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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
Being in the thick of the third-quarter earnings season, we'd expect company reports to take precedence over just about every bit of economic news -- but that wasn't the case today.
Call it profit-taking or a change in investor sentiment after being up in eight of the past nine trading sessions, but the broad-based S&P 500 (SNPINDEX: ^GSPC ) simply couldn't withstand today's weak economic data. The housing sector was particularly to blame. The Mortgage Brokers Association released its weekly data this morning, showing a 0.6% decline in mortgage applications from the previous week despite a general retreat in interest rates. The FHFA Housing Price Index for August also increased by just 0.3%, compared to 0.8% in July. This combination of weaker loan originations and weaker price growth could put a damper on the housing sector and the overall market's momentum.
It also didn't help that one of the world's largest heavy-duty construction companies, Caterpillar (NYSE: CAT ) , reported a dismal quarter. For the quarter, revenue fell 18% to $13.4 billion, while profit tumbled to $1.45 per share from $2.54 in the year prior. Both figures fell short of estimates, and Caterpillar slashed its EPS and revenue forecast for a third-time this year. Since Caterpillar is often viewed as a gauge of mining and heavy construction activity, its ongoing weakness is a poor sign for those industries over the coming quarters.
By day's end, the S&P 500 had ceded 8.29 points (-0.47%) to close at 1,746.38, putting an end to the five-day streak of gains.
Topping the charts today and leading all S&P 500 components by a mile was for-profit educator Apollo Group (NASDAQ: APOL ) , whose shares gained 28% after reporting better-than-expected fourth-quarter results. For the quarter, revenue fell 15% from the previous year while adjusted EPS inched higher to $0.55 from $0.49 in the year-ago period. Comparatively, both figures were well ahead of the $0.25 in EPS and $823 million in revenue Wall Street had expected. However, let's not get too excited here, as enrollment at its flagship University of Phoenix dropped 18.1%, and its revenue forecast for 2014 of $2.95 billion to $3.05 billion represents a sizable drop from the $3.7 billion in revenue it reported this year. There's only so far that cost-cutting can take a business, and investors could be playing a dangerous game by betting on an Apollo turnaround when the guidance demonstrates otherwise.
Also joining in the double-digit percentage gain parade was specialty glass and materials manufacturer Corning (NYSE: GLW ) , which advanced 14.1% after announcing its preliminary third-quarter results and striking a deal with Samsung. The bigger news here is the deal with Samsung which will allow Corning to acquire Samsung Electronics' 43% stake in Samsung Corning Precision Materials, a South Korean joint venture that makes glass substrates (i.e., Gorilla Glass) used in LCD TVs and mobile devices. Gorilla Glass has been the product that's single-handedly propped up Corning's growth prospects for years, and soon it'll be receiving all of the revenue generated from the product. Corning also announced preliminary results for the third-quarter, including an 18% increase in EPS to $0.33 and a 10% increase in core sales to $2.1 billion. The consensus on Wall Street had called for $2.1 billion in sales on $0.32 in EPS, so these figures look solid.
Finally, shares of grocery chain Safeway (NYSE: SWY ) leapt 8.2% after a report from Reuters yesterday implied that multiple private equity firms, including Cerberus Capital Management, may be interested in buying part or all of the company. Keep in mind that Safeway's management adopted a poison pill just last month after activist hedge fund Jana Partners disclosed a greater than 6% stake in the company. It's a bit difficult to see how a leveraged buyout is going to happen here with Safeway's management team so against the idea, but it's clear that activist investors are at least going to point Safeway in a more profitable direction, if anything.
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