Wall Street is doing that thing again. You know, when good economic news sparks a sell-off because investors worry the news is too good? When the data is too good, the theory goes, it gives the Fed more reason to ease up on the money printing. And what can be better for stocks than constant money printing? That line of thinking was partially responsible for today's pullback on the heels of new-home sales in June, which grew at the highest rate in more than five years.
That said, there was a modicum of more straightforward logic behind today's slump: Dow Jones Industrial Average (DJINDICES: ^DJI ) component Caterpillar (NYSE: CAT ) issued a gloomy outlook for the coming year and disappointed on earnings. The Dow ended with 25-point, or 0.2%, losses, closing at 15,542.
As for the index's outperformers, Hewlett-Packard (NYSE: HPQ ) ended atop the index, gaining 1.5% Wednesday. It's the third straight day of gains for the stock since its 4.5% slump on Friday, when Microsoft's dismal quarter punished HP, an innocent bystander to Microsoft's woes. Today, however, shareholders would be rewarded by the success of a tech peer, as Apple's earnings beat essentially lifted the entire technology sector.
American Express (NYSE: AXP ) , like HP, posted a large single-day loss last week and is beginning to claw its way higher this week. The stock added 1.3% today, as Fitch Ratings shared what must have been a relieving insight for American Express shareholders. The reason the stock suddenly dropped last week was due to rumors of an EU Commission proposal that would cap interchange fees on card transactions. Today, the draft proposal was officially unveiled, and the ratings agency said the regulations would only minimally affect AmEx's profitability.
Bank of America (NYSE: BAC ) lost 1.5% today, despite the fact that its board of directors approved a regular $0.01 quarterly dividend payment to common stock shareholders. You'd think investors would be jumping for joy with that guaranteed penny-a-quarter cash flow, but apparently that didn't cut it. It may be because the bank also just agreed to sell a total of 28 branches in New York and Pennsylvania to two smaller banks, reducing its exposure to important markets.
Lastly, the Dow laggard of the day, Caterpillar, shed 2.4% as earnings cratered 43% in the second quarter. Worst of all, the company hinted that poor financial performance was likely to continue with low commodities prices and decelerating Chinese growth combining to paint a bleak picture for the machinery giant. Not helping the situation were fresh numbers suggesting Chinese manufacturing is on the decline.