Stocks Seen Opening Lower on Mixed Earnings News

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By Sreeja VN

U.S. stock index futures point to a lower open Thursday, ahead of the publication of jobless claims data, durable goods orders and earnings announcements from companies such as 3M, General Motors, and Starbucks.

Futures on the Dow Jones industrial average (^DJI) were down 0.4 percent, while futures on the Standard & Poor's 500 index (^GSPC)were down 0.7 percent and those on the Nasdaq 100 Index were down 0.3 percent.

Investors are likely to focus on durable goods orders to be reported at 8:30 a.m. Eastern time. Analysts polled by Reuters predict that durable goods orders, which measure the change in the total value of new orders for long-lasting manufactured goods, may increase 1.5 percent in June after gaining 3.7 percent in May and 3.6 percent in April. The core durable goods orders for June, which excludes transportation items, are expected to increase 0.6 percent after gaining 0.7 percent in May.

The initial jobless claims report, which measures the number of individuals who filed for unemployment insurance for the first time last week, is scheduled to be released by the Department of Labor at 8:30 a.m. Eastern time. Economists polled by Bloomberg predict that claims are likely to increase to 341,000 for the week ended July 20, up from 334,000 in the previous week.
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Meanwhile, economists expect continuing jobless claims data, which measure the number of unemployed individuals who qualify for benefits under unemployment insurance, to decrease to 3 million from the 3.11 million recorded in the previous week.

On the earnings front, a number of major companies, including Southwest Airlines (LUV), Sirius XM Radio (SIRI), Xerox (XRX), Colgate-Palmolive (CL), General Motors (GM) and 3M (MMM) will announce quarterly earnings before market hours. Starbucks (SBUX), Amazon (AMZN) and Zynga (ZNGA) will announce their earnings after markets close Thursday.

European markets traded sharply lower Thursday, despite UK's second-quarter gross domestic product data and Germany's Ifo Business Climate Index coming in line with expectations, as sentiment was hurt by disappointing earnings from British firms such as Unilever (UN) and BT Group (BT).

The Stoxx Europe 600 index fell 0.9 percent, London's FTSE 100 was down 1 percent, Germany's DAX-30 was down 1.3 percent and France's CAC-40 was trading down 0.9 percent.

The UK economy grew at 0.6 percent in the second quarter, up from 0.3 percent recorded in the first quarter of the year, and in line with analyst expectations, official data released Thursday showed.

"Prospects look good for a continuation of the recovery in the third quarter, with consumers and businesses both helping drive the upturn. There are even signs that exporters will see improved sales, helping drive the long-awaited re-balancing of the economy," Chris Williamson, chief economist at Markit, wrote in a research note.

In Germany, the Ifo Business Climate Index, which rates the current German business climate and measures expectations for the next six months, rose for the third time in succession to 106.2 in July, up from 105.9 recorded in the previous survey. Analysts had expected the survey to show a reading of 106.1.

In Asia, most markets traded lower Thursday, tracking moderate losses in U.S. stock markets in the previous day's session.

Japan's Nikkei ended down 1.14 percent, the Shanghai Composite index ended down 0.6 percent while Hong Kong's Hang Seng Index lost 0.3 percent. South Korea's KOSPI Composite index ended down 0.1 percent and Australia's S&P/ASX 200 ended flat. India's BSE Sensex was trading down 1.4 percent in late-afternoon trade.

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If You Only Know 5 Things About Investing, Make It These
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Stocks Seen Opening Lower on Mixed Earnings News

Warren Buffett is a great investor, but what makes him rich is that he's been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.

Most people don't start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That's unfortunate, and there's no way to fix it retroactively. It's a good reminder of how important it is to teach young people to start saving as soon as possible.

Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That's really all there is to it.

The dividend yield we know: It's currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That's totally unknowable.

Earnings multiples reflect people's feelings about the future. And there's just no way to know what people are going to think about the future in the future. How could you?

If someone said, "I think most people will be in a 10% better mood in the year 2023," we'd call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.

Someone who bought a low-cost S&P 500 index fund in 2003 earned a 97% return by the end of 2012. That's great! And they didn't need to know a thing about portfolio management, technical analysis, or suffer through a single segment of "The Lighting Round."

Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return -- still short of an index fund.

Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it's not like golf: The spectators have a pretty good chance of humbling the pros.

Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time -- every single time -- there's even a hint of volatility, the same cry is heard from the investing public: "What is going on?!"

Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.

Since 1900 the S&P 500 (^GSPC) has returned about 6% per year, but the average difference between any year's highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.

Someone once asked J.P. Morgan what the market will do. "It will fluctuate," he allegedly said. Truer words have never been spoken.

The vast majority of financial products are sold by people whose only interest in your wealth is the amount of fees they can sucker you out of.

You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he'll receive, even though it makes him more likely to be wrong.

This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.

"Everything else is cream cheese."
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