EmailThe stock market struggled on Tuesday amid a lack of leadership that was highlighted by further weakness in shares of Apple (AAPL). Notably, though, Apple worked its way back from larger losses in the afternoon. As it did so, the broader market continued to languish and ultimately finished near its low for the day.
It was surprising that the market was unresponsive to Apple's rebound effort. That suggested to us that macro forces were holding sway in a day of broad-based profit taking that was led by the cyclical sectors.
Selling interest has abated for the time being. The S&P futures are currently pointing to a flattish start for the equity market as the third quarter earnings reporting season gets underway.
Dow component Alcoa (AA) beat the consensus estimate by three cents. That's the good news. The bad news is that Alcoa's income from continuing operations declined 86% year-over-year while its revenue dropped 9.0%. Alcoa also cut its outlook for global aluminum demand growth to 6% from 7%.
In brief, the headline beat may have been good for a trade, yet the details of the report did not exactly make for the best investment case.
On the other hand, Yum! Brands (YUM) and Costco (COST) delivered for investors. Yum beat by two cents, posting 19% EPS growth on a 9% jump in revenue. Yum also raised its full-year guidance. Costco beat by eight cents, posting 29% EPS growth on a 14% increase in net sales.
The good news from these reporters, however, was diluted by an earnings warning from Cummins (CMI), which cited weak demand for lowering its Q3 and FY12 guidance below current consensus estimates. CMI's market cap is almost twice that of Alcoa, so it will have a greater influence on the S&P 500 in today's trading.
Separately, Chevron (CVX) warned that it expects third quarter earnings to be significantly lower than its second quarter earnings. Shares of CVX are trading 2.0% lower in pre-market action and will act as a drag on the energy sector.
This will probably be the character of the third quarter reporting period: pockets of company-specific strength that are counteracted with macro-based warnings. The next big reports this week will come from JPMorgan Chase (JPM) and Wells Fargo (WFC) on Friday.
Today's economic calendar features Wholesale Inventories for August (Briefing.com consensus 0.6%; prior 0.7%), the Treasury Budget for September (Briefing.com consensus $75.0 bln; prior -$62.8 bln), and the Fed's Beige Book.
These economic releases aren't expected to be market moving.
There will be a $21 bln 10-year Note auction, with results due to be released at 1:00 p.m. ET. Interestingly, the 10-year Note is down six ticks this morning with its yield at 1.74%.
The stock market had a bad day yesterday and it isn't indicated at the moment to be strong today. The safety trade, however, hasn't taken root, which suggests there is a sense of wait-and-see in the Treasury market to see if the equity pullback is a one-day wonder or perhaps something more.
--Patrick J. O'Hare, Briefing.com
