The International Monetary Fund’s prediction that the much-anticipated global economic recovery would be fragile kept sentiments under check in the early hours of trading Wednesday but stocks staged a late rebound as traders picked up defensive plays.Despite persisting worries about how soon the economy would be out of recession, focus shifted to companies as the earnings season got underway with Alcoa (NYSE:AA) reporting its earnings after the close.Expectations, however, are reasonably low as analysts expect a 36% drop in profit for S&P 500 companies.
A three-month old rally lost steam in mid-June as grim economic posts and unemployment numbers failed to convince investors of an incipient economic recovery.Those worries were punctuated by the June jobs report that was released last week and a separate survey which noted the unemployment rate jumped to 9.5% had investors scurrying to cut positions.Moreover, the measure of market volatility, the CBOE Vix, continues to signal tough times ahead, holding above 30.According to some estimates, the charts currently suggest that after the market’s two month run off their early March lows, followed by two months of range-bound action, stocks are technically more poised for a correction than a lift-off.
On Wednesday, the Dow Jones Industrial Average rose about 15 points or 0.2% and the Nasdaq ended just above unchanged. The S&P 500 index lost 1 point or 0.2%.Oil prices continued to decline on reports of larger-than-expected build in gasoline inventories. Market breadth was negative with declining shares outpacing advancing issues by a two-to-one margin.The auction of $19 billion 10-year notes showed demand was above expectations, which indicated strength in foreign purchases and support for the US deficit.
Alcoa (NYSE:AA), which reported a smaller-than-expected loss after the close, did provide some relief.The company which noted operations were hurt by the global recession reported a quarterly loss of 26 cents a share.Among S&P500 industry groups, telecom stocks declined 3% and financial shares dropped 1.4% Wednesday; seven of the ten industry sectors declined.The rise in DJIA was led by gains in defensive stocks such as Merck (NYSE:MRK), Johnson & Johnson (NYSE:JNJ) and Proctor & Gamble (NYSE:PG), up 1.5%, 1.5% and 1.4%, respectively.
Although the IMF was unsure of when the economic situation would improve completely, it nevertheless raised its growth forecast for 2010 to 2.5% from 1.9% estimated last April, fueled by projections of strong China and India growth.Chicago Fed President Evans mentioned a second US stimulus package would be “helpful,” and advised the Fed is in no hurry to move interest rates higher, as inflation remains near 2% levels. Echoing US Fed terminology, a G8 draft noted “significant risks still remain to economic and financial stability.”
Today’s trading will likely take a cue from latest reports of comparable store sales.Weekly claims report, wholesale inventory levels, and export prices are also likely to influence sentiments.Analysts expect same-store-sales to decline 4.8%, hurt by unseasonably wet and cool June weather as well as the absence of last year’s stimulus boost.Combined numbers are also expected to be unimpressive as they no longer contain key Wal-Mart (NYSE:WMT) returns.Costco (NASDAQ:COST) reported its comparable sales fell 6% in June, inline with expectations.
