MarketView for July 24

Summary

It was a bit of a rough day on Wall Street on Wednesday as falling utility and commodity shares more than offset gains in the tech sector on Apple's solid earnings. The Dow Jones Industrial Average ended the day slightly lower, one day after closing at a record high. Weak results from Caterpillar and AT&T did nothing to help matters.

Yet, earnings, as a whole, were mixed, with better-than-expected news from Boeing. Nonetheless, Boeing’s shares also ended the day lower, falling 0.8 percent to close at $106.95 after hitting a lifetime intraday high of $109.48. Caterpillar was down 2.4 percent to closing at $83.44, while AT&T ended the day down 1.2 percent, closing at $35.40.

The benchmark S&P 500 index logged its first back-to-back declines in a month. On Tuesday, the S&P 500 closed slightly lower after setting a record intraday high of 1,698.78. The tech-driven Nasdaq barely finished in positive territory, eking out a gain of less than a point despite a 5.1 percent jump in shares of Apple.

Shares of Facebook were up 20.1 percent in extended-hours trading after the company said its revenue in the second quarter increased 53 percent, surpassing Wall Street's targets. During regular trading, Facebook's chalked up a gain of only 1.5 percent to end the day at $26.51, ahead of its results.

Baidu rose 12.2 percent in extended-hours trading after China's largest search engine posted slightly better-than-expected revenue of $1.23 billion in the second quarter. Baidu ended regular trading at $113.37, up 3.2 percent ahead of its earnings.

In other trading after the bell, Visa added 2.1 percent after the company reported quarterly earnings that exceeded Street estimates, as customers spent more using its cards. Visa also raised its outlook for full-year revenue and earnings. Visa's stock ended regular trading at $186.75, down 1 percent.

Shares of Ameriprise Financial were unchanged in extended-hours trading after the company reported a stronger-than-expected rise in second-quarter earnings. The company credited its wealth management business with driving its results. The stock ended the regular session at $86.24, down 0.5 percent.

Qualcomm rose 4.5 percent in extended-hours trading after the leading mobile chipmaker posted third-quarter results that met expectations and eased concerns about slower growth of smartphone sales. During Wednesday's session, Qualcomm fell 1.5 percent to $61.39, ahead of its results.

Nonetheless, share prices were down across the board during Wednesday's regular trading hours. Nine of the 10 S&P 500 industry sector indexes slipped downward. The utilities index was the worst performer, shedding 1.6 percent, while the materials and energy indexes fell nearly 1 percent apiece. Yet, the S&P 500 has added as much as 7.8 percent since late June, and it has set some record closing highs along the way.

Tech bellwether Apple rose 5.1 percent to $440.51 a day after it reported earnings and revenues that were higher than Street estimates, helping to keep the Nasdaq afloat and bolster the S&P 500's tech sector as well. The S&P tech sector index was up 0.86 percent to end the day at 506.92, after climbing as much as 1.4 percent earlier in the day.

T. Rowe Price fell 5 percent to end the day at $75.61 after the asset management company reported second-quarter results that missed Wall Street's expectations.

Broadcom closed down 15.1 percent to $27.01 a day after the chipmaker forecast lower-than-expected third-quarter revenue. At least four brokerages cut their ratings and about 10 lowered their price targets on Broadcom's stock.

Of the 169 companies in the S&P 500 that have reported results so far this season, 65.7 percent have exceeded consensus expectations for earnings and 53.3 percent have posted revenue above forecasts. Over the past four quarters, 67 percent of companies have exceeded earnings estimates.

Shares of little-known uranium company USEC gained for a ninth consecutive day, extending a meteoric rise. On Wednesday, the stock ended the day up 7.1 percent at $13.35.

About 6.2 billion shares changed hands on major equity exchanges, a number that was slightly below the daily average of about 6.4 billion shares.

New Home Sales at 5-Year High

New home sales reached a five-year high in June, while other data on Wednesday showed an acceleration in factory activity during July, raising expectations of a third-quarter pick-up in economic growth. According to a report released by the Commerce Department, single-family home sales increased 8.3 percent to a seasonally adjusted annual rate of 497,000 units, the highest level since May 2008. Moreover, there are no signs yet of any slowing in the face of higher mortgage rates,

The consensus was for sales to hit a 482,000-unit rate. One reason for the rise might be that buyers sitting on the fence rushed into the market to lock in lower rates in anticipation of mortgage rates moving even higher. Although the government revised downward sales from March through May by a total 38,000 units, the overall tone of the report was bullish. Compared with June last year, single-family home sales were up 38.1 percent, the largest increase since January 1992.

There had been worries that higher borrowing costs could crimp the housing market recovery after a report on Monday showed a surprise drop in home re-sales in June. Mortgage rates have been rising in anticipation of the Federal Reserve starting to reduce its massive monetary stimulus later this year. According to Freddie Mac, the 30-year fixed mortgage rate increased 0.53 percentage point in June to 4.07 percent, its highest level since October 2011. Still, mortgage rates, which edged lower last week, remain low by historical standards and economists, including Fed Chairman Ben Bernanke, believe the fundamentals in the housing market are strong enough to withstand the rise in borrowing costs.

The strengthening housing market is lending support to manufacturing, which has been hit by deep federal government spending cuts and slowing global demand. A rebound in new orders helped to lift factory activity to a four-month high in July. Financial data firm Markit's "flash," or preliminary, Manufacturing Purchasing Managers Index rose to 53.2 this month from 51.9 in June. A reading above 50 indicates expansion in the nation's factory sector. The acceleration in factory activity offered a hopeful sign for the economy, which has shifted into low gear amid tighter fiscal policy.

The economy is expected to have expanded at a rate below 1 percent in the second quarter, a sharp slowdown from the 1.8 percent pace recorded in the first three months of the year.

While the inventory of new homes on the market last month increased to its highest level since August 2011, supply remains tight, putting upward pressure on prices. The median new home price increased 7.4 percent in June from a year ago. Economists said the strong sales pace, which is keeping supply low, should spur builders to break ground on new projects and boost gross domestic product growth.

At June's sales pace it would take 3.9 months to clear the houses on the market, down from 4.2 months in May. A supply of six months is normally considered a healthy balance between supply and demand. Sales last month rose in three regions, rising to a five-year high in the South. They, however, fell 11.8 percent in the Midwest.