In an overall positive performance this morning, we had a diverse group of companies reporting strong results – except for Bank of America. 

We had solid numbers on Thursday as well, but the market chose to ignore those and focus instead on (unfounded) fears about China. I want to address China a little later; let’s talk about earnings first.

 

The nation’s largest bank, Bank of America, came short of expectations. Even stripping out the many confusing charges and one-time items in the bank’s report, their results did not compare favorably with expectations. Purely based on fourth quarter results, Bank of America appears to be the weaker of the three money-center banks (JP Morgan, Citi, and BoA).

 

Offsetting the Bank of America disappointment was strong earnings from a true blue-chip icon GE. On the day that Jeff Immelt, the GE CEO, was appointed to a While House Jobs Panel, the company came out with better than expected results. GE beat on both EPS as well as revenue. In the oil patch, Schlumberger reported better than expected results and raised its quarterly dividend. And after the close on Thursday, Google had impressive numbers. The earnings picture thus far has been very good.

 

Just briefly about China. Their economy grew at a faster-than-expected pace in the last quarter of 2010. Generally, this would be good news for the global economy. The reason this otherwise good news caused a worldwide sell-off on Thursday was that the economy grew this much despite tightening efforts by the authorities. China has an inflation problem and they have been trying for awhile, through a host of administrative and monetary measures, to control that. 

The torrid pace of economic growth is unhelpful to that effort, requiring even more stringent tightening measures, argue the worrywarts. I don’t think that argument holds water. 

The Chinese would be tightening in 2011 irrespective of the fourth quarter GDP report. And that course of action remains unchanged. And on the inflation front, the CPI level dropped in December to 4.6% from 5.1% in November — meaning that the tightening measures are starting to have an effect. 

Bottom line, a growing Chinese economy is no cause for concern.

Sheraz Mian

P.S. What is Zacks Ahead of Wall Street? To find out more about Zacks Ahead of Wall Street, click here.
 
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