MarketView for August 5

 

 

Summary

 

Both the Dow Jones Industrial Average and the S&P 500 indexes were lower at the end of the day on Monday in the thinnest trading volume so far this year, as a lack of major news left the market directionless.

 

Although about 100 companies in the S&P 500 are still scheduled to report earnings, the season is winding down sharply after last week's deluge. The week is also thin in terms of market-moving macroeconomic data.

 

The technology sector was the S&P 500's best performer. A rally in Apple and Facebook helped the Nasdaq Composite Index finish Monday's session with a slim gain. Apple rose 1.5 percent to $469.45 after the United States overturned a ban on the sale of some older iPhones and iPads. Facebook, which was the Nasdaq's most actively traded stock, ended the day up 3 percent to close at $39.19 after a brokerage upgrade.

 

United Technologies and Travelers were the Dow's biggest percentage decliners. United Technologies shares fell 1 percent to $106.64, while Travelers shares fell 1 percent to $83.15.

 

The Washington Post rose 3.8 percent after the bell following news that Amazon founder Jeff Bezos has agreed to pay $250 million to buy the publishing company's newspaper assets, including its flagship paper - known for its coverage of the Watergate break-in that led to the resignation of President Richard M. Nixon in 1974.

 

Washington Post Class B shares ended the regular session at $568.70, up 1.6 percent, after climbing to an intraday high at $576, their highest level in more than four years.

 

The S&P 500 has risen for five of the past six weeks, gaining more than 7 percent over that period. The index closed at an all-time high on Friday despite a mixed reading on the labor market, which showed that hiring slowed in July, but the unemployment rate was slightly lower.

 

On the earnings front, shares of Tyson Foods rose 4.1 percent to close at $29.69, a record closing high, after giving a full-year revenue outlook that exceeded expectations.

 

In contrast, HSBC fell 4.5 percent to $55.37 after the company reported a drop in revenue, hurt by slower emerging markets.

 

Fossil fell 6 percent to $107.42 on three times their recent average volume after Barclays downgraded the stock to "underweight."

 

About 4.6 billion shares changed hands on the three major equity exchanges, making it the lowest full day volume so far this year. Daily volume has averaged about 6.4 billion shares this year. Last year, August posted the lowest monthly average volume on three major exchanges.

 

Of the 391 companies in the S&P 500 that have reported earnings for the second quarter, 67.8 percent have exceeded analysts' expectations, data from Thomson Reuters indicated. About 55 percent have reported revenue above estimates, more than in the past four quarters but below the historical average.

 

Growth Increase in Service Sector

 

The pace of growth in the services sector accelerated in July, up from a three-year low as new orders surged to their highest level in five months, a report by the Institute for Supply Management (ISM) indicated on Monday.

 

The (ISM) said its services index rose to 56 from 52.2 in June, easily topping economists' expectations for 53. The report likely added to views that economic growth will strengthen in the latter half of the year, as last week's ISM manufacturing report showed the sector's growth hit a two-year high in July.

 

The service sector figure surpassed even the high end of forecasts and matched what had been the high for the year reached in February. A reading above 50 indicates expansion in the sector.

 

The forward-looking new orders component also hit its highest level since February, jumping to 57.7 from 50.8. But the employment index softened, falling to 53.2 from 54.7.

 

The exports index moderated to 49.5 from 47.5, suggesting demand from abroad remained weak even as the measure shrank less than in June. The imports index slowed to 50.5 from 53.5.

 

Fed Survey Shows No Ill Effects of Higher Rates

 

Financial conditions remained favorable during the second quarter despite the spike in market interest rates, according to the latest Federal Reserve survey of bank senior loan officers. Banks eased lending conditions for commercial and industrial loans, and demand for consumer lending strengthened across the board, including the housing sector.

 

The increase in mortgage rates, a reaction in part to warnings from Fed officials that they may soon begin curtailing the pace of their bond-buying stimulus, has sparked concern that a nascent housing recovery might peter out. However, there were no signs in the Fed's report that the higher yields were having an adverse effect on bank loans.

 

"Domestic banks, on balance, reported having eased their lending standards and having experienced stronger demand in most loan categories over the past three months," the report said. In addition, about half of respondents reported stronger demand for commercial real estate lending. Still, some large banks reported weaker demand for commercial and industrial loans.

 

Washington Post Sold

 

Amazon founder Jeff Bezos will buy the Washington Post newspaper for $250 million in a surprise deal that ends the Graham family's 80-year ownership and hands one of the country's most influential publications to the tech entrepreneur. Bezos called his acquisition a personal endeavor and reassured Post employees and readers he will preserve the paper's journalistic tradition, while driving innovation.

 

Shares of the Washington Post Co climbed more than 5 percent to $599.85 after hours - their highest level in almost five years.

 

"I understand the critical role the Post plays in Washington, DC and our nation, and the Post's values will not change," Bezos said in a letter addressed to employees and published on the newspaper's website.

 

"There will of course be change at the Post over the coming years. That's essential and would have happened with or without new ownership," he added. "We will need to invent, which means we will need to experiment."

 

The Washington Post, home to journalists as the "Watergate" team of Bob Woodward and Carl Bernstein, is among the rapidly dwindling number of U.S. newspapers with a profitable business - a function of the rapid migration of readers to Internet and other digital media sources.

 

Warren Buffett owns a slice of its parent company, Washington Post Co, whose operating income has plummeted almost 40 percent since 2008, to $146.2 million in 2012.

 

Bezos will buy the Post along with other newspaper assets from the Washington Post. Amazon is to be kept separate from the Post deal, according to the Washington Post.

 

The deal, which caught many industry watchers by surprise, was arranged in private by Allen & Co. It comes on the heels of near-unprecedented media deal activity this year, with the Globe transaction announced just over the weekend, the Tribune Co hiving off its publishing and broadcasting businesses and the Los Angeles Times reportedly up for sale.

 

Washington Post Chairman and Chief Executive Donald E. Graham, whose family owns the paper, explained his decision to part ways with the publication, which will continue to be headed on a daily basis by CEO Katharine Weymouth.

 

"As the newspaper business continued to bring up questions to which we have no answers, Katharine and I began to ask ourselves if our small public company was still the best home for the newspaper. Our revenues had declined seven years in a row," Graham said in his letter to employees.

 

"Jeff Bezos' proven technology and business genius, his long-term approach and his personal decency make him a uniquely good new owner for the Post."

 

The transaction covers The Washington Post and other publishing businesses, including the Express newspaper, The Gazette Newspapers, Southern Maryland Newspapers, Fairfax County Times, El Tiempo Latino and Greater Washington Publishing.

 

Bezos is the world's 19th richest person with a fortune of $25.2 billion, according to Forbes magazine. His other major personal project is called Blue Origin, which aims to be one of the first non-government funded ventures to send people and cargo into space, potentially winning lucrative contracts that were once fulfilled by NASA. Bezos has already spent millions of dollars on this project, with millions more in the pipeline.

 

He did not elaborate in great detail on his motivations behind his latest deal on Monday. But in 2009, when asked at the debut of the Kindle 2 whether the electronic-reader could help print media, Bezos said he thought there were "genuine opportunities" to save journalism.