Markets Lower, Closing News 8/2/11

The Dow closed lower for the eighth straight session, a streak that has not been matched since October 2008. Markets fell today on concerns about a downgrade of the US credit rating despite a deal being reached on the US debt ceiling, the report on personal income and spending which missed expectations, and concerns that the jobs number being reported on Friday will disappoint. Today’s losses turned the S&P 500 negative on the year, and the Dow crossed below 12,000, and is now less than 200 points away from crossing into negative territory for the year.

It wasn’t quite the 11th hour, but President Obama signed into law this afternoon the debt ceiling bill that was passed by the Senate in a 76-24 vote early this afternoon. The deal creates a 12-person bipartisan committee to make recommendations for further spending cuts. If the committee is unable to come up with sufficient cuts, or cannot reach a deal by November 23, 2012, there are automatic cuts that will go into place.

Fitch announced that the proposed debt ceiling plan was consistent with the United States’ AAA credit rating, but that the full review will not be completed for approximately a month. Fitch’s announcement did little to calm investors’ concerns about a possible S&P down grade, which could lead to higher borrowing costs. The concern was evidenced by gold hitting a new high ($1660.50) this afternoon, as investors flocked into the “risk off” trade.

Personal Income was reported lighter than expected, coming in at +0.1% vs. estimates of 0.2%. Personal spending fell for the first time since 2009, reported declining by 0.2% vs. economists’ estimated of a 0.2% increase. Consumers are hesitant to spend because of the slow recovery in the labor market as unemployment remains above 9.0%. Also signaling consumers’ concerns about the economic recovery is the increase in Americans’ savings rate, up 0.4% to 5.4%, the highest reading since September.

Revisiting the decision to give Derek Jeter the home run ball from his 3,000th hit, bids for a foul ball from the at bat in which he hit the historic home run reached $17,392 at auction over the weekend. However, the ball wasn’t sold because, and this is the kicker, it didn’t reach the sellers asking price.

Market Indices/Statistics:

  • Dow closed down 265.87 pts/-2.19% to 11,866.62
  • S&P closed down 32.89 pts/-2.56% to 1,254.05
  • Nasdaq closed down 75.37 pts/-2.75% to 2,669.24
  • All 30 Dow stocks closed lower
  • All 10 S&P 500 sectors closed lower (all by at least 1.25%)
  • Consumer Discretionary was the worst performing sector (down 3.67%)
  • The VIX was up 0.98 pts to 24.64
  • Oil is down $1.53 to $93.36
  • Nat Gas is down $0.039 to $4.149
  • Gold is up $38.50 to $1,660.50
  • Euro vs. Dollar down $0.0066 to $1.4193
  • Dollar vs. Yen down $0.33 to $77.06

Companies in the News:

Fresenius Medical Care announced it reached an agreement to acquire Liberty Dialysis Holdings, Inc. for approximately $1.7 billion. The merger is expected to close in early 2012, and Fresenius Medical Care anticipates the deal will be accretive to earnings in the first year. Shares of FMS traded 2.42% lower to $72.84 in today’s session.

Shares of Telefonos de Mexico SA de CV jumped today (+9.16% to $17.76) after America Movil announced it intends to purchase the remaining outstanding shares of Telemex for 10.50 pesos per share. America Movil currently owns 60% of the shares of Telemex.

McGraw Hill Companies traded higher (+7.29% to $44.43) after the Ontario Teachers’ Pension Plan Board and Jana Partners LLC announced they have increased their stake in MHP to 5.4%, and will meet with the board to discuss the business. Investors are speculating that the increased stake could lead to a proxy fight and a possible split of the company.

Earnings:

Shares of Archer Daniels Midland fell today (-6.17% to $28.60) after reporting Q4 earnings per share of $0.58 per share on $22.9 billion revenue vs. consensus of $0.85 per share on $20.43 billion revenue. Profits were hurt by corn prices which hit record highs during the quarter, and a one-time items that resulted in a 50% income tax rate.Pfizer also traded lower (-4.58% to $18.14) following its Q2 earnings report out before the bell. PFE reported 2Q earnings per share of $0.60 excluding items on $17 billion in revenue, slightly higher than the forecast of $0.59 on revenue of $16.98 billion. Shares were under pressure because earnings may have been slightly aided by a lower tax rate.

Barclays reported a H1 profit of £2.64 billion, down from £3.95 billion year over year. The British bank announced it will cut 3,000 jobs this year after commodities trading and bond trading both contributed to muted profits for the period. Shares of BCS traded down 2.30% to $14.02.

MetroPCS Communications tumbled (-36.59% to $10.26) in trading today after reporting 2Q earnings this morning. MetroPCS reported Q2 earnings per share of $0.23 on revenue of $1.2 billion, missing estimates of $0.28 per share on $1.23 billion revenue that analysts’ had been forecasting. Shares were also under pressure because  the subscriber additions fell to 200k, down from 795k the previous quarter.

Coming Wednesday:

Economic Reports:Mortgage Applications at 7:30am, ADP Payroll Estimates (expected to be 85k) at 8:15 am, Factory Orders (expected to be -0.7) and ISM (expected to be 53) at 10:00 am; Earnings from Clorox, KKR, Mastercard, Owens Corning, Williams Cos.