MarketView for July 31

Summary

The major equity indexes were lower across the board on Tuesday with traders' sights set again on Wednesday's Federal Reserve statement on the economy and a possible new round of stimulus.

The Nasdaq Composite, which underperformed on Monday, was the smallest decliner among the three major indexes in Tuesday's session, thanks in part to Apple, whose shares ended the day up 2.6 percent on continuing rumors of a new product debut in September.

Coach saw its share price fall 18.6 percent to $49.33 after the upscale handbag and leather goods maker reported lower-than-expected fourth-quarter sales. That drop was the worst single-day percentage drop for Coach's stock since September 17, 2001, which was the first trading day after the September 11 attacks on the World Trade Center and the Pentagon. Coach was the S&P 500's biggest loser in Tuesday's session.

For the month of July, the Dow rose 1 percent, while the S&P 500 climbed 1.3 percent and the Nasdaq added 0.2 percent. After seven months, the S&P 500 has gained nearly 10 percent for the year, despite a slowing world economy.

Cirrus Logic was also one of the Nasdaq's top gainers a day after the manufacturer of integrated circuits posted a better-than-expected quarterly profit. Its shares ended the day up 23.2 percent, closing at $36.77.

Facebook fell 6.2 percent to $21.71, their third consecutive record closing low, after a lackluster quarterly report last week showed decelerating user growth.

Pfizer rose 1.4 percent to end the day at $24.04, after earlier hitting a high of $24.48, its highest level since December 2007. The Company reported higher-than-expected quarterly earnings and affirmed its 2012 profit forecast.

According to Thomson Reuters data through Tuesday morning, of the 321 companies in the S&P 500 that have reported second-quarter earnings to date, 67.3 percent have reported earnings above analysts' expectations. Over the past four quarters, the average beat rate is 68 percent.

Home prices rose for the fourth month in a row in May, suggesting the housing market's recovery kept gaining traction, even as the broader economy is still struggling. Other data showed consumer confidence unexpectedly rose in July but spending fell in June for the first time in nearly a year as Americans saved more.

About 6.5 billion shares changed hands on the three major equity exchanges, a number that was well below the 2012 daily average of 6.74 billion through Monday's close.

Housing Recovery Gaining Traction

Home prices rose for the fourth month in a row in May, suggesting the recovery in the housing market continued to gain traction, even as the broader economy slows down a bit. The S&P/Case-Shiller composite index of 20 metropolitan areas gained 0.9 percent in May from April on a seasonally adjusted basis, exceeding expectations for a 0.5 percent gain.

The housing market, which collapsed during the 2007-2009 recession, has been a relatively bright spot in the economy this year, although it remains hobbled by tight mortgage availability and on-going foreclosures. On a non-seasonally adjusted basis, prices fared even better, rising 2.2 percent. Compared to a year ago, price declines amounted to 0.7 percent, the smallest drop since the last time year-over-year prices rose in September 2010. Reaction to the data was muted as the financial markets had their sights set on the Fed post-meeting comments.

However, keep in mind that prices could weaken again once the traditionally strong spring and summer buying season is over. Housing, which makes up a smaller share of the economy than before the recession, can provide only a limited lift to the broader recovery. And the economy has skidded downward somewhat in the wake of the euro zone debt crisis and a struggling domestic labor market.

The desire is to have the Fed do more to aid the economy as policymakers at the central bank start a two-day meeting today. While no major policy change is expected to be announced on Wednesday, it is not beyond the realm of possibility that the Fed could push further into the future its conditional pledge to keep rates near zero through late 2014.

Consumer spending, which makes up about 70 percent of U.S. economic activity, fell 0.1 percent in June after adjustment for rising prices, the Commerce Department said in a separate report. Before adjustment for inflation, spending was flat, just below forecasts for a 0.1 percent increase.

Household income rose in June by 0.5 percent - the most in three months - although nervous consumers socked away extra cash by saving more. With price-adjusted incomes rising in June and consumption falling, the saving rate for households rose to 4.4 percent, its highest level in a year.

Still, consumers' moods have not completely deteriorated and a separate gauge showed confidence unexpectedly rose in July as Americans were more optimistic about the short-term outlook than they were about their current situations.

The Conference Board said its index of consumer attitudes climbed to 65.9 from a upwardly revised 62.7 in June. Recent strength in the U.S. stock market likely boosted sentiment, economists said.

Despite the improvement, confidence remains well below levels before the financial crisis.

"Given the current economic environment - in particular the weak labor market - consumer confidence is not likely to gain any significant momentum in the coming months," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.

In the manufacturing sector, the pace of business activity in the U.S. Midwest rose in July, as somewhat stronger new orders offset a weakening labor environment.

The Institute for Supply Management-Chicago business barometer rose to 53.7 from 52.9 in June. The report comes a day ahead of two larger national manufacturing reports.