Market Overview

Investors Focus On Earnings Rather Than Geopolitical Tensions

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U.S. stocks rose as many questions remain unanswered following the crash of MH17 over the unstable region of Donetsk in Ukraine.

U.S. intelligence sources speculated the plane was brought down by a ground-to-air missile but cannot confirm who was responsible.

Investors appear to focus on corporate earnings which continue to impress instead of uncertainty in both Ukraine and the Middle East.

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  • The Dow gained 0.73 percent, closing at 17,100.18.
  • The S&P 500 gained 1.03 percent, closing at 1,978.22.
  • The Nasdaq gained 1.57 percent, closing at 4,432.15.
  • Gold lost 0.43 percent, trading at $1,311.30 an ounce.
  • Oil lost 0.13 percent, trading at $103.06 a barrel.
  • Silver lost 1.11 percent, trading at $20.90 an ounce.

News of Note

July Reuters/UofM Consumer Sentiment fell to 81.3 from 82.5 in June, missing expectations of 83.

June Leading Index rose 0.3 percent to 102.2, falling short of the 0.5 percent gain expected The Coincident Index rose 0.2 percent while Lagging index rose 0.5 percent.

According to NPD data, U.S. retail physical game sales fell three percent in June to $286.8 million while hardware sales surged 106 percent from a year ago to $292.7 million.

Analyst Upgrades and Downgrades of Note

Analysts at FBR Capital downgraded Advanced Micro Devices (NYSE: AMD) to Market Perform from Outperform with a price target lowered to $4.50 from a previous $6.00. Also, analysts at Bank of America downgraded Advanced Micro Devices to Underperform from Neutral. Analysts at Deutsche Bank maintained a Hold rating on Advanced Micro Devices with a price target lowered to $3.50 from a previous $4.00. Shares lost 16.19 percent, closing at $3.83.

Analysts at Bernstein maintained a Buy rating on Anadarko Petroleum (NYSE: APC) with a price target unchanged at $126. Meanwhile, analysts at Bernstein downgraded Anadarko Petroleum to Market Perform from Outperform with an unchanged $107 price target. Shares gained 0.20 percent, closing at $108.33.

Analysts at Stifel Nicolaus downgraded AutoZone (NYSE: AZO) to Hold from Buy while removing a $570 price target. Shares lost 0.79 percent, closing at $520.56.

Analysts at Barclays maintained an Overweight rating on Capital One Financial (NYSE: COF) with a price target raised to $93 form a previous $86. Also, analyst at FBR Capital maintained an Outperform rating on Capital One with a price target raised to $94 from a previous $90. Shares lost 0.24 percent, closing at $82.29.

Analysts at SocGen downgraded Coca-Cola (NYSE: KO) to Hold from Buy. Shares gained 0.98 percent, closing at $42.43.

Analysts at Janney Capital downgraded Dunkin' Brands Group (NASDAQ: DNKN) to Neutral from Buy with a price target lowered to $45 from a previous $56. Shares gained 0.57 percent, closing at $44.14.

Analysts at Bernstein downgraded EOG Resources (NYSE: EOG) to Market Perform from Outperform with an unchanged $109 price target. Meanwhile, analysts at Deutsche Bank maintained a Buy rating on EOG with a price target raised to $125 from a previous $118. Shares gained 0.42 percent, closing at $116.04.

Analysts at Nomura maintained a Buy rating on Gilead Sciences (NASDAQ: GILD) with a price target raised to $141 from a previous $130. Shares gained 4.84 percent, closing at $89.19.

Analysts at Credit Suisse maintained an Outperform rating on Google (NASDAQ: GOOG) with a price target raised to $745 from a previous $742. Meanwhile, analysts at Deutsche Bank maintained a Buy rating on Google with a price target raised to $645 from a previous $625. Also, analysts at JPMorgan maintained an Overweight rating on Google with a price target raised to $670 form a previous $645. Shares gained 3.72 percent, closing at $595.08.

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Analysts at Needham downgraded Mattel (NYSE: MAT) to Hold from Buy while removing a previous $41 price target. Shares lost 0.71 percent, closing at $36.20.

Analysts at Jefferies maintained a Hold rating on Michael Kors Holdings (NYSE: KORS) with a price target lowered to $80 form a previous $95. Shares lost 0.98 percent, closing at $81.06.

Analysts at Deutsche Bank maintained a Hold rating on Microsoft (NASDAQ: MSFT) with a price target raised to $44 from a previous $42. Also, analysts at Barclays maintained an Overweight rating on Microsoft with a price target raised to $50 form a previous $44. Shares gained 0.40 percent, closing at $44.71.

Analysts at FBR capital maintained a Market Perform rating on SAP AG (NYSE: SAP) with a price target raised to $83 from a previous $81. Shares gained 0.81 percent, closing at $81.33.

Analysts at JPMorgan maintained a Neutral rating on Yum! Brands (NYSE: YUM) with a price target lowered to $80 from a previous $81. Shares gained 0.53 percent, closing at $77.42.

Equities-Specific News of Note

The Department of Justice initiated a lawsuit against Entergy (NYSE: ETR), charging the company for not reporting its affirmative action compliance, as required to do so as a federal contractor. Shares gained 1.25 percent, closing at $77.22.

Amazon.com (NASDAQ: AMZN) launched its Kindle Unlimited e-book subscription service for $10 a month. Shares gained 1.76 percent, closing at $358.66.

General Electric (NYSE: GE) plans to offer 125 million shares for its Synchrony Financial IPO at a price of $23 to $26 per share giving the unit a maximum value of $21.6 billion. GE Finance will see its holdings dilute to 85 percent form 100 percent after the offering. Shares lost 0.56 percent, closing at $26.46.

Cliffs Natural Resources (NYSE: CLF) cut the size of its slate of directors up for election as a defensive tactic against Casablanca Capital from gaining a majority of the board. Shares gained 2.19 percent, closing at $15.841.

AbbVie (NYSE: ABBV) finally closed its $53 billion deal with Shire (NASDAQ: SHPG). AbbVie will pay 52.48 pounds for each share of Shire, consisting of 24.44 pounds in cash and 0.8960 new AbbVie shares. Shares of AbbVie gained 2.60 percent, closing at $54.91 while shares of Shire hit new 52-week highs of $258.50 before closing the day at $257.06, up 1.43 percent.

UPS (NYSE: UPS) revealed an expansion of its early morning delivery service which will cover 87 percent of all U.S. businesses. Shares gained 1.14 percent, closing at $103.82.

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21st Century Fox (NASDAQ: FOXA) has a $25 billion bridge loan at its disposal from Goldman Sachs and JPMorgan to potentially acquire Time Warner (NYSE: TWX). Shares of 21st Century Fox gained 0.73 percent, closing at $33.01 while shares of Time Warner hit new 52-week highs of $87.23 before closing the day at $87.23, up 1.29 percent.

Winners of Note

This morning, LM Ericsson Telephone Company (NASDAQ: ERIC) reported its second quarter results. The company announced an EPS of $0.16, in-line with the consensus estimate. Revenue of $8.03 billion beat the consensus estimate of $7.98 billion. Net income for the quarter rose to SEK2.7 billion SEK ($394.7 million) from SEK 1.5 in the same quarter a year ago as the company saw sales growth across the Middle East, China and India, as well s continued capacity business in North America. The company also saw a three percent gain in Networks and mobile infrastructure sales to SEK29B ($4.26 billion). The company saw its gross margin decline 10 bps from last quarter to 36.4 percent but were higher by 400 bps a year ago. Operating margin rose 280 bps from a year ago to 7.3 percent Shares gained 8.73 percent, closing at $12.71.

Dan Loeb's Third Point noted in its letter to investors that it assumed a stake in Argentinian oil company YPF (NYSE: YPF). Loeb believes that if the Argentinian government is able to settle its debt with hold-out creditors, the company will regain access to global capital markets. Shares gained 6.35 percent, closing at $38.00.

Shares of Petrobras (NYSE: PBR) are surging as polls in Brazil show President Roussef continues to lose support with potential voters. Petrobras also committed to selling as much as a 40 percent stake in Gasmig, a natural gas distributor. Shares gained 6.55 percent, closing at $17.08.

Shares of Gentiva Health Services (NASDAQ: GTIV) surged in response to Thursday's $17.25 acquisition offer from an undisclosed bidder which trumped Kindred's (NYSE: KND) $16.00 per share bid. Shares gained 16.10 percent, closing at $17.96.

NQ Mobile (NYSE: NQ) dismissed PriceWaterhouseCoopers as its independent auditor and hired Marcum Bernstein and Pinchuk. NQ Mobile stated that it believes there is no disagreement between itself and PwC on any matters relating to accounting principles, practices, financial statement disclosure, or auditing scope or procedure. Shares gained 15.17 percent, closing at $5.01.

Decliners of Note

During its second quarter results on Thursday, Advanced Micro Devices (NYSE: AMD) issued guidance and expects its third quarter revenue to be up only two percent from last quarter, while analysts were expecting a nine percent quarter over quarter growth. During the company's conference call with analysts, the company expects the third quarter to be the “peak quarter” for console APU shipments. Management declined to issue a console forecast for the fourth quarter when pressed by analysts. Shares lost 16.19 percent, closing at $3.83.

Key Energy Services (NYSE: KEG) issued downside second quarter guidance and sees its EPS being a loss of around $0.15 per share and a two percent quarter over quarter drop in revenues to $349 million. Analyst consensus called for a flat earnings and revenue of $380.2 million in the second quarter. Shares lost 16.01 percent, closing at $7.03.

Earnings of Note

This morning, Bank of New York Mellon (NYSE: BK) reported its second quarter results. The company announced an EPS of $0.62, beating the consensus estimate of $0.56. Revenue of $3.75 billion missed the consensus estimate of $3.77 billion. Net income for the quarter fell to $554 million from $831 million in the same quarter a year ago as the company saw a $0.14 per share charge related to investment management funds and severance and lower fees. However, assets under management rose 15 percent form a year ago to $1.64 trillion. Net interest revenue and the net interest margin both declined from $757 million and 1.15 percent a year ago to $719 million and 0.98 percent. The bank noted that its provision for credit losses was a credit of $12 million due to an improvement in the credit quality of the loan portfolio. Shares hit new 52-week highs of $38.50 before closing the day at $38.43, up 1.13 percent.

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This morning, General Electric Company (NYSE: GE) reported its second quarter results. The company announced an EPS of $0.39, in-line with the consensus estimate. Revenue of $36.20 billion fell short of the consensus estimate of $36.30 billion. Net earnings for the quarter rose to $3.9 billion from $3.1 billion in the same quarter a year ago as the company saw solid revenue gains. Industrial segment saw its revenues grow seven percent, with organic growth of five percent from last quarter. Growth market revenues rose six percent from the previous quarter in six of the nine growth regions. Services revenue rose five percent, and services order rose 14 percent over the same time period. General Electric noted it ended the quarter with a $246 billion backlog of equipment and services, up $23 billion from a year ago. The company also noted that it expects its deal with Alstom to close in 2015 with the acquisition being accretive to earnings in 2015 and will add $0.06 to $0.09 per share in 2016. The company reaffirmed plans to achieve 75 percent of earnings from its industrial business by 2016. Shares lost 0.56 percent, closing at $26.46.

This morning, Honeywell (NYSE: HON) reported its second quarter results. The company announced an EPS of $1.38, beating the consensus estimate of $1.36. Revenue of $10.30 billion beat the consensus estimate of $10.19 billion. Net income for the quarter rose to $1.1 billion from $1.02 billion in the same quarter a year ago as the company saw revenue gains of ten percent in Automation and control solutions from a year ago, a six percent gain in performance materials and technologies and an eight percent gain in transportation systems from a year ago. The company's operating income margin improved 110 bps to 15.4 percent from 14.3 percent a year ago while cash flow from operations rose seven percent to $1.3 billion with a free cash flow of $1.1 billion rising from five percent a year ago. The company however lowered its full-year revenue guidance to $40.2 billion to $40.4 billion from $40.3 billion to $40.7 billion but increased the low end of its EPS guidance to a range of $5.45 to $5.55 $5.40 to $5.55. Shares hit new 52-week highs of $97.28 before closing the day at $96.82, up 1.73 percent.

Quote of the Day

“Looking ahead, we expect market volatility to continue. After increasing exposure in May, we recently sold down some positions and are focused on several larger new ideas. We are agnostic about geography and sector. Credit exposures should remain steady and we will continue to be highly selective when initiating new opportunities. We believe that having dry powder on hand will be increasingly useful towards year-end. “ – Dan Loeb in Third Point's second quarter investor letter.

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