Dow: 13,169 (-0.29%) S&P 500: 1,404 (-0.13%)
Chocolate cake. Christopher Nolan’s Batman trilogy. The Olympics. All good things must come to an end. And like the London Games, the market’s winning streak concluded today after 6 straight positive trading sessions for the S&P 500 stock index, its longest span since December ’10 (consider today’s post the closing ceremony for the August stock rally, except without Spice Girls or Matt Lauer commentary). Investors rested from last week’s performance and took in some notably negative economic readings from Greece and Japan. Energy and Material companies that led the recent gains were today’s biggest losers, with Alcoa (AA) dropping 1.67% and Cisco (CSCO) falling 1.14% to lead the blue chip-heavy Dow down 39 points.
Japan’s GDP slows, Greece’s economy contracts
If economic growth were an Olympic sport, the podium today would have featured one bronze medalist and the top two spots would be empty. Japan’s GDP, a measure of all the goods and services produced by the country, slowed to an annualized rate of 1.4% growth – much lower than the 5.5% growth in the 1st quarter and the 2.7% that was forecasted. For the sake of our clever GDP-Olympics analogy, if Japan got bronze then Greece barely even qualified for the event – the economy of the recession-stuck nation whose debt crisis is slowing Eurozone growth contracted by 6.2% last quarter. Despite the recent stock rally, one of the primary concerns of investors continues to be signs across the world that major economies are not growing globally.
Google cuts back at its Motorola phone subsidiary, purchases Frommer’s travel guides
Google (GOOG) announced today that it was cutting 25% of its subsidiary Motorola‘s workforce, or 4,000 people, and is simplifying its phone lineup. While Apple (AAPL) has crushed the market with just one, single sleek and sexy phone model, Motorola currently has 41 different phones for sale (can you name more than 1? Other than the once thriving but endangered RAZR species, you’re probably struggling). Google has benefited from Motorola’s patents since it acquired the phone company last May for $12 billion, but Motorola’s P/L (profit and loss) has hurt Google’s earnings, with losses in 12 of the 14 last quarters – Investors are glad Google is trimming the fat off its bloated phone company.
Google also purchased Frommer’s travel guides today. After snagging Zagat’s restaurant guides last year, Google has its foot firmly in the travel & restaurant review business and will leverage its search engine to have its own Zagat/Frommer’s results pop up first in searches for “Ravioli that will rock my socks.” Google was up 2.8% on these big moves.
Groupon beats earnings estimates, but scares investors on slowing revenues
Online deal site Groupon’s (GRPN) stock price is free-falling right now while investors worry about its growth potential. Groupon is supposed to be a company poised to grow into the future, as reflected by its high stock valuation: Each share is $7.55, but Groupon earned just 8 cents per share last quarter…That’s actually better than the 3 cent/share analyst estimate. 8 cents/share? That’s weak, but understandable because it’s a supposed “growth” stock that is gaining customers and poising itself for major future earnings…the quintessential growth stock story. The reason why investors are scared today is not because earnings beat expectations (obviously), but because revenues missed expectations and the value of merchandise bought by customers on the site is actually falling. Increases in revenues (a.k.a. sales) is the real indicator of a company’s future earnings potential and Groupon is falling off instead of growing rapidly. The share price is down 19% in after-hours trading as investors reassess the value they put in this once hot tech company.
- A solid serving of retail-related econ reports: July Retail Sales, NFIB Small Business Survey
- The tail end of the 2nd quarter earnings season continues: Home Depot, Michael Kors, Saks
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