| 16-July-10 | 9-July-10 | Weekly% Change | YTD% Change | 12 month %Change | ||
| S&P 500 Index | 1,064.88 | 1,077.96 | -1.21% | -4.50% | 13.24% | |
| Dow Jones Industrial Average | 10,097.90 | 10,198.03 | -0.98% | -3.17% | 15.48% | |
| Nasdaq Composite | 2,179.05 | 2,196.45 | -0.79% | -3.97% | 15.50% | |
| Wilshire 5000 | 11,066.63 | 11,225.81 | -1.42% | -3.75% | 14.86% | |
| MSCI EAFE (Intl.) | 1,432.15 | 1,414.96 | 1.21% | -9.40% | 8.48% | |
| 10 Year U. S. Treasury Yield | 2.92% | 3.05% | -4.26% | NA | NA | |
| 30 year U.S. Treasury Yield | 3.94% | 4.04% | -2.48% | NA | NA | |
Earnings reports started to flow steadily from corporate America last week, and results were generally good. In contrast, investor reaction to the reports was fairly tepid. Let’s jump straight into the numbers. Industry heavyweights reported last week. According to Barron’s, earnings grew 76% at JP Morgan Chase (JPM) and 51% at railroad company CSX (CSX). Tech bell-weather Intel (INTC) beat most analysts’ estimates on profits, and, believe it or not, posted record revenues. Think about that: Intel had never achieved quarterly sales as high as they did in the last quarter.
Of course, investors—the demanding bunch that we are—basically asked, “What have you done for me lately?” On second thought, they are more likely asking, “What will you do for me next?” To be sure, with all of the economic uncertainty, what has happened matters less than what may happen in the future. What so many investors seemingly want to hear from executives is, “Everything is okay, and you don’t have to worry anymore.” Of course, none of them will say that.
Company management teams know their customers, their suppliers and their industry, but I doubt any of them know the effect of European austerity measures or the impact of a potential Chinese housing bubble any better than the rest of us. While their actions—increased merger and acquisition activity for example—ring of some optimism, their words are certainly more cautious.
The overarching theme in the market comes back to two major conflicting data points. On one hand, we have very healthy corporations that are cash-rich, have low debt levels and have cut costs to become lean. To boot, their equity is generally trading at levels that are considered cheap by historical standards. On the other hand, we have economic uncertainty emanating mainly from high unemployment and unsustainable debts.
So, what will come in the next weeks of earnings season? We think more of the same. According to Bespoke Investment Group, about 75% of companies that have reported so far have beaten profit expectations, and over 80% have beaten sales targets. If these statistics sound familiar, they are. That is about the “beat rate” of the last few quarters, and, as was the case with the last few quarters, guidance remains important for short-term market performance. As future economic clarity declines, so too does the clarity of management guidance and, therefore, investor confidence.
Coming Up: The flood gates will open wider on earnings reports this week, and some big names (many in the financial sector) will report. Among them are IBM, Johnson & Johnson (JNJ), Pepsi (PEP), Wells Fargo (WFC), Goldman Sachs (GS), American Express (AXP) and Apple (AAPL). Most economic news will come from government centers. First, Fed Chairman Bernanke will give his semiannual report to the Senate Banking Committee on Wednesday. To end the week, we will get the results of the stress tests on European banks. Investors may remember that the release of the stress test results on U.S. banks in the spring of 2009 kicked off quite a rally.
The views and opinions contained herein are those of Bellatore Financial, Inc. and have been researched and analyzed by Kane S. Cotton, Chief Investment Strategist, Capital Allocation & Management.
All Indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The NASDAQ Composite Index measures the performance of all issues listed in the NASDAQ Stock Market, except for rights, warrants, units, and convertible debentures. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Dow Jones is computed by summing the prices of the stocks of 30 large companies. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data.
Capital Allocation & Management is a managed money program offered through Bellatore Financial, Inc. 10.124.c.07.10