Stocks Surged on ECB Draghi’s Pledge; Facebook Plunged

Published on Thursday, 26 July 2012 18:05 Written by Christopher Lynn

New York, July 26^th (TradersHuddle.com) – Stocks rallied, with the Dow jumping more than 200 points, after participants around the world cheered the pledge from ECB President Mario Draghi for the central bank to do whatever it takes to save the euro. The comments came amid a flurry of earnings reports and a pair of better than expected U.S. economic reports.

The Dow Jones Industrial Average surged 211.88 points, or 1.67%. The S&P 500 index rallied 22.13 points, or 1.65%, while the NASDAQ jumped 39.01 points, or 1.37%.

The market started with a strong bid after futures, the euro, and markets around the world rallied following comments from Mario Draghi, the European Central Bank President. The supportive comments resulted in an immediate spike in the euro and equity markets, as participants embraced a risk on trade.

On the economic front, weekly jobless claims dropped to 353,000, which was better than the widely expected figure of 381,000. June Durable Goods Orders climbed 1.6%, well above the 0.3% increase that was expected; however ex-transportation, orders dropped 1.1%, which was more than expected.

Stocks maintained the gains through the session, despite figures showed that pending home sales slipped in June. The Dow Jones Industrial Average outperformed the other benchmark indices, thanks to strength in stocks like Home Depot (NYSE: HD). The largest home improvement retailer rallied to the top of the blue chip index, posting a gain of 3.6%.

Earnings from Dow components were lackluster, but still supportive of the upside move. 3M (NYSE: MMM) gained more than 2% to $90.59 after the company reported earnings that topped expectations on revenue that fell short of consensus. United Technologies (NYSE: UTX) climbed 0.44% after it posted better than expected earnings on revenues that were below consensus. The company also lowered its full year guidance below consensus amid the global economic slowdown.

Meanwhile, Exxon Mobil (NYSE: XOM) gained 1.5%, as crude oil prices moved higher and after its earnings report showed a large beat helped by $7.5 billion in asset divestitures. Excluding these items, the energy giant earned $2.11 per share, which was above consensus of $1.96.  

In the S&P 500 all of the key sectors ended with gains for the session, with energy posting the biggest gains, followed by consumer stocks, utilities, and technology. In the energy sector, Cameron International (NYSE: CAM) rallied more than 11%, topping the sector, after the company beat earnings expectations by a penny on revenues that were also above consensus. Cameron issued downside guidance for the current quarter, but inline earnings guidance for the full year.

The telecommunications space saw big gains after two wireless carriers reported better than expected results. MetroPCS (NYSE: PCS) soared 37% to the top spot in the broad market index after solid results and on news that it would launch its 4G service before the quarter’s end. Meanwhile, Sprint Nextel (NYSE: S) surged 20% above $4 per share as its quarterly results topped consensus on higher iPhone sales. Sprint Nextel posted one of the biggest gains in the technology sector.

Akamai Technologies (NASDAQ: AKAM) and Western Digital (NASDAQ: WDC) were the other top movers in the technology space. Akamai surged 24% after strong results, with the company beating by $0.06 per share on better than expected revenues. FBR Capital bumped its target price on Akamai from $32 to $35, while Cannacord Genuity raised its target price to $34 from $32.

Western Digital rallied nearly 21% after the company’s results showed a rebound from the impacts of the floods in Thailand and the benefits from its $3.9 billion acquisition of Hitachi Global Storage Technologies.

Meanwhile, Apple (NASDAQ: AAPL) failed to participate in the rally, with the stock practically ending flat for the session at $574.88, as participants still digest the tech giant big earnings miss and dismal guidance for the current quarter. A report suggested that the new iPhone 5 would launch on September 21^st, while another reports indicated that Apple would be revamping its iPod Touch and iPod Nano. Hillard Lyons cut its target price on the stock to $735 from $740, while Exane BNP Paribas cut its price target on the tech giant to $690 from $730.

In the consumer space, PulteGroup (NYSE: PHM) rallied 18% in the session after the homebuilder posted results that topped earnings expectations, while revenues lagged consensus. Pulte beat by $0.06 per share, as homebuilding operating margins expanded by more than 600 basis points, net income improved by $98 million. While, Whole Foods Market (NASDAQ: WFM) jumped more than 11% on positive reaction to its quarterly results. Whole Foods sales held up helping the retailer to beat on the top line and issue upside earnings and revenue guidance for the current quarter.

Elsewhere, Zynga (NASDAQ: ZNGA) was crushed more than 37% to $3.175 after the social media game maker posted quarterly results that missed expectations, while issuing a dismal outlook for the full year. The poor results and guidance highlighted investors’ concerns over the future growth rate for the company and also was seen as a bad omen for Facebook’s earnings.

Facebook (NASDAQ: FB) tumbled more than 8% to $26.845 ahead of the company reporting its quarterly results. In after hours, the social media company delivered its first earnings report as a public company. Facebook posted earnings, excluding non-recurring compensation charges, of $0.12 per share, $0.01 above consensus, on revenues that jumped 32.3% from a year ago to $1.18 billion versus consensus of $1.15 billion. Shares tumbled to fresh record lows below $25 per share after the results as participants were disappointed in the drop in operating margin and the lack of guidance.

During the conference call, Facebook said that that first sponsored stories on mobile news feeds are demonstrating early success, with the company generating about $1 million per day in revenues from sponsored ads on News Feed, with half coming from mobile. Management said that operating expenses are expected to continue to increase significantly in the second half of the year, as investment remains a top priority, rather than setting a target margin rate.