The corporate news may have been rife with better-than-expected earnings, but the market wasn’t focused on those gains. Instead the SEC versus Goldman Sachs (GS) battle continued to draw the most attention as several European countries announced that they may bring legal action of their own on the investment banker.
Energy stocks were strong yesterday, and that helped the Dow Jones Industrial Average (DJI) register a gain for the day. Exxon Mobil (XOM) and Chevron (CVX) both gained more than 1%. And the S&P 500 (SPX) rose 0.81%, helped by gains in energy stocks, but also a broad-based but mild push across all of its sectors.
IBM (IBM) fell 1.9% following its late Monday quarterly report, which included a drop in new service contracts. The Q1 earnings were better than most analyst’s expectations, and the company even revised its earnings estimate to “at least” $11.20 a share versus estimates of $11.12, but the stock fell despite all the good news.
Coca-Cola (KO) fell 1.5% after missing analysts’ estimates. Its CEO even expressed doubts about the remainder of the year saying, “Consumers are not yet out of this crisis and still remain confused due to the extended economic headwinds around the world.”
Toolmaker Snap-on Inc. (SNA) jumped 8.5% following a 6% increase in earnings. The report showed higher sales and margins. The company had its biggest gains in the commercial and industrial divisions, and in a statement the CEO said the company would be in a strong position to benefit from a global economic recovery.
Finally, Harley-Davidson (HOG) jumped 7.3% on earnings and revenues that beat estimates, and its financial arm returned to profitability.
At the close, the Dow gained 25 points to 11,117, the S&P 500 rose 10 points to 1,207, and the Nasdaq (NASD) gained 20 points to 2,500.
The NYSE traded 1.1 billion shares with advancers over decliners by more than 4-to-1. On the Nasdaq, advancers were ahead by a ratio of more than 3-to-1 on volume of 573 million shares.
Crude oil for June delivery (the new front month) gained 72 cents, closing at $83.85 a barrel. The Energy Select Sector SPDR (XLE) closed at $60.54, a gain of $1.16.
June gold rose $3.40 to settle at $1,139.20 an ounce. The PHLX Gold/Silver Sector Index (XAU) closed at 168.01, off 46 points.
What the Markets Are Saying
Again the markets inched higher, and the major indices closed close to their respective highs for the day and not far from new annual highs. There is little doubt that the upward momentum is being fueled by some outstanding earnings from some of the world’s biggest corporations. And the momentum from that source is not likely to end soon.
After the close yesterday, Apple (AAPL) announced that its Q2 profits surged by 90%, producing earnings of $3.33 a share versus estimates of $2.45. And Yahoo (YHOO) said its Q1 earnings more than doubled to 22 cents a share compared with estimates of 9 cents. Seagate Technology (STX) reported earnings of $1.03 versus estimates of 94 cents, and on and on goes the list of outstanding technology earnings.
Microsoft (MSFT) reports earnings after the close on Thursday. If Mr. Softee can handily beat estimates of 42 cents, look for another run at the annual highs.
But despite the batch of outstanding earnings, there remains the probability that the earnings being reported are built into the current levels of the major stock averages. S&P looked for earnings to exceed estimates by a wide margin, and that is exactly what we are getting, especially in the technology sector.
So as long as the positive earnings keep coming, stock prices will more than likely continue to plod higher. The chart trends are decidedly pointed up, but with every indicator now overbought, there is little room for error or surprise. When the earnings season is over, what will remain to boost stock prices?
The most prudent position for traders is to sell into the rallies and accumulate cash. The laws of gravity have not yet been repealed, so when the props are pulled, there is no other direction than down. When we reach the point of modestly oversold, we will again put our cash to work.
Long-term holders should hang on to their winners but sell their losers and dogs that have failed to keep pace with the market. Why? Because if that dog is still on the porch, he ain’t goin’ huntin’.
Today’s Trading Landscape
Earnings to be reported before the opening include: Abbott Labs, AirTran Holdings, Altria, AMB Property, AT&T, ATMI, Boeing Co., CNH Global, Comerica, Covidien, Elan, EMC, EnCana, First Commonwealth, Genzyme, Health Grades, Huntington Bancshares, KeyCorp, Knight Capital Group, Laboratory Corp., Lockheed Martin, Lufkin Industries, Manpower, Media General, Moody’s, Morgan Stanley, NVR, NY Community Bancorp, Piper Jaffray, Polaris Industries, Quest Diagnostics, Ryder System, St. Jude Medical, SunTrust Banks, Temple-Inland, Thomas & Betts, United Technologies, Vitamin Shoppe and Wells Fargo.
Earnings to be reported during trading hours include: Zenith National Insurance.
Earnings to be reported after the close include: Affymetrix, Alliance Data, AmeriCredit, Amgen, Astoria Financial, Chipotle Mexican Grill, Citrix Systems, Cohen & Steers, Cohu, Community Health, CoStar Group, Covanta, DST Systems, E-Trade, eBay, Equinix, F5 Networks, Fidelity National, Forward Air, Graco, HNI, Hub Group, Hudson City Bancorp, Intersil, Knight Transportation, Lam Research, LaSalle Hotel, Leggett & Platt, Massey Energy, Mellanox Technologies, Monarch Casino & Resort, Netflix, Netgear, Noble Corp., Novellus, Pactiv Corp., Platinum Underwriters, Polycom, Qualcomm, Raymond James, RC2, SanDisk, SLM Corp., Starbucks, Teradyne, Terex, Texas Capital, Tractor Supply, TrueBlue, United Rentals and Vertex Pharmaceuticals.
Economic reports due: MBA purchase applications and EIA petroleum status report.
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