In a volatile session, investors weighed strong profit reports from Amazon.com and Boeing against worries about housing and debt markets
Good earnings news gave stocks a boost Wednesday even as housing data and debt worries continued to take their toll.
Profit reports from Amazon.com (AMZN; +24.45%) and Boeing (BA; +3.3%) initially helped the markets recover from a sell-off the previous day. Now in the heart of earnings season, the markets were disturbed by poor profit reports from several big names on Tuesday. On Wednesday, investors were cheered by reports that Amazon more than tripled its second quarter profits.
After the market closed, Apple (AAPL) reported third quarter revenue of $5.41 billion and net profit of $818 million, or $0.92 per share, up from revenue of $4.37 billion and profit of $472 million, or $0.54 per share a year ago. Gross margin was 36.9%, up from 30.3% a year ago. In after-hours trading, the shares were up initially, but then retreated as more numbers were released.
However, new economic data suggested housing problems are deepening. U.S. existing home sales fell 3.8% in June to 5.75 million, lower than expected. Sales are down 11.4% year-over-year. The data fit the view that the sales drop is disproportionately hitting low-priced homes sensitive to problems with subprime loans, says Action Economics.
Wendell Perkins, chief investment officer of the JohnsonFamily Funds, believes the market hasn't yet come to terms with the full impact of the "housing bust." Eventually, the pain will spread beyond the homebuilders and financial stocks already hurt because, he says: "The economy and the consumer is really in a tight position."
And worries remain that subprime problems on the mortgage markets will spread to corporate debt markets. On Tuesday, Bill Gross of PIMCO Bonds warned of a "sudden liquidity crisis in the high yield debt markets" in his latest monthly commentary. On Wednesday, bankers postponed the sale of $12 billion in debt to fund the purchase of an 80% stake in Chrysler Group by Cerberus Capital Management.
Wednesday was a volatile trading day, with major indexes starting the day up, straying into negative territory a few times and then ending the day strong again. Volume was heavy, with broader markets showing weakness. For every 20 stocks lower on the New York Stock Exchange, 13 moved up. The ratio was 17 to 13 negative on the Nasdaq.
The Dow Jones industrial average rose 68.12 points, or 0.5%, to 13,785.07. The broader S&P 500 index gained 7.05 points, or 0.47%, to 1,518.09. The tech-heavy Nasdaq was up 8.31 points, or 0.31%, to 2,648.17. The upswing in major indexes follows a steep fall in prices on Tuesday, when the Dow fell more than 200 points and the S&P 500 dropped almost 2%.
Among the earnings news, Amazon.com reported earnings of 19 cents per share, vs. 5 cents a year ago on a 35% rise in sales.
Boeing reported earnings of $1.35 per share, up from 56 cents a year ago. Revenues were up 14%, and the aircraft maker raised its 2007 guidance. Boeing expects to deliver as many as 445 airplanes this year and up to 520 next year.
Xerox (XRX) plunged 5% after it reported earnings of 28 cents per share, vs. 26 cents a year ago. Revenues rose 6%, and the printer maker rose its 2007 earnings guidance.
Colgate-Palmolive (CL) moved higher after it reported earnings of 84 cents, vs. 72 cents a year ago. Worldwide sales rose 13%.
Fidelity National Financial (FNF) was up slightly after it reported earnings of 38 cents, vs. 76 cents a year ago. Revenue for the title insurance provider fell 44% due to higher interest rates and the slowdown in mortgage and real estate markets.
Wells Fargo (WFC) gave its stock a boost by raising its quarterly dividend by almost 11%, to 31 cents per share.
Glaxosmithkline (GSK) reported a 9% rise in its second quarter profit. Revenues were up 3%. The stock rose 2.6%.
Tribune Co. (TRB) reported earnings of 18 cents per share, vs. 28 cents a year ago, as revenues fell 6.8%. The stock rose as the firm, a buyout target on the way to going private, says the deal is on track, with financing fully committed.
In the energy markets Wednesday September NYMEX crude oil futures were up $2.57 cents to $76.13 a barrel.
Later in the week (see our economic calendar), investors will pay lots of attention to new home sales figures for June on Thursday. Reports on durable goods orders for June, on Thursday, and second-quarter U.S. gross domestic product, on Friday, will also be closely followed.
European stock markets turned lower on Wednesday. In London, the FTSE 100 index was off 0.68% to 6,454.3. Germany's DAX index was off 1.46% to 7,692.55. In Paris, the CAC 40 index fell 1.19% to 5,837.11.
Asian markets traded down on Wednesday. In Japan, the Nikkei index was off 0.8% to 17,858.42. In Hong Kong, the Hang Seng index fell 0.47% to 23,362.18. In mainland China, the volatile Shanghai Composite index spiked 2.7% to 4,323.97.
Treasuries rose slightly on Wednesday. The 10-year Treasury notes edged up to 96-28/32 for a yield of 4.90%, and the 30-year bond firmed to 95-25/32 for a yield of 5.02%.