative easing (QE3). On the second day of his testimony, he said: "It may be possible that we will take additional action if we conclude we are not making progress towards higher levels of employment." Thus hopes of QE3 once again grew stronger and lingered on to partially help the benchmarks' green finish. Eventually, thanks also to positive corporate results, benchmarks are trading higher for the week. With just a day more to go, the Dow, S&P 500 and the Nasdaq are up 1.3%, 1.5% and 2.0%, respectively.