Investors are trying to get a read on the economy using earnings reports. They're finding it's not so easy.
The result Tuesday was yet another erratic day of stock trading. The Dow Jones industrial average rose 75 points after having fallen 140 in early trading in response to a series of disappointing revenue reports. Analysts were hard-pressed to come up with a reason for the turnaround. But trading was extremely light, and that tends to skew stock prices.
Analysts said some investors were getting a little more upbeat as they awaited earnings reports from Yahoo Inc. and Apple Inc. after the close. But those reports came in mixed, just like those from the many companies that have also reported second-quarter results. Apple's stock surged in after-hours trading, but Yahoo fell. Like IBM Corp., Johnson & Johnson and Goldman Sachs Inc., its revenue fell short of expectations.
Investors have been quick to sell on even a whiff of bad news. Early Tuesday, they were motivated by the reports from IBM, J&J and Goldman. Investors have been focusing on revenue rather than bottom-line earnings because of the link between companies' sales and the economy. If revenue is down because consumers aren't spending, that's a sign that the economy could remain weak.
Investors seem to have decided as Tuesday wore on that earnings didn't look quite as bad as they first thought. Analysts noted that Goldman's drop in revenue was similar to those reported by JPMorgan Chase & Co., Citigroup Inc. and Bank of America Corp. Their revenue fell not because of a weak economy, but because their customers decided to avoid the financial markets' turbulence during the spring.
Some analysts said there were technical factors involved in the market's moves.
"Investors may have been anticipating the market heading back to early July lows so when it didn't fall apart in early trading, they slowly came back in," said Michael Sheldon, chief market strategist at RDM Financial Group in Westport, Conn.
Those investors were looking at charts that track the movements of indicators including the Standard & Poor's 500. When the S&P reaches, or doesn't reach, a specific level, that can prompt investors to buy or sell.
It was hard to predict what turn trading might take Wednesday. Yahoo and Apple are considered indicators of the overall economy, but their mixed results weren't giving investors a clear-cut direction for stocks.
The Dow rose 75.53, or 0.7 percent, to 10,229.96. The broader Standard & Poor's 500 index rose 12.23, or 1.1 percent, to 1,083.48 and the Nasdaq composite index rose 24.26, or 1.1 percent, to 2,222.49.
Advancing stocks were ahead of losers by 4 to 1 on the New York Stock Exchange, where consolidated volume came to an extremely light 1.7 billion shares, up from Monday's 4.1 billion.
Treasury prices ended the day little changed, although they rose in early trading as stocks fell as investors opted for safer investments. The yield on the benchmark 10-year Treasury note, which moves opposite its price, was unchanged from 2.96 percent late Monday.
Tom di Galoma, head of U.S. government bond trading at Guggenheim Partners, commented on the erratic stock trading: "It's a constant tug-of-war we're seeing" as investors try to figure out how much growth potential there is in the economy. Earnings have been mixed, which adds to the muddled picture, he said.
While earnings reports will continue to flow in on Wednesday and beyond, investors are also going to watch closely the next two days as Federal Reserve Chairman Ben Bernanke gives Congress his semi-annual report on the economy.
Sheldon predicted that Bernanke would reaffirm comments made in the minutes of the Fed's June meeting, which were released last week. There, the Fed predicted that the economy will see softer growth in second half of the year.
If Bernanke is able to placate investors and help send stocks higher, it likely will be a temporary blip. The market has quickly shrugged off the chairman's comments in recent months, and focused instead on the latest bad economic or earnings report.
A downbeat report on the housing sector didn't help the market's early bad mood. The Commerce Department said home construction fell last month to the lowest level since October. The drop was mitigated by a 2.1 percent rise in building permit applications, an indicator of future activity.
Yahoo rose 10 cents in regular trading to $15.20, then dropped $1.10, or 7.2 percent, in after-hours trading. Apple rose $6.31 to $251.89 in regular trading, then surged another $7, or 2.8 percent, in extended trading after its results impressed investors.
Johnson & Johnson's revenues came in flat, and below what analysts were expecting. The company said several recalls of popular nonprescription medicines kept its top line in check. J&J's shares, a component of the Dow, fell 99 cents, or 2.7 percent to $58.58.
For some companies, even matching expectations for revenues isn't enough. Late Monday Texas Instruments reported revenues that came in line with estimates, but investors were disappointed that the company didn't report results as robust as come of its competitors. TI's shares slumped 78 cents, or 3 percent, to $24.77.
IBM fell $3.24, or 2.5 percent, to $126.52.
Goldman Sachs' results are being closely watched since investors are concerned about how much banks will be restricted from trading by new financial regulation reform. The bank's net income after paying preferred stock dividends fell 83 percent to $453 million on lower trading revenue and a charge to settle civil fraud charges brought by the government.
Goldman rose $3.23, or 2.2 percent, to $148.91.
Overseas, Britain's FTSE 100 fell 0.2 percent, Germany's DAX index fell 0.8 percent, and France's CAC-40 fell 0.7 percent. Japan's Nikkei stock average fell 1.2 percent.