Earnings Gloom Spreads Over Major Markets

Major markets managed to climb higher on Tuesday, despite some dismal earnings reports from closely watched companies.

Although Apple (NASDAQ:AAPL) beat earnings estimates, its downbeat guidance sent the stock falling 2.49 percent on Tuesday. Cummins (NYSE:CMI), maker of diesel engines for heavy equipment manufacturers, sank 5.20 percent after reporting earnings of $1.90 per share, compared with estimated earnings of $2.11 per share. An earnings miss by Goodyear Tire (NYSEARCA:GT) sent the stock falling 5.85 percent.

Despite all the bad news, there were enough companies with better-than-expected earnings reports to pick up the slack. Although many stock market commentators have focused on the fact that the FOMC is not likely to make any significant moves at this week’s monetary policy meeting, nobody ever expected that anyway. As a result, the FOMC meeting was probably not a factor in Tuesday’s stock market advance.

The Dow Jones Industrial Average (NYSEARCA:DIA) picked up 111 points to finish Tuesday’s trading session at 15,680 for a 0.72 percent surge. The S&P 500 (NYSEARCA:SPY) climbed 0.56 percent to reach its second record-high close of the week at 1,771.95 after hitting a new record intraday high of 1,772.09. The Nasdaq 100 (NASDAQ:QQQ) rose 0.27 percent to finish at 3,391. The Russell 2000 (NYSEARCA:IWM) advanced 0.36 percent to reach a new record-high close at 1,121.96 after hitting a new record intraday high of 1,122.64.

On London’s ICE Futures Europe Exchange, December futures for Brent crude oil declined 70 cents (0.64 percent) to $108.91/bbl. (NYSEARCA:BNO). December gold futures declined $7.60 (0.56 percent) to $1,344.60 per ounce (NYSEARCA:GLD).  Transports got past the geriatric driver with his flashing turn signal on Tuesday, as the Dow Jones Transportation Average (NYSEARCA:IYT) advanced 0.18 percent.

In Japan, disappointing news from heavy equipment manufacturer, Komatsu set the tone for a bad day. Komatsu cut its full-year profit estimate by approximately 30 percent, due to reduced demand for mining equipment. The yen gained unwanted strength against the dollar on Tuesday. A stronger yen causes Japanese exports to be less competitively priced in foreign markets. The yen strengthened to 97.49 per dollar during Tuesday’s trading session in Tokyo (NYSEARCA:FXY). The Nikkei 225 Stock Average declined 0.49 percent to 14,325 (NYSEARCA:EWJ).

Stocks sank in China as the nation’s central bank struggled to maintain the money supply after the seven-day repurchase rate climbed to 5 percent. The overnight repo rate rose to 4.48 percent. Although the People’s Bank of China injected the equivalent of $2.13 billion into the nation’s money supply, the effort failed to inspire confidence among investors. The Shanghai Composite Index declined 0.23 percent to close at 2,128 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index advanced 0.18 percent to end the day at 22,846 (NYSEARCA:EWH).

In Europe, a number of better-than-expected earnings reports sent the major stock indices significantly higher. Nokia led the pack with a 6.99 percent surge, after reporting robust earnings. The Euro STOXX 50 Index finished Tuesday’s session with a 0.95 percent jump to 3,050 – climbing further above its 50-day moving average of 2,899. Its Relative Strength Index is 67.21 (NYSEARCA:FEZ).

Technical indicators revealed that the S&P 500 climbed further above its 50-day moving average of 1,691 after finishing Tuesday’s session with a 0.56 percent advance to 1,771.95. Its Relative Strength Index rose from 68.20 to 70.53. Most investors consider an RSI above 70 as an “overbought” signal. The MACD continues to climb further above the signal line, suggesting the likelihood of a continued advance during the immediate future.

For Tuesday, all sectors finished solidly in positive territory. The consumer staples sector led the group with a 0.87 percent advance.

Consumer Discretionary (NYSEARCA:XLY): +0.59 percent
Technology: (NYSEARCA:XLK): +0.65 percent
Industrials (NYSEARCA:XLI): +0.29 percent
Materials: (NYSEARCA:XLB): +0.20 percent
Energy (NYSEARCA:XLE): +0.68 percent
Financials: (NYSEARCA:XLF): +0.24 percent
Utilities (NYSEARCA:XLU): +0.13 percent
Health Care: (NYSEARCA:XLV): +0.70 percent
Consumer Staples (NYSEARCA:XLP): +0.87 percent

Bottom line: Despite some big earnings disappointments by some closely-watched companies on Tuesday, there were enough upbeat earnings reports to pull the major indices higher, with the S&P 500 hitting new record intraday and closing highs. Bad news was good in front of tomorrow’s FOMC announcement.

John Nyaradi is the author of The ETF Investing Premium Newsletter.

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