With the broad-based S&P 500 (INDEX: ^GSPC) getting a short break from big economic news, investors looked to earnings reports to fuel today's trading action. Not surprisingly, it was mixed.
Since earnings season began, the financial sector has been the real standout, with credit quality improving, loan amounts growing, and cost-cutting helping to drastically improve the bottom line for many of the nation's largest banks. However, all eyes today turned to technology juggernaut Apple (NASDAQ: AAPL) which is set to report its third-quarter results after the bell. Known for its notoriously conservative guidance, Apple has missed EPS estimates in two of the past four quarters, and shareholders have watched as most Wall Street analysts have cut growth targets on the tech giant one-by-one. Having such a large bearing on the S&P 500 in terms of weighting, it's not surprising to see both Apple and the index hovering around the flat-line.
By the end of a very earnings-mixed day, the S&P 500 had dipped by 3.14 points to close at 1,692.39. But what you'll notice is that the majority of today's biggest movers to the upside were commodity-based companies such as coal, iron ore, steel, and copper, which are benefiting from a bounce in underlying commodity prices and the hope that China's economy will stabilize and quickly return to its 30-year average of 10% GDP growth.
Topping the charts today with a gain of 5% is coal producer Peabody Energy (NYSE: BTU), which reported a 13% decline in revenue to $1.73 billion and a profit of $0.33 per share, which was helped by heavy cost-cutting efforts and a lower-than-expected effective tax rate. By comparison, Wall Street was looking for $1.82 billion in revenue, but an EPS loss of $0.05. Peabody further said it plans to reduce its capital expenditures budget this year by another $100 million to a range of $350 million to $450 million. Although I'd rather see expansion than cost-cutting driving gains, this was a decent quarter for Peabody, all things considered.
Not far behind Peabody was steelmaker U.S. Steel (NYSE: X), which added 4.4% on the day despite no company-specific news. Given that Peabody produces metallurgical coal used in the steelmaking process, strength in Peabody's results could ease worries about U.S. Steel's upcoming quarter. In addition, U.S. Steel is among the most short-sold companies within the S&P 500, meaning any rally could potentially start a chain reaction of short-covering that could send shares higher. Keep in mind, though, that with more net debt than many of its peers, U.S. Steel also offers some of the highest risks among steel stocks.
Finally -- and to keep this trend a perfect three-for-three -- iron ore producer Cliffs Natural Resources (NYSE: CLF) advanced 4.1% just days before it reports its own quarterly results. The majority of Cliffs' business is based on iron ore, but it also has metallurgical coal mining operations -- thus the likely boost today from Peabody's strong results. With iron ore prices having fallen about $40 per metric ton since February, I'm certainly not looking for any miracles in Cliffs' report, but I would keep a close eye on its capital expenditures budget and its ability to stay profitable moving forward.
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