U.S. Stock-Index Futures Drop Amid More Russia Sanctions

July 17, 2014

New York (July 17)   Stocktwits Co-Founder and Chairman Howard Lindzon and Cantor Fitzgerald Analyst Brian White discuss the stock market and possible Twenty-First Century Fox and Time Warner deal on “Bloomberg Surveillance.”

U.S. stock-index futures declined, after the Dow Jones Industrial Average reached an all-time high, as the Treasury Department and European Union imposed further sanctions on Russian business over Ukraine.

SanDisk Corp. dropped 8.2 percent in early New York trading after posting profit margins and sales forecasts that fell short of some analysts’ estimates. Morgan Stanley (MS) advanced after reporting financial results. UnitedHealth Group Inc. (UNH) and EBay Inc. (EBAY) rose after posting earnings that beat projections.

Futures on the Standard & Poor’s 500 Index (SPX) expiring in September fell 0.6 percent to 1,963.9 at 7:27 a.m. in New York. Dow contracts slid 51 points, or 0.3 percent, to 17,006 after the gauge closed at a record 17,138.2 yesterday.

“U.S. futures are drifting slightly downwards after another day of record-breaking gains,” Richard Hunter, head of equities at Hargreaves Lansdown Plc in London, wrote in an e-mail. “Some slight concerns remain in the background in the form of earlier-than-expected interest rate rises following comments from the Federal Reserve Chair, and the implications of the U.S. sanctions on Russia.”

The U.S. and EU said more sanctions may follow after the most punitive sanctions so far over the unrest in Ukraine. The Obama administration’s targets include OAO Rosneft (ROSN), Russia’s largest oil company and natural-gas producer OAO Novatek. The leaders of the 28-nation bloc agreed agreed to blacklist companies and halt lending to public-sector projects in Russia.

Interest Rates

While Federal Reserve Chair Janet Yellen said this week that rates will probably stay low for a “considerable period” after bond purchases end, an unexpectedly fast decline in unemployment has put pressure on Fed officials to consider accelerating their timetable for an interest-rate increase.

With the Dow closing at a record and the S&P 500 only 0.2 percent below its all-time high reached this month, financial professionals are growing more anxious. Forty-seven percent of investors, analysts and traders in a Bloomberg Global Poll said the equity market is close to unsustainable levels, while 14 percent already see a bubble. Almost a third of respondents called the market for lower-rated corporate debt overheated and most said stock swings will increase within six months, the July 15-16 poll showed.

“You see this always when markets reach new highs, we see profit-taking from our clients because they don’t trust the market,” Markus Wallner, an equity strategist at Commerzbank AG in Frankfurt, said in a phone interview.

A U.S. Commerce Department report at 8:30 a.m. in Washington may show builders broke ground on 1.02 million homes last month at an annualized rate, compared with 1 million in May. Separate data may show that applications for jobless claims climbed to 310,000 in the week ended July 12 from 304,000 the previous period.

Earnings Season

A total of 24 companies on the S&P 500 report earnings today, including Google Inc. and Schlumberger Ltd. Profit by the gauge’s members increased 4.5 percent in the second quarter, and revenue rose 3.1 percent, according to analysts’ estimates compiled by Bloomberg.

SanDisk, whose chips store data in mobile devices, dropped 8.2 percent to $99. Revenue in the current period will reach $1.68 billion to $1.73 billion, the company said. That compares with an average analyst estimate of $1.74 billion, data compiled by Bloomberg show.

Orbitz Worldwide Inc. (OWW) retreated 6.9 percent to $8.35. The online travel-services company said it is offering 20 million shares of its common stock by an affiliate of Travelport Ltd. It also reported preliminary second-quarter net revenue of $248 million, versus the average analyst estimate of $242.9 million.

Morgan Stanley

Morgan Stanley advanced 0.6 percent to $32.70. The best-performing stock this year among the five largest Wall Street banks reported that second-quarter net income rose to $1.94 billion, or 94 cents a share. Excluding an accounting adjustment tied to the firm’s own debt and a tax benefit, profit was 60 cents a share, topping the 56-cent average estimate of 24 analysts surveyed by Bloomberg.

UnitedHealth added 1 percent to $84.60. The largest U.S. health insurer by revenue said net income was $1.41 billion, or $1.42 a share, as revenue from its technology and consulting unit grew. Analysts had projected earnings of $1.26 a share, according to the average estimate.

EBay rose 0.6 percent to $51. The biggest online marketplace said profit excluding certain costs reached 69 cents a share in the second quarter, beating the average analyst estimate of 68 cents. The company also forecast third-quarter revenue of $4.3 billion to $4.4 billion and profit before certain items will be 65 cents to 67 cents a share. Analysts on average projected sales of $4.42 billion and earnings of 70 cents, according to data compiled by Bloomberg.

United Rentals Inc. (URI) climbed 3.5 percent to $112. The equipment-rental company said revenue for 2014 will be $5.55 billion to $5.65 billion, narrowing its previous estimate of $5.45 billion to 5.65 billion. Analysts surveyed by Bloomberg predicted $5.56 billion. United Rentals projected adjusted earnings before interest, taxes, depreciation and amortization of $2.65 billion to $2.7 billion.

Source: Bloomberg

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