Earnings Season is the Key
Courtesy of David Brown, Sabrient Systems
We began today with news of the terrorist attack at the Domodedovo Airport in Moscow and real worries about inflation. Last week’s PPI and CPI reports indicate that core inflation is still at bay in the U.S. (that doesn’t count food and energy costs), but fears loom that China will raise interest rates yet again (they did it twice in 2010) and that the European Central Bank will do the same to subdue inflationary fears in Europe.
Yet the markets shrugged and surged to a new 2-year high for the Dow, with the Nasdaq gaining over 1% and the S&P 500, over half a percent.
Perhaps it is the fears about inflation that lifted today’s markets, but the reaction to some after-market earnings announcements makes me think the market is a tad irrational. American Express (AXP) met their earnings estimates and announced improved profits, but AXP is down more than 1% in after-hours trading. Texas Instruments (TXN) beat estimates by nearly 25% ($0.78 vs. an expected $0.63″, and TXN lost nearly 3% in the aftermarket. Yet JC Penney (JCP) made an innocuous announcement earlier today that it will take “strategic actions to maximize growth and profitability” — (as opposed to the opposite?) — and JCP rose more than 7%.
Perhaps the President will give us a sense of where we’re headed in his State of the Union address Tuesday night. Or perhaps this week’s economic announcements will. The FOMC decision will be announced on Wednesday, along with the numbers for new home sales and (on Thursday) pending home sales. Hopefully, those numbers will reflect a recovering housing industry, as did last week housing permits and existing home sales. Thursday also brings durable goods and the weekly initial jobless claims, and on Friday, we’ll see the important all-inclusive measure of economic activity, the GDP report. Surely, that will give us some sense of direction.
On the corporate side, earnings season heats up this week with scheduled reports from 3M (MMM), Johnson & Johnson (JNJ), Boeing (BA) and Chevron (CVX). Last week’s reports were a mix of good — IBM (IBM), Google (GOOG) and General Electric (GE) — and bad — Citigroup (C), Bank of America (BAC) and Goldman Sachs (GS), but as AXP and TXN can attest, beating estimates doesn’t necessarily boost stock…
