The Empire strikes back
by Peter Switzer
The very diversified GE beat analysts’ earnings predictions but did not wow them on the revenue side. However this is a company that was really in trouble because of its finance exposure. It probably is a good indicator of the US economy where there’s improvement for those businesses whose share prices fell as accessories after the sub-prime/credit crunch debacle. GE was an accessory before the fact.
Same too for Bank of America, which also had to do a lot of the clean up work. This bank is more heavily exposed to main street America. The likes of Goldman Sachs and JPMorgan, who performed better, are more exposed to Wall Street where everything is now coming up roses.
"The disappointing results from Bank of America and GE do not mean the whole earnings season will go sour, but it is raising a question mark among investors," Peter Cardillo, chief market economist at Avalon Partner said to Reuters.
Other not-so-crash-hot news
One consumer sentiment indicator dropped from 73.5 to 69.4 in the middle of this month. And retail sales fell by the biggest amount this year following the end of the “cash for clunkers” program. The Chicago Purchasing Managers Index was not great either.
Reporting this week
And on Wall Street on Friday, declining stocks beat risers two to one and some chartists think the movement around the Dow 10,000-level suggests the market is topping out. However there are plenty of other analysts who still back the rally and that’s why this week will be, as I said, HUGE!
Around half of the Dow Jones companies will report and something close to 25 per cent of the S&P 500 group of companies.
The earnings test explains this current rally and it will have to be passed again for it to continue. To date, 61 S&P 500 companies have reported and 79 per cent came in better than expectations. That so-called beat rate is a good sign that must be sustained.
The good news
What about good news in the last couple of weeks?
- Second quarter US GDP was revised from minus one per cent to -0.7 per cent.
- Citigroup economist Steven Wieting in the US tips third quarter growth to be 3.25 per cent annualised, two per cent for the fourth quarter and then 2.7 per cent for the first next year.
- It’s estimated that there’s around $3.5 trillion of cash on the sidelines waiting for the time to get into the stock market.
- Bruce Kasman, chief U.S. economist at JPMorgan said this to CNBC: “I don’t think we’re going to have a double dip—I think we’re going to have a lift and carry. We’re growing at 3.5 to four per cent now and I think we’re likely to sustain that.”
- Inventories are falling in the US, which means restocking will have to kick in soon.
- The falling US dollar helps stimulate the US economy.
- Industrial production went up in September and that’s three months in a row.
- The Dow Jones is up five per cent in two weeks and the volatility index or fear index is now under 21. When it’s in the teens, we’re back to normal but this level is good.
- Tech stocks such as Google, IBM, Intel reported better than expected.
This week some big names report — Apple, Texas Instruments, Caterpillar, Coca-Cola, DuPont, Black Rock, Coach, Yahoo, Boeing, Wells Fargo, Morgan Stanley, Amgen, eBay, AT&T, Merck, 3M, Travelers, UPS, Bristol-Myers, American Express, McDonald's, Microsoft, Whirlpool and Honeywell.
Finally, I liked the New York Federal Reserve’s Empire Manufacturing Index, which went to the highest level since 2004. Not only did the index go up 16 points to 34.6, but employment indicators in the survey also went positive for the first time this year. New York was hit hard by Wall Street’s collapse last year and it’s good to see the Empire striking back!
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
The Switzer Super Report is a newsletter and website for self managed super funds. With exclusive commentary from Peter Switzer and Paul Rickard the Switzer Super Report will help you maximise your after tax investment returns and grow your DIY Super. Click here for a free trial or subscribe today.
Published on: Monday, October 19, 2009blog comments powered by Disqus