Stocks lose ground on Wall Street

The Dow and S&P 500 are heading for their first week-on-week decline in over a month in spite of today’s strong consumer sentiment data.

Stocks on Wall Street bounced well off their lows in early afternoon trading in New York, but remained deeply mired in negative territory, after a mixed batch of earnings reports. The Dow dropped 0.5% or 80 points to 15,475, having been down more than 100 points earlier in the day, while the S&P 500 shed 0.35% to stand at 1684.6.

The University of Michigan’s consumer sentiment index rose to 85.1, its highest level in six years, with optimism boosted by rising house prices and the buoyant stock market. Although the stock market largely shrugged off the results of this report, it is significant, as if consumers are feeling in good spirits about the economy and their own financial situation they are more inclined to go out and spend. Consumer spending is the lifeblood of the US economy, and the strength of this report therefore bodes well for the economic outlook.

Expedia issued an unexpectedly weak set of results after the close last night. The online travel agency reported second-quarter earnings of 64 cents per share, far short of the 79 cents per share that had been expected and revenue also came up short of estimates. The company’s share price plummeted 25% today.

Amazon.com reported a surprise loss after the bell last night, revenue just missed estimates and the company provided disheartening forward guidance, saying that investors should expect substantial losses in the third quarter. If any company benefits from faith in the long-term from its shareholders, it’s Amazon though, and its share price has actually risen 3% today, with the market choosing to look beyond the quarterly fluctuations and literally buy into CEO Jeff Bezos’ vision. Bezos is making huge investments now on diverse fronts, such as building warehouses, licensing video content, creating original programming and manufacturing tablets, with the aim of maximising the opportunity for growth. The brokers are along for the ride also, with Amazon being upgraded by several brokerages today.

The NASDAQ 100 was up 0.28% by early afternoon in New York, boosted by Amazon’s rise as well as a 7% jump in Starbuck’s share price after it reported better-than-expected earnings.

One of the niggling worries about this earnings season, and this follows on from the last few quarters, is that although earnings growth has been fairly solid, it has generally stemmed from higher efficiencies, depressed interest costs from the low-interest environment and reductions in expenditure. In other words, it is not coming from growth in demand, and with the stock market already having had a strong run, that is putting a lid on things for the time being.

The second quarter of the year has had the drag of the fiscal cuts made by the US government, of course, and taking that into account, earnings are looking OK. That drag should ease into the second half of the year, and that may help companies to see stronger demand the next time they come round to report.

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