Bear Claws

How bad was it?

It was in the top five worst performances for the combined indices this year, and likely the third worst showing (at least for the Dow it was). What triggered the Tuesday tempest was poor showings by a multitude of companies reporting second quarter earnings, most notably, McDonald's (MCD) huge miss and a miss by DuPont (DD) prior to the market open and Texas Instrument's (TI) poor showing announced Monday after the close.

Dow 13,716.95 -226.47; NASDAQ 2,639.86 -50.72; S&P 500 1,511.04 -30.53; NYSE Composite 9,909.95 -211.63

Here are just some of the early headlines, which seemed to get worse as the trading session wore on.

IN PLAY: Corn Products reports 2Q07 results; beats by $0.09
DuPont reports flat 2Q earnings
Kimberly-Clark 2Q Profit Beats Outlook
Legg Mason profit climbs 22 percent
Lexmark net profit slips 16 percent
Northrop 2Q profit rises 7%
PepsiCo 2Q Profit Rises 13 Percent

While there were a smattering of positives, they were overwhelmed by more than just a few companies not meeting 2nd quarter estimates.

Declining issues crushed advancers by a 5-1 margin and new lows swamped new highs, 642-162.

Not even bonds, tame, with the 10-year note yielding 4.92%, or oil, down $1.33 to $73.56, could pick up the spirits on Wall Street. The continual unwinding of the sub-prime mortgage blow-up (now spreading into other credit areas) combined with the spate of earnings disappointments led to an all-out rush for the exits.

For those with weak stomachs, stop here, because I'm going to tell you why it's going to get worse the rest of the week.

First, more companies will be releasing earnings reports and some are certain to miss estimates. Investors are in a sour mood already, and they simply don't need any more reasons to sell. Later in the day, US Steel (X) reported a 25% dip in profits from the year ago period. Net income fell to $302 million, or $2.54 per diluted share, for the quarter, from $404 million, or $3.22 per share, during the same period last year. Analysts were looking for earnings of $2.35 per share on $4.05 billion in sales and the stock ended the day up 42 cents at 106.41.

After the close, Amazon (AMZN) booked solid profits. Earnings climbed to $78 million, or 19 cents per share, from $22 million, or 5 cents per share during the same period last year, soundly beating expectations of 16 cents per share.

Eli Lily (LLY) also reported after the close. Excluding charges, adjusted earnings totaled $978.7 million, or 90 cents per share. Analysts had expected 82 cents per share on that basis.

Tomorrow, in addition to the more than 300 companies reporting 2nd quarter earnings, the following report prior to the open:
Colgate-Palmolive (CL), ConocoPhillips (COP), DaimlerChrysler (DCX), Freeport-McMoRan Copper & Gold (FCX), GlaxoSmithKline (GSK), Xerox (XRX)

After the close:
Apple (AAPL), Pulte Homes (PHM), Symantec (SYMC), Boeing (BA).

Additionally, Existing Home Sales for June will be out at 10:00 am. On Thursday, New Home Sales figures for June and on Friday, the preliminary 2nd quarter GDP estimate.

With those economic reports on the way, traders may have taken an early hiatus, expecting the worse. It's likely to not be as bad as the worst skeptics suspect, but don't look for a quick turnaround - at least not this week.

Dwindling Gains and Is OPEC Friendly?

After barely surpassing the magical 14,000 mark last week, the Dow Jones Industrials struggled to get close again on Money Monday, but close was all they could do. The blue chip index got as close as 27 points from the mark, but that was all, and the index closed some 30 points below that level.

Dow 13,943.42 +92.34; NASDAQ 2,690.58 +2.98; S&P 500 1,545.90 +11.80; NYSE Composite 10,121.58 +41.65

While the Dow and S&P were up handily, the NASDAQ didn't fare quite so well, rising just less than 3 points on the session.

Earnings were still the driver, with Merck (MRK) and Schering-Plough (SGP) getting off first thing in the morning, prior to the open.

• Merck (MRK) said second-quarter net income rose to $1.68 billion, or 77 cents a share, from $1.5 billion, or 69 cents a share, a year earlier. Excluding restructuring and other charges, official earnings rose to 82 cents a share from 73 cents a share a year ago, exceeding the widely-held forecast of 72 cents per share. Shares of Merck soared on the news, up 3.31 to 52.33.


• Schering-Plough (SGP): Net income climbed to $517 million, or 34 cents per share, after preferred dividends for the quarter ended June 30 from $237 million, or 16 cents per share, a year ago. The stock lost 19 cents, closing the session at 31.30.


• For Dick Cheney lovers (and who doesn't love Dick?), Halliburton (HAL) reported net income of $1.53 billion, or $1.62 a share, up from $591 million, or 55 cents, a year earlier. The most recent quarter's results include a gain of $933 million relating to the KBR split. Analysts were only looking for 56 cents, so the stock made a new 52-week high during the trading session before closing up 1.17 at $37.74.


• After the close, American Express (AXP) reported second quarter net income for the quarter also totaled $1.1 billion, up 12 percent from $945 million a year ago, and 0.88 per share, up 16 percent from 0.76. Analysts were seeking 0.86 and their solid quarter should help stocks on Tuesday.


• Texas Instruments (TXN) reported revenue of $3.42 billion for the second quarter of 2007. Earnings per share (EPS) were $0.42, down from 0.47 in the year-ago period. The results were in line with expectations, but the results will do little to excite tech investors.

Decliners actually led advancing issues by a narrow ratio of roughly 16-15, while new highs narrowly beat new lows, 327-286. These numbers are in line with our own expectations that this earnings season is not as robust as Wall Street might like. With a preliminary reading on 2nd quarter GDP due out on Friday, this week could determine direction for the remainder of the summer, and it's not looking particularly encouraging.

Who's the best friend of the American motorist? Would you believe OPEC President and UAE Energy Minister Mohammed al-Hamli? How about Hasan Qabazard?

Concerned over high prices, al-Hamli said that the world economy was still expanding, despite the exorbitant price for crude. Analysts saw his comment as indicative that OPEC may announce a supply increase at their September meeting.

Qabazard, head of OPEC's global research division, stated separately that a price of between $60 and $65 per barrel would be advantageous for both producers and consumers.

Light crude settled 90 cents lower at $74.89 a barrel on the New York Mercantile Exchange. Kudos to our friends in the Arabian world! They actually may be more concerned - and effective - about lowering gas prices than our very own Congress or President. Ya gotta have friends...

Meanwhile, the rally in gold and silver was cut short, with both falling marginally on Monday.

With techs showing some weakness today and after-hours and readings on existing and new home sales due Wednesday and Thursday, respectively, Tuesday may be a good time to exit positions if the market doesn't respond well by mid-day.

Tomorrow's earnings calendar is reasonably heavy, with reports due from Amazon.com (AMZN), AT&T (T), DuPont (DD), Eli Lilly (LLY), JetBlue Airways (JBLU), McDonald's (MCD), Occidental Petroleum (OXY), PepsiCo (PEP), UPS (UPS), United States Steel (X), and many, many others.

Google, Caterpillar Sink Dow

After the close on Thursday, Google - for the second time in its brief 2-year existence as a public company - missed analyst expectations and sold off wildly in after-hours trading. On the open, Google (GOOG) was down 36 1/2 points, at 511.90, from the previous day's close. The stock regained some of the loss during the trading day, closing at 520.12, for a loss of 28.47.

With Google still fresh in the rear-view mirror, Caterpillar released second quarter results prior to the open, sinking the general market. The company earned $823 million, or $1.24 per share, in the three months ended June 30, down from $1.05 billion, or $1.52 per share during the same period last year. Analysts had expected a profit of $1.49 a share on revenue of $11.12 billion. The miss was staggering and shares traded lower by 3.78, closing at 83.20.

Dow 13,851.08 -149.33; NASDAQ 2,687.60 -32.44; S&P 500 1,534.10 -18.98; NYSE Composite 10,072.93 -121.08

Damage was widespread, as declining issues outpaced advancers by a 7-2 margin. New lows retook the edge over new highs for the second time in the last three sessions, 368-228.

Other issues reporting on the day were:

• Citigroup Inc. (C): Net income rose to $6.23 billion, or $1.24 per share, in the second quarter, from $5.27 billion, or $1.05 a share, in the same period a year earlier. Analysts had sought 1.13 per share, but, shares of the nation's largest bank still were down 40 cents on the day, closing at 50.73


• Schlumberger (SLB): Amid the dour tones of the day, the oil services company posted net income for April-June of $1.26 billion, or $1.02 per share, compared with $856.9 million, or 69 cents per share, in the year-earlier period. Revenue rose to $5.64 billion from $4.69 billion a year earlier. Analysts had expected earnings per share of 95 cents on revenue of $5.53 billion. Shares rose 3.23 to 96.68.


• Wachovia Corporation (WB): Net earnings increased 21.1% to $2.3 billion, or $1.22 per share, from $1.9 billion, or $1.17 per share in the year-earlier period. Those results were in line with analyst expectations of 1.22 per share. The stock, however, sold off sharply, finishing the session down 1.63, at 49.98

Microsoft (MSFT) was also in line with estimates, but was punished after a series of upside surprises. Shares of the software maker declined 0.35 to 31.16 on volume that was nearly double the average.

Oil dropped 35 cents to settle at $75.57. Gold rose another $6.60 to end at $684.70, while sister silver added 3 cents to $13.40. Friday was the culmination of the best week for the metals in at least 3 months.

Monday will witness more earnings reports with a number of heavyweights, including American Express (AXP), Halliburton (HAL), Merck (MRK), Schering-Plough (SGP) and Texas Instruments (TXN).

Results thus far have been less-than-inspiring, with a fair share of misses and few clear winners. The week will be important as the majority of US companies will have reported by Friday.

Economic indicators will also be in focus, with existing home sales at 10:00 a.m. on Wednesday, new home sales on Thursday and a preliminary reading on GDP for the 2nd quarter out prior to the market open on Friday. Analysts are expecting GDP to show a 3.2% gain. This, on the heels of first quarter's dismal 0.7% showing, may be a bit optimistic. Anything below 2.5% may signal further weakness and precipitous losses in stocks.

Late Surge Takes Struggling Dow Past 14,000; Google Misses

While the Dow spent all of the day in positive territory, it only broke through 14,000 briefly at various points during the session, and actually looked like it was not going to make it as of around 2:30 when the index hung about 40 points below the psychological barrier.

Dow 14,000.41 +82.19; NASDAQ 2,720.04 +20.55; S&P 500 1,553.08 +6.91; NYSE Composite 10,194.01 +45.73

A late-day surge sent the Dow over the top, setting another in a series of all-time closing highs. The NASDAQ and S&P followed suit as a spate of earnings eased investor fears, though there still were more than a fair share of misses on Wall Street. Technology stocks carried the day, with IBM leading the way.

Among companies reporting second quarter results, were:

• Bank of America (BAC): Net income rose to $5.76 billion, or $1.28 per share, from $5.48 billion, or $1.19 per share, a year ago, though the company set aside 1.81 billion to credit losses. Analysts were seeking $1.20. The stock traded marginally lower.


• Capital One Financial (COF): Net income totaled $750.4 million, or $1.89 per share, in the April-June period, up from $552.6 million, or $1.78 per share, in the year-ago quarter. Analysts were looking for $1.68 per share on revenue of $4.07 billion. The company reported revenue of $3.57 billion. Shares were off 87 cents prior to the after the bell announcement, but improved in after-hours trade.


• Google (GOOG): The Mountain View-based company earned $925.1 million, or $2.93 per share, during the three months ended in June. That compared with net income of $721.1 million, or $2.33 per share, at the same time last year. Analysts were looking for $3.59 per share. Shares were off more than 30 points (6%) in after-hours trading


• Honeywell (HON): Quarterly earnings rose to $611 million, or 78 cents per share, for the three months ended June 30 from $521 million, or 63 cents per share, in the year-ago period. Analysts expected 0.75 per share.

IBM, which announced earnings after Wednesday's close, rose another 4.78 to 115.86 after it reported a profit increase of 12% on unexpected gross income. The stock's stellar performance was responsible for much of Thursday's gain, though that may well be offset by Google's missing the mark. Google reported after the close on Thursday, so Friday may be a rocky session, with options expiration also occurring.

Advancing issues led decliners by a 19-12 margin. New highs moved back ahead of new lows, 464-220, a sharp reversal from yesterday.

Oil closed at its highest level of the year, $75.92, up another 87 cents on the day. Gold and silver traded higher with gold at $678.10, a $4.40 gain. Silver was up 9 cents to $13.38.

On tap for tomorrow (with analyst expectations):

• Caterpillar Inc. (CAT) 1.49


• Citigroup Inc. (C) 1.13


• Schlumberger (SLB) 0.95


• Wachovia Corporation (WB) 1.22

Markets Pare Gains on Profit Weakness

Earnings continued to roll out on Wednesday, with the following highlighting a heavy day of releases:

• CIT Group (CIT): Second-quarter loss after paying preferred dividends of $134.5 million, of 70 cents per share was reported, compared with a profit of $236 million, or $1.16 per share, in the year-ago period. The results include a charge of $495.3 million, or $2.58 per share, from the planned exit of its home lending business, making CIT yet another casualty of the subprime mortgage industry implosion. Analysts expected 1.35. The stock dropped 6.26 (11.29%) on the news.


• eBay (EBAY): Reported earnings of $375.8 million, or 27 cents per share, compared with earnings of $250 million, or 17 cents a share, for the same period last year. Analysts expected 0.32


• Gannett (GCI): Excluding a $73.8 million gain from the sale of several newspapers and earnings from discontinued operations in both periods, Gannett earned $289.9 million from continuing operations in the quarter, down 4.8 percent from $304.5 million in the same period a year earlier. Per-share earnings on the same basis came in at $1.24 versus $1.28 in the same period a year ago. Analysts expected 1.21


• Pfizer (PFE): Excluding items, adjusted profit fell 20 percent to $2.94 billion, or 42 cents per share, from $3.66 billion, or 50 cents per share, a year ago. Analysts expected 0.50


• Piper Jaffray (PJC): Second-quarter net income was $9.3 million, or 52 cents per share, compared with earnings of $4.1 million, or 21 cents per share, in the second quarter of 2006. Analysts expected 0.74. Shares were off 3.69 (6.72%).


• Southwest Airlines (LUV): Earned $278 million, or 36 cents per share in the April-June quarter, compared with $333 million, or 40 cents per share, a year earlier. After adjusting for fuel-hedging transactions, Southwest said it would have earned 25 cents per share. Analysts expected 0.22


• United Technologies (UTX): Earnings per share for the quarter that ended June 30 were $1.16. Analysts expected 1.15

Most of the big names offered disappointing results, and it took a toll on the overall market.

Dow 13,918.22 -53.33; NASDAQ 2,699.49 -12.80; S&P 500 1,546.17 -3.20; NYSE Composite 10,148.28 -22.08

The results thus far for companies reporting 2nd-quarter earnings have been mixed with some major misses, not a positive trend for a market that's just made new highs. Add to the sour mood of today, Fed Chairman Ben Bernanke's remarks that the sub-prime lending ordeal is likely to worsen, though the US economy is in good overall shape. He has his doubters, however, and signs of a significant slowdown are everywhere.

Today's trade was also somewhat deceptive. All of the indices were down more than twice their closing losses. Some serious tape-painting occurred in the last hour of trading.

Declining issues once again overwhelmed advancers, by nearly a 2-1 margin. New lows surpassed new highs for the first time in weeks, 375-229. This is a definite sell signal that's been building for weeks.

Oil continued to weigh on the market as well, with the price of crude for August delivery gaining another $1.03 on the NY Merc, to close at $75.03.

Gold moved up to $673.70, a gain of $7.80, while silver added 27 cents to close out at 13.29. There's a growing number of commodity specialists who believe the precious metals are due for another run-up on inflation concerns, though both are near historic highs and have been stuck in trenches for more than 18 months.

There may have been consolidation in these commodities as positions have been unraveled, though most of the speculators are calling for doubling or even tripling in price over the next 2-3 years. Those predictions have been around for years, and, following the movements of the metals, they are highly cyclical and they seem to be on the downside of their most recent bullish cycle.

On the other hand, the gold cycle is very long, and neither gold nor silver has yet to show signs of breaking the long term uptrend. With inflation running rampant, they are not the worst investments, but stocks have performed much better over the last year and a half. These should be only held in large quantity if the potential for a complete market crash is high, and that's certainly not the case at present.

Watch out for the remainder of this week. Any more profit disappointments may just cause outright flight from equities for the summer.