Sunday, October 14, 2012

A Debate, A Summit and Hundreds of Earnings Reports to Consider

Dynamics in Europe last week included: 1) the Nobel Peace Prize award to the European Union, 2) Germany Chancellor Angela Merkel’s visit to Greece where she said “These problems cannot be solved with one wave of a magic wand or one measure” while confronting 30,000 protesters in Athens and 3) Standard & Poor’s cutting Spain’s debt rating to one level above junk

In addition, 3rd quarter corporate earnings reporting started with 1) aluminum producer Alcoa cutting its growth forecast by 1% based on concerns about Chinese demand (AA down 4.4% for the week), 2) YUM Brands (parent of Taco Bell, KFC and Pizza Hut) also it concerns about weakness in China, but reported solid results (YUM up 5.2% for the week), 3) Wells Fargo surprised investors with weak results (WFC down 4.5% for the week) and 4) JP Morgan Chase CEO Jamie Dimon said the U.S. housing market had “turned the corner” (JPM down 0.11% for the week).

Also, it was notable that shares of Apple dropped 3.5% for the week as research firms IDC and Gartner Group reported that 3rd quarter personal computer sales declined 8%.

This week, a much broader set of companies sharing their results and forward outlook will include: Abbott Labs, American Express, ASML Holding, Baker Hughes, Bank of America, BlackRock, Citigroup, Coca-Cola, CSX, Danaher, eBay, General Electric, Goldman Sachs, Google, Halliburton, Honeywell, Intel, IBM, Johnson & Johnson, McDonald's, Microsoft, Morgan Stanley, PepsiCo, Philip Morris, Schlumberger, Tata Consultancy Services and Verizon.

MY TAKE
  • Regarding global policymakers, as they navigate their countries through once in a lifetime economic and political challenges, it is likely that “kick the can” policies will confront the forces of the financial markets.
  • Regarding earnings season, some investors expect companies to reduce forecasts and believe this information is “factored into the market”. However, a weakening trend is likely not as “factored in” as these investors may think.
  • Regarding Apple, the IDC/ Gartner Group data supports the market shifts to tablets, smartphones and cloud based computing – but how will Apple’s business model address an environment of increasing competition?
  • Finally, remember that 1) earnings season is a time to listen and learn and 2) many complex dynamics drive the direction of financial markets!

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