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Courtesy of David Brown, Chief Market Strategist, Sabrient
After one of the most volatile weeks in market history, Google (GOOG) single-handedly frightened the bears away this morning with its $12.5 billion purchase of Motorola Mobility (MMI).
If not for that acquisition there would be very little that is positive for the market’s outlook. One of the last major Q2 earnings announcements came from Lowe’s (LOW) today. The company not only announced weaker earnings but reduced their forward guidance as well. Today’s economic news certainly didn’t help. The Empire State Manufacturing showed deteriorating business conditions with a reading of -7.7% versus the expected -0.4%. That’s not only disappointing but truly awful. In other economic news, a strong retail sales report was offset somewhat by much-weaker-than-expected consumer sentiment.
On the global front, the gloom came from Japan’s announcement of a lower second quarter GDP, which was down -1.3%, although it was not as bad as feared.
You might wring some optimism from tomorrow’s meeting between France and Germany to discuss how to bail out the euro. The pessimists among us might think the two countries will talk about bailing out of the European Union itself, and letting the currencies of the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) sink or swim. That will probably not happen, as the PIIGS’ currencies would certainly sink, which would result in cheap competition to French and German exports.
There’s no easy answer to that, so let’s return to Google’s big surprise. Not only were they willing to part with $12.5 billion – which exceeds the size of any acquisition in their history – but they paid a 60% premium for Motorola Mobility. No one knows how well it will turn out, but there’s no doubt Google bought a boatload of cellular phone patents, which is impressive in and of itself.
The important take-away is the realization that corporate America has tons of cash, as we’ve said many times, and valuations are better than they’ve been some time. Indeed, the forward P/E figures that we mentioned last week was 6.3; now it is 6.2. This is due not only to the tumbling market but also to the nearly double improvement of net upward EPS revisions.
Another interesting statistic is the expected absolute quarter-over-quarter earnings for each stock. Last week,…
