Stocks Recover but Still Close Lower on EU Fears

Published on Monday, 23 July 2012 18:36 Written by Christopher Lynn

New York, July 23^rd (TradersHuddle.com) – Stocks fell after making a strong comeback from the lows of the day. Losses were still sizeable, as participants shunned risk amid concerns that Spain will need a sovereign bailout, as more regions in the country were expected to ask for financial support from the central government and as speculation grew that the IMF will stop Greece’s financial aid. The euro and U.S. Treasury yields hit new lows amid the risk aversion.

The Dow Jones Industrial Average lost 101.11 points, or 0.79%. The S&P 500 index fell 12.14 points, or 0.89%, while the NASDAQ tumbled 35.15 points, or 1.2%.

The market started under heavy pressure amid poor overseas performance. Participants shunned risk amid fears that Spain would need a full sovereign bailout, as economic growth was slower than expected in the second quarter. Adding to the concerns, a report in German media suggested that the IMF could discontinue aid to Greece. Spanish yields surged past 7%, while the euro dropped and the yield on the U.S. Treasury 10-year fell to a record low.

M&A activity was heavy with a series of deals announced before the open. Nexen (NYSE: NXY), the Calgary, Alberta based crude oil and natural gas producer, was surged after announcing that it has entered into a definite agreement under which CNOOC Limited (NYSE: CEO) will acquire all of the outstanding common shares of Nexen for $27.50 per share in cash, or approximately $15.1 billion.

NRG Energy (NYSE: NRG) approved its first ever quarterly dividend of $0.09 per share ahead of announcing together with GenOn Energy (NYSE: GEN) that both companies would merge in a stock-for-stock tax-free transaction, creating the largest competitive generator in the US with a diverse fleet of about 47,000 MWs with asset concentrations in the East, Gulf Coast and West and a combined enterprise value of $18 billion; and RailAmerica (NYSE: RA) announced that it has entered into an agreement under which Genesee & Wyoming (NYSE: GWR) will acquire the company for an all cash purchase price of $27.50 per share, an 11% premium over Friday’s closing price.

Stocks were able to stage a strong comeback, from the lows of the day, with the Dow making a 100-point recovery, but still the major benchmark indices closed with sizeable losses.

All of the S&P 500 sectors ended in negative ground, with materials, consumer discretionary, and healthcare posting the biggest declines, while industrials and utilities logged the smallest drops. In the materials sector, Allegheny Technologies (NYSE: ATI) tumbled near 4%, posting the biggest percentage decline, while Mosaic (NYSE: MOS) ended practically flat after it was upgraded to a Buy from Neutral at Citigroup and added to the firm’s Top Picks Live list.

In the consumer area, McDonald’s (NYSE: MCD) slumped 2.9% to $88.94 after the company missed earnings expectations, the first time since 2004, as its results were impacted by the sluggish global economy. Meanwhile, Hasbro (NYSE: HAS) rallied nearly 4% to $35.19 after topping earnings expectations on market share gains and on better inventory management.

The disappointing results from McDonald’s pressure other fast food stocks, like Chipotle Mexican Grill. (NYSE: CMG). The stock tumbled 3.5% to $306.01, as the momentum traders continued to punish it after last week, the company also missed expectations and cut its revenue outlook.

But homebuilders had a strong showing thanks to Goldman Sachs. KBHome (NYSE: KBH) jumped 3.6% to $10.16 after the firm upgraded it to a Buy and MDC Holdings (NYSE: MDC) rallied 5.7% to $33.18 after it was added to the firm’s coveted Conviction Buy List.

In the technology sector, Apple (NASDAQ: AAPL) erased most of its losses to end practically flat for the session at $603.83. The company is scheduled to report its quarterly results tomorrow after the close, with analysts on average expecting a profit of $10.38 per share on revenue of $37.34 billion.

Meanwhile, Facebook (NASDAQ: FB), which is schedule to report its first quarterly results as a public company ended also near the unchanged mark at $28.75. JMP Securities reiterated its Outperform rating and $37 price target on the stock, while Oppenheimer said that a slowdown in U.S. desktop usage, reflecting a move to mobile usage, suggests a weaker second quarter but inline with estimates from the underwriters of the IPO.

Elsewhere, Halliburton (NYSE: HAL) jumped 2.4% to $31.51 after the company beat earnings expectations by $0.06 per share on revenues that jumped 21.9% from a year ago to $7.23 billion versus consensus, of $6.92 billion.

JPMorgan (NYSE: JPM) saw strength in a session in which most financials were under pressure following the developments in Europe. JPMorgan gained 1.6%, posting the biggest gain in the Dow Jones Industrial Average after the lender disclosed that its CEO Jamie Dimon bought 500,000 shares last week.