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McClatchy-Tribune  07/15/2014 10:41 PM ET
Daily Wrap: Biotech stocks fall as Fed plays market analyst [St. Louis Post-Dispatch :: ]

July 15--TODAY'S INDEXES -- Dow industrials 17060.68 + 5.26

S&P 500 1973.28 -3.82

Nasdaq 4416.39 -24.03

FED'S SELL SIGNAL: The Federal Reserve doesn't often express an opinion on the stock market, but it made an exception today in the case of biotechnology and social media stocks. In a monetary policy report to Congress, the central bank opined that "valuation metrics in some sectors do appear substantially stretched -- particularly those for smaller firms in the social media and biotechnology industries." Right on cue, the Global X Social Media Index dropped 1.1 percent and the Nasdaq Biotechnology Index tumbled 2.2 percent.

MIXED MESSAGE: The S&P 500 slipped 0.2 percent but the Dow tacked on 0.03 percent and is now less than 8 points from the record it set July 3. The Fed isn't bearish on the overall market, by the way: It says valuations show that "in aggregate, investors are not excessively optimistic regarding equities."

SELL THE NEWS: A Wall Street aphorism says you should buy on rumor but sell on news, and it held true today after the announcement of a $27 billion tobacco merger. Shares of the buyer, Reynolds American, fell 6.9 percent and the seller, Lorillard, plunged 10.5 percent.

EARNINGS CHEERS: JPMorgan Chase surged 3.5 percent after the big bank reported earnings. Second-quarter profit fell 8 percent but that was better than expected as investment banking fees helped offset a drop in trading revenue.

... AND JEERS: Johnson & Johnson beat earnings estimates and raised its profit forecast but that apparently wasn't good enough for investors. The big drugmaker's shares fell 2 percent.

LOCAL INDEX: The Bloomberg St. Louis Index lost 0.4 percent, doing a bit worse than the overall market.

STL STOCKS GAINERS LOSERS

SunEdison Semiconductor 2.4% Viasystems Group -3.6%

American Railcar 0.8% Stereotaxis -3.3%

Laclede Group 0.7% Build-A-Bear -2.8%

LOCAL LOSER: Commerce Bancshares, like J&J, received a chilly reception for what sounded like good profit news. Commerce shares fell 0.7 percent even though revenue was up, loan chargeoffs were down and the second-quarter profit of 70 cents a share beat analysts' estimates by 2 cents.

ANALYST'S INSIGHTS: Ben Strubel, of Strubel Investment Management in Lancaster, Pa., has named Mallinckrodt his "dumb investment of the week." Writing on the website ValueWalk, he says he doesn't like Mallinckrodt's acquisition of Questcor, which has been criticized over marketing of Acthar, a drug used to treat rheumatoid arthritis and other diseases. Strubel writes that Mallinckrodt shareholders "now have to trust the fate of a highly levered company to a previously unsuccessful drug that may owe its current sales success to inappropriate, unethical, or even illegal marketing tactics."

THE DAY AHEAD: The parade of big-bank earnings reports continues, with Bank of America, US Bancorp and Northern Trust expected to report before the market opens. Ebay's quarterly numbers are due after the closing bell.

David Nicklaus is business columnist at the St. Louis Post-Dispatch. Subscribe to his Facebook page or follow him on Twitter @dnickbiz.

 

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