Stocks opened sharply lower this morning. The Dow and SPX are currently down 134 pts & .54%, respectively. Consumer discretion and energy (yesterday’s leaders) are lagging today. Commodities are mixed. WTI crude oil is down 1% to $101/barrel. Gold is up modestly. Bonds are mixed on the day; the 5-year Treasury yield is essentially unchanged at 1.69% and the 10-year Treasury yield is down to 2.48%.
Visa (V) reported a strong second quarter yesterday, but guided 2014 revenue lower than expected. The CEO said he’s just not seeing any acceleration in global growth, and called out weakness in China, Ukraine, Russia, Argentina, the Middle East and Venezuela. So that’s basically a laundry list of the most troubled parts of the world. Thus, Visa’s revenue should rise about 9-10% this year vs. management’s prior guidance of 10-11%. The CEO offered this: “These headwinds we do not feel are permanent.” The stock is down 4.7% today, and is responsible for a good portion of the Dow’s decline.
The other big contributor the Dow’s decline is Amazon (AMZN), which missed analysts’ consensus second quarter earnings estimate. AMZN reported a net loss double what was expected, despite 23% revenue growth. Apparently, the company sharply accelerated spending on new warehouses, cloud computing initiatives, and new products like the Fire cellphone. The stock is down 11% at the moment. Understand that this is how AMZN has always operated. It has built a massive business without showing much in the way of profits. For the moment, investors seem to have lost patience.
US durable goods orders rose .7% in June vs. economists’ consensus estimate of .5%. The more interesting subset of data, capital goods orders excluding defense and aircraft, rose 1.4% in the month. This data series is often used as a leading indicator for US corporate capital spending. Anyway, these seem like really strong growth rates until you realize that prior month orders were revised sharply lower. So corporate capex fell 1.2% in May and rebounded 1.4% in June. Not inspiring.
Economic indicators have been all over the place recently. We’ve seen some huge after-the-fact revisions (GDP, new home sales and now durable goods) that leave investors confused and make it difficult to gauge the trajectory of economic growth. Citigroup publishes an economic surprise index that can be of use in situations like this. Currently, the index sits at -24.5, meaning that on balance data is coming in worse than expected. While off of its recent bottom (-50), the index is down substantially this year from its peak of +72. No wonder bond yields have fallen this year.
MikesMarketUpdate 