Dow struggles higher as confidence data wanes
Consumer confidence has waned in recent months primarily because of ongoing concern about high unemployment. With consumers not as confident as they were just a few months ago, their spending has slowed.
The Conference Board‘s report that its Consumer Confidence Index fell to 50.4 from June’s revised reading of 54.3 distracted investors from another batch of upbeat earnings reports. The market had expected the index to come in at 51.
Companies have a very different take on the economy from consumers. Chemical maker DuPont Co. on Tuesday joined the growing number of big corporations that have raised their forecasts for the future. DuPont, a component of the Dow, also easily beat analysts’ predictions for its second-quarter profit and revenue.
DuPont (DD) also raised its profit outlook for the year. Such outlooks have been a boon to the market because they indicate companies are gaining confidence in a global economic recovery.
Still, investors have been torn over the past few months between buying on companies’ upbeat reports and selling on government and private sector numbers that keep pointing to a slowing of the economy.
“Investors are really uncertain whether to focus on the underlying economy or earnings,” said Tyler Vernon, principal and portfolio manager at Biltmore Capital Advisors.
Earnings had investors attention the past two weeks but the occasional economic number can sometimes trump companies’ results, Vernon said. When earnings reports are done, unsettling data on jobs, housing and consumer spending will dominate trading, and may well lead to more selling.
Traders initially shrugged off the consumer confidence report, then began selling as the day wore on.
John Brady, a senior vice president at MF Global in Chicago, said there is little that’s likely to turn around consumer confidence in the near future. Consumers won’t become more optimistic until they see a drop in unemployment and clear signs that employers are hiring.
“I don’t know what turns around confidence aside from jobs growth,” Brady said.
The Dow Jones industrial average rose 12.26, or 0.12%, to 10,537.69. The Dow has surged in July, rising 7.7% during the month. The sharp gains helped push the index back into the black for the year on Monday. In the past three trading days alone, the Dow has jumped 405 points, or 4%, because of consistently strong earnings and outlooks.
Stocks declined in the broader market. The Standard & Poor’s 500 index fell 1.17, or 0.10%, to 1,113.84. The Nasdaq composite index fell 8.18, or 0.36%, to 2,288.25.
Losing stocks were ahead of gainers by 3 to 2 on the New York Stock Exchange.
But there was good economic news from overseas. Some major European banks, including UBS (UBS) and Deutsche Bank (DB), reported strong earnings as well. The results came a few days after banks across the continent were reviewed to see which would survive another economic downturn. Major European indexes rose following the earnings and another positive report on Germany‘s economy.
Stocks fell worldwide in May and June because of worries that mounting government debt across Europe would stall a global recovery and severely hurt banks across the continent. Strong earnings from U.S. and European companies over two weeks have helped to soothe those concerns.
Meanwhile, BP, embroiled by the Gulf of Mexico oil spill, is replacing its CEO Tony Hayward with American Robert Dudley. The British oil company reported a record quarterly loss and set aside $32.2 billion to cover the costs of the spill.
Bond prices fell, sending their yields higher. The yield on the 10-year Treasury note rose to 3.05% from 2.99% late Monday. That yield helps set interest rates on mortgages and other consumer loans.
Stocks got a lift Monday after a report on new home sales rose more than expected last month. The housing market has remained weak, particularly since a tax credit for home buyers expired at the end of April.
The market had some other negative economic news Tuesday, a report of a slowdown in regional manufacturing from the Richmond Federal Reserve. The Richmond Fed’s manufacturing index fell to 16 this month from 23 in June.
News on the housing market was mildly upbeat. The S&P/Case-Shiller 20-city home price index for May rose 1.3% from April. But the homebuyer’s tax credit that expired April 30 had an impact on the reading, and the report warned that the recent gains in home prices are not likely to last.
Britain‘s FTSE 100 rose 0.3%, Germany’s DAX index gained 0.2%, and France’s CAC-40 rose 0.8%. Japan’s Nikkei stock average earlier fell 0.1%.