Traders May Derive Comfort From Earnings Optimism

Jun 28 2011

Traders May Derive Comfort From Earnings Optimism

Posted by Aaron Cruz in Finance Online

– The major U.S. index futures are pointing to a higher opening on Tuesday, with sentiment improving on expectations that corporate profit growth will remain strong. In reaction, commodity prices have firmed up amid the weakening of the dollar. That said, the uncertainty surrounding Greece may continue to serve as an overhang. However, there could be some consolation from the concerted efforts of Eurozone officials to avert a fiscal crisis in Greece.

After a slightly nervous start on Monday, U.S. stocks advanced steadily till late trading before seeing some consolidation. The optimism stemmed from a plan mooted by French banks to roll over some Greek debt for 30 years, potentially averting an imminent disaster.

The Dow Industrials ended up 108.98 points or 0.91 percent at 12,044 and the S&P 500 Index added 11.65 points or 0.92 points before closing at 1,280. Meanwhile, the Nasdaq Composite closed at 2,688, a gain of 35.39 points or 1.33 percent.

Twenty-six of the thirty Dow components closed higher, with Bank of America (BAC) (up 3.14 percent), American Express (AXP) (up 2.48 percent) and Microsoft (MSFT) (up 3.70 percent) leading the gains.

Among the sector index, the NYSE Arca Airline Index rose 2.46 percent, the NYSE Arca Biotechnology Index advanced 1.30 percent, the KBW Bank Index added 1.38 percent, and the S&P Retail Index gained 1.03 percent. In the technology space, the NYSE Arca Software Index rallied 1.88 percent, the NYSE Arca Networking Index advanced 1.63 percent and the NYSE Arca Internet Index rallied 2.69 percent.

The Philadelphia Semiconductor Index, which has seen a steady recovery since 2009, barring a brief hiccup in the middle of 2010, has been seeing an intermediate term downtrend since late April. Nevertheless, the longer-term uptrend is still intact. The index’s recent retreat has pushed it below its 21-day, 50-day, 100-day and 200-day moving averages, with the 200-day moving average recently breaking above its 21-day moving average. The index has to hold support around the 383 and 372 levels in order for it to preserve the uptrend.

Given the recent sell-off seen in the sector, a rebound cannot be ruled out, especially as expectations remain upbeat. Market research agency IDC said in a report that tech spending by companies and the government is set to grow by 5.6 percent in 2011.

On the economic front, the Bureau of Economic Analysis reported that personal income rose 0.3 percent month-over-month, a touch lower than expectations. Personal spending remained little changed. In real terms, personal spending edged down 0.1 percent. The core PCE deflator rose 0.3 percent month-over-month in May, the biggest increase since October 2009. On a year-over-year basis, the core PCE deflator was up 1.2 percent.

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