Daily Market Update – July 22, 2015 (Close)
More earnings came after yesterday’s closing bell and they continued the shift of the path of the first full week of earnings. That shift began before yesterday’s open.
While yesterday was another in a series of days in which the DJIA was lagging behind the S&P 500 and the NASDAQ 100, due in part to some large moves in DJIA components and a streak of forward moves by a very small handful of NASDAQ components, this morning, as we got ready to begin, the shoe was clearly on the other foot.
This time, the dual disappointments from Microsoft and Apple added a double dose of earnings disappointment to the NASDAQ, which is based on market capitalization, as opposed to the DJIA, which is based on share price.
That share price is one of the reasons, maybe the only real reason that Apple had to split 7 to 1. Had it not done so, this morning’s $9.50 decline in the futures trading would have detracted about 420 points from the DJIA, instead of the paltry 60 points.
Microsoft, on the other hand, despite being only half as much as Apple on a percentage basis, was costing the DJIA only about 10 points during the pre-opening trading.
On the other hand, the combined market capitalization of Apple and Microsoft was over $1.1 Trillion before this morning’s prices settle.
At that moment, before the opening bell was to rings, as a result of that one – two punch, the DJIA was down about 0.2%, the S&P 500 was down about 0.4% and the NASDAQ 100 was down 1.1%.
When it was all over Apple contributed about 35 points of the DJIA’s 68 point loss, while Microsoft accounted for about 11 points of that loss.
That’s a complete reversal of the picture as the market had been moving higher, but sooner or later that’s the way most things go. Whatever goes up goes down and whatever lags, tends to catch up in relative terms.
While the earnings reports after yesterday’s close were disappointing, it really remained to be seen what kind of an impact the most recent reports would have on today’s market. Yesterday’s early disappointments took their real toll on the DJIA, but there was enough pain to spread around as the broader market got progressively weaker as the morning went on.
What was also noticeable yesterday was the large hits taken by some lesser known stocks when reporting earnings disappointments. Even announcing the plans to cut jobs, normally something that offsets some of the price declines associated with disappointing earnings, did little, if anything to stem the decline in Lexmark, for example.
With a little bit of cash still in hand, I don’t think that I’ll be likely to spend any more for the remainder of the week unless there’s some significant weakness to capitalize on, such as in Lexmark, maybe.
With still lots more earnings yet to be reported, there’s a need to erase the disappointments from yesterday and a need to paint a picture that’s consistent with an expanding economy.
Of course, that would re-introduce fears of an interest rate increase, but most are beginning to accept the likelihood that a rate increase will become reality by September.