Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
The Dow Jones Industrials (DJINDICES: ^DJI ) ended the day down 93 points, following other major-market benchmarks with similar declines. Many market reports focused on statements from two regional Fed bank presidents, both of whom commented on what's increasingly looking like the imminent beginning of a reduction in the central bank's bond-buying practices before the end of the year. Meanwhile, a downgrade of tech giant IBM was important in sending the Dow down, given IBM's huge influence in the price-weighted average.
But earnings news from outside the Dow also played a role in market sentiment. Consider the following earnings-related stories:
- TravelCenters of America (NYSE: TA ) plunged 28% as the company announced earnings that were cut nearly in half compared to the year-ago quarter. Despite gains in retail fuel volume and nonfuel sales, margins fell on a percentage basis. CEO Thomas O'Brien noted "softer industry conditions" as having contributed to the results, but given the important role that trucking centers play in the transportation infrastructure in the U.S., weakness in the company's results has implications on the level of overall economic activity in the nation.
- The energy sector has been a hotbed of activity lately, but energy-engineering specialist McDermott International (NYSE: MDR ) plunged more than 20% after posting poor results last night. McDermott lost more than a quarter of its year-ago revenue and posted a substantial loss that was three times larger than the gain investors had expected to see. Combined with the retirement of a key executive, McDermott faced costly project delays and will now work even harder to improve its project-bidding process to maximize high-quality business opportunities. Those issues are more company-specific, but if you start seeing them in rival firms' reports, then they could add up to a more troubling trend.
- Retailer American Eagle Outfitters (NYSE: AEO ) dropped 12% after cutting its second-quarter earnings guidance by more than half. With same-store sales plunging 7% on a 2% drop in overall revenue, American Eagle pointed to poor margins as well as declining business for the shortfall. Teen retail is notoriously fickle, but if these trends turn out not to be company-specific, it could cut out another pillar on which the consumer recovery has relied.
- Finally, smoothie specialist Jamba (NASDAQ: JMBA ) dropped 13% despite posting a 51% jump in net income. The company disappointed investors with weaker-than-expected revenue gains, and despite new initiatives like its new whole-grain and whole-food boosts, investors are worried that the company's success might not last, signaling heightened competitive pressures in some of the fastest-growing areas of the consumer economy.
By themselves, none of these companies is influential enough to move the markets. But taken together, they add up to support some broader concerns about the health of the U.S. economic recovery. Admittedly, there were plenty of earnings success stories as well, but it's nevertheless important to look at what's making some companies struggle in order to identify trends that could hurt your investments.
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