Investors Look to Fed to Stimulate Stock Market Today

After another round of mixed economic indicators was released this morning, investors are looking towards the Federal Reserve to rally the stock market today (Wednesday).

Private-sector jobs increased by 163,000 ahead of economists' expectations of 125,000, but down from last month's 172,000. If you remember, last month's number was thought to be a precursor to a great nonfarm payroll report but that number can in at an underwhelming 80,000 jobs.

Investors hope for 100,000 jobs added when July's U.S. jobs report is issued Friday.

Manufacturing continues to slow across the U.S. and overseas, with the latest data slipping from previous months:

  • The U.S Markit PMI index fell to 51.4 from 52.5 in June and the ISM reading was again below 50 with a July level of 49.8. This was the first time the ISM index has been below 50 since the end of the recession in mid-2009.
  • The United Kingdom's measure of manufacturing, Markit/CIPS Manufacturing PMI index, declined at its fastest rate in more than three years falling from 48.4 in June to 45.4 in July.
  • Manufacturing in the Eurozone fell to a three-year low of 44 and two different levels of China's manufacturing hovered around 50. Any reading below 50 signals contraction.

While many analysts do not expect the Fed to make drastic moves such as initiating QE3 the consensus is that they will take some form of action. This might be continuing the promise of lower interest rates through 2015 as opposed to 2014, and a strong hint at further stimulus in the near future.

If investors get what they are looking for from the Fed it could be back-to-back days of stimulus-induced rallies if Mario Draghi takes some form of action when the ECB meets tomorrow (Thursday).

If both the Fed and ECB disappoint investors by not taking any action it might be in the market's long-term interest, but short term expect to see a slide.

Bernanke is expected to make an announcement at 2:15 p.m. EDT. While the market is cautious ahead of the statement there are still major companies reporting earnings.

Comcast Corp (NYSE: CMCSA) reported better-than-expected second quarter results this morning, with its profit rising for the third straight quarter.

The cable television and communications provider announced net income rose 31.9% from the same period a year ago to $1.35 billion or 50 cents per share. Revenue rose 6.1% to $15.21 billion from the year-earlier quarter.

Analysts had expected on average earnings per share of 48 cents per share and revenue of $14.43 billion.

Cash flows also improved with operating cash flow up 4.2% to $5 billion and free cash flow of $1.52 billion up 2.2%. More good news is that for the fiscal year, the average estimate has moved up from $1.86 a share to $1.90 over the last ninety days.

"The cable business looks like a perfect place for investors to hide right now," Bernstein Research analyst Craig Moffett told Reuters. "It's stable, defensive, and still very attractively valued."

CMCSA shares were up more than 3.5% as of noon.

MasterCard Inc. (NYSE: MA) saw an increase in net income and beat earnings estimates but its stock is down after failing to meet revenue expectations.

The Purchase, NY-based company earned $700 million, or $5.55 per share, up from $608 million, or $4.76 per share, a year earlier. Those earnings included a $13 million charge resulting from lawsuits filed by merchants. Excluding that charge the company earned $713 million, or $5.65, beating analysts' estimates of $5.58 a share.

However, MasterCard posted revenue of $1.82 billion compared to expectations of $1.88 billion and that is what's hurting the company today.

Even though MasterCard missed on revenue there is still plenty of upside in this stock. Money Morning's Chief Investment Strategist Keith Fitz-Gerald recently highlighted MasterCard as one of four great debt-free companies to own now.

"The world is transitioning to e-payments and this company has a stranglehold on how money moves at a time when its name has developed into a significant global brand with worldwide recognition," said Fitz-Gerald.

Shares of MA were down 2.6% as of noon.

The Dow Jones today was up 26 points, or 0.20%, and the S&P 500 was up 2.31 points, or 0.17%, in early trading.

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