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IBM's big blue

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by Peter Switzer

Just when Wall Street throws the monkey off its back – which hopped on late last week with a big slump in consumer sentiment and some disappointing company reports on the revenue-side – along comes another ordinary revenue report from the usually reliable IBM.

This came after the Dow went positive for the first day of the trading week after slumping on Friday following the bad consumer report. The Dow put on 56.53 points, or 0.56 per cent, to 10,154.43, while the S&P 500 rose by 6.37 points, or 0.6 per cent, to 1071.25.

I reckon if IBM had reported better-than-expected, we would have a good day on the local stock market. Now, I’m not so sure.

One could argue that IBM has made a big blue in not giving the market what it wanted. And what was that?

If most companies come in with three things, the market will be in seventh heaven.

First, it wants profits better than expected.

Second, it wants revenue better than expected.

And finally, it wants outlook statements that promise a positive outlook.

Last week, Intel delivered the trifecta but IBM did not greet the judge.

On profit the company came in with $2.61 per share against an estimate of $2.58. Revenue was $23.7 billion against an estimate of $24.17 billion and this was not well-received by the market with Big Blue’s shares shedding more than three per cent, or $4.17, to trade at $125.62.

The quarter on these figures was not a bad one but the results were simply less-than-expected and it probably lines up with the higher expectations for US economic growth, which now has come in less-than-expected.

Ultimately, the IBM results will be analysed and put under the microscope, but the slight disappointment from these and other results are a reaction to the dramas over the past six months, which started with the Greek debt problems.

Over that time, the global economy and worldwide stock markets have had to deal with the Eurodebt disasters, question marks over European banks, an amateur’s rescue response by the EU to their debt problems, threats of greater fiscal austerity programs, a possible slowdown in China, the oil leak in the Gulf of Mexico, US financial system regulations, funding shortages from international credit markets and all of the uncertainty that goes with all of the above.

And then, throw in the doomsday merchants declaring a double-dip recession lies ahead. Then, the bears, the short-sellers and the hedge funds get in on the perfect storm, described above, the stock market heads south, as it did from late April, and you wonder why we are getting some disappointing results now.

I reckon these results, given this story of a lot going wrong, were bloody good and could provide a base for a rally sooner than you think.

For advice you can trust, contact Switzer Financial Services.

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Published on: Tuesday, July 20, 2010