YAHOO [BRIEFING.COM]: The
S&P 500 lost 4% this week, and that move is primarily attributable to
growing concerns about lawmakers ability to come to an agreement on the U.S.
debt ceiling, and the subsequent downgrade of U.S. credit by one of the ratings
agencies, which could materialize even if a debt agreement is reached.
We saw this uncertainty play
out in various markets throughout the week, and the most striking result was
the 45% increase in the VIX Volatility Index, which measures volatility expectations.
The increase in the VIX illustrates a much greater degree of uncertainty about
the market, and represents an increased cost of downside protection in the form
of put options.
The flow of money into safer
assets has also resulted in a 1.6% gain in gold prices to fresh all-time highs,
as gold could be the ultimate safety shelter if things deteriorate elsewhere.
Additionally, and perhaps surprisingly, U.S. treasuries found a bid this week,
sending 10-year yields lower by 16 bps to 2.80% (yes, this is the debt that is
at risk of being downgraded!). The bid in treasuries is another safety trade,
because despite the current situation, there is little fear that treasuries
will lose their standing as one of the most risk-free returns in the world.
There could be an extension of
these moves in equities, volatility and gold if some sort of deal isn't reached
by the August 2 deadline. As we've seen in the past, further selling in the
stock market could become the catalyst to a compromise if one is not reached in
due time. As such, this weekend will be a very important one in Washington, as
the two sides of the aisle will presumably be working toward some sort of
compromise.
Looking more closely at
today's action, we're closing out the week on more negative headlines, with
little concrete progress on the debt limit negotiations and a weak Q2 GDP
reading, which came on top of a negative revision to Q1.
Despite the negativity, there
were a few factors that have allowed the market to rebound from its pre-market
lows. First, as the S&P 500 futures sold off in reaction to the GDP data,
they managed to hold their 200-day moving average, which is a positive from a
technical standpoint. Then, after holding onto to a modest recovery from the
lows, the markets extended their bounce as headlines crossed newswires
suggesting more Republican representatives are supporting the House bill, along
with some details of a revised plan calling for short-term extension with a 2nd
increase contingent on a Balanced Budget Amendment. The early bounce in the
market likely involved some short-covering after the S&P 500 held its
200-day moving average, ahead of the possibility for a weekend deal.
Earnings season progressed
this week, and roughly 2/3 of the S&P 500 companies have now reported their
results. Overall, the earnings results are surpassing consensus expectations,
with about 2/3 of companies beating bottom-line earnings estimates, and a
slightly higher proportion of companies beating the top-line sales
expectations. One of today's biggest movers on earnings is storage company STEC (STEC 10.17, -6.53), which is -39% after
reporting a disappointing quarter and issuing guidance that was well below
expectations.
Additionally, online travel
company Expedia (EXPE 31.69, +2.70) released earnings of $0.55 per share which
topped the Capital IQ Consensus Estimate by $0.06, and hit an all-time high on
today's pop of more than 12%. Revenues also beat forecasts, climbing 22.7% year
over year to $1.02 billion. Gross bookings surged 19% versus the previous year
with domestic bookings jumping 10% and international bookings surging 37%.
Shares of Starbucks (SBUX 40.09, +0.11) are one of the bright
spots today after reporting better than expected earnings following yesterday's
close. The company announced earnings per share of $0.36 which topped the
Capital IQ Consensus Estimate by $0.02. Revenues for the third quarter rose
12.3% year over year to $2.9 billion ($2.84 billion consensus) while
consolidated same store sales climbed 8%. In-line guidance for full year 2011
shows earnings per share of $1.50-1.51. The company plans to accelerate growth
by opening approximately 800 net new stores globally in 2012.
Trade in the commodities
markets this week was largely based around the ongoing negotiations between
Democrats and Republicans in an attempt to come to some sort of agreement on
how to fix the countries debt problem. While commodities certainly focused on
the shrinking timeline that the government has to negotiate today, this
morning's worse than expected GDP data was the main focus. On the back of that
number, precious metals rallied and crude oil futures dropped. Dec gold finished
higher by 0.8% to $1629.20 per ounce. The continuous gold contract traded to a
new all time high today at $1634.90, and rallied for almost 20 points on the
week. Sept silver finished up 0.7% to $40.08 per ounce. Silver futures shed
close to 30 cents on the week.
Sept crude oil settled lower
by 1.8% to $95.70 per barrel, its lowest close since July 18. Crude oil was
able to hold the key $95 support area after notching lows at $94.95 earlier
this morning. On the week crude oil shed over $4 (4.2%), and on the month
futures gained a modest 28 cents. Sept natural gas settled down 9 cents to
$4.15 per MMBtu, trading to its worst levels since July 8.
Gold miner Newmont Mining (NEM 55.61, -2.12) is down close to 3.0%
after earnings for second quarter fell short of estimates. The company
announced earnings of $0.90 per share, excluding non-recurring items, which
were $0.09 worse than the Capital IQ Consensus Estimate. Revenues rose 10.7%
year over year to $2.38 billion, but missed the Capital IQ Consensus Estimate
of $2.51 billion. The company's outlook for gold production during 2011 remains
on track for the previously announced 5.1 to 5.3 million ounces. DJ30 -96.80
NASDAQ -9.87 SP500 -8.38 NASDAQ Adv/Vol/Dec 1120/2.22 bln/1458 NYSE Adv/Vol/Dec
1055/1.20 bln/1981