Market Analysis

Beyond the Numbers

Positive Earnings May Offer Encouragement
4/20/2012 9:22 AM

The major U.S. index futures are pointing to a higher opening on Friday, with sentiment receiving support from some solid earnings reports. Bellwethers such as Microsoft (MSFT) and General Electric (GE) reported forecast-beating results, increasing confidence in corporate profit growth. Earlier in the day, a German business sentiment survey also produced encouraging results.

The G20 finance ministers and central bank governors are meeting in Washington on the sidelines of the semi-annual spring meetings of the World Bank and the International Monetary Fund. Expectations surrounding the meetings could also give some reason to stay invested.

U.S. stocks retreated on Thursday, as doubts concerning the domestic economy’s health resurfaced following the release of some lackluster data. The major averages moved about on a nervous note in early trading after separate reports showed that jobless claims fell by less than expected, existing home sales declined and the pace of expansion in the Philadelphia-area manufacturing slowed. Stocks began to decline steadily in early afternoon trading, but they pared some of their losses in late trading, closing moderately lower.

The Dow Industrials ended down 68.65 points or 0.53 percent at 12,964 and the S&P 500 Index closed at 1,377, down 8.22 points or 0.59 percent. Meanwhile, the Nasdaq Composite slipped 23.89 points or 0.79 percent before closing at 3,008.

Twenty-seven of the thirty Dow components closed lower, with Alcoa (AA), Bank of America (BAC), Caterpillar (CAT), DuPont (DD) and McDonald’s (MCD) among the worst decliners. On the other hand, Travelers Companies (TRV) and Verizon (VZ) advanced sharply in reaction to their respective earnings reports.

Transportation, housing and semiconductor stocks declined sharply, while biotechnology and airline stocks gained solid ground in the session.

On the economic front, initial claims for unemployment benefits fell by 2,000 to 386,000 in the week ended April 14th. The previous week’s claims, which were already elevated, were upwardly revised by 8,000 to 388,000, representing a 13-week high. The four-week average rose to 374,750, the highest reading since the end of January. Continuing claims calculated with a lag rose 26,000 to 3.297 million in the week ended April 17th.

The National Association of Realtors reported that existing home sales unexpectedly fell 2.6 percent month-over-month to an annualized rate of 4.48 million units in March. Sales of single-family homes declined 2.5 percent compared to a 3.8 percent drop in condominium and other multi-family home sales. Inventories fell 1.3 percent in absolute terms to 2.37 million units, while inventories measured in terms of months of supply held steady at 6.3 months. The median price of an existing home rose 5.3 percent to $163,800.

The results of the manufacturing survey by the Philadelphia Federal Reserve showed that its diffusion index of activity in the sector fell to 8.5 in April from 12.5 March, while economists had expected a more modest decline to 12. The new orders index slipped 0.6 points to 2.6 and the shipments index fell by 0.7 points to 2.8. The employment indexes were mixed, with the number of employees index rising 11.1 points to 17.9, while the average employee work week index declined 5 points to –2.3. Meanwhile, the future business conditions index rose about a point to 33.8.

Meanwhile, the Conference Board’s leading economic indicators index rose 0.3 percent month-over-month in March, the sixth straight months of gains. Building permits, higher stock prices and lower joblclaims supported the index. The coincident economic index was up 0.2 percent and the lagging economic index advanced 0.3 percent.

Currency, Commodity Markets

Crude oil futures are climbing $1.29 to $104.01 a barrel after receding $0.40 to $102.27 a barrel on Thursday. Gold futures are currently rising $3.70 to $1,645.10 an ounce. In the previous session, the precious metal gained $1.80 to $1,641.40 an ounce.

Among currencies, the U.S. dollar is trading at 81.60 yen compared to the 81.60 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.3190 compared to yesterday’s $1.3137.


The major Asian markets closed on a mixed note, as sentiment took a hit due to the negative performance of Wall Street overnight.

Japan’s Nikkei 225 average languished in negative territory throughout the session before closing down 27.02 points or 0.28 percent at 9,561. Mitsui Engineering & Shipping, Sumitomo Metal Industries, Toshiba, Dainippon Sumitomo Pharma, Fuji Film, Fujitsu, Furukawa and JFE Holding were among the worst decliners in the session. Meanwhile, Kawasaki Kisen Kaisha rose close to 5 percent, Sumco advanced close to 6 percent and Olympus rallied over 6 percent.

Australia’s All Ordinaries showed some degree of volatility before closing up 3.10 points or 0.07 percent at 4,444. Energy stocks rallied strongly, lending support to the index. Meanwhile, Hong Kong’s Hang Seng Index ended 15.63 points or 0.07 percent higher at 21,011.

China’s Shanghai Composite Index rallied on hopes of monetary policy easing by the People’s Bank of China.


After seeing some volatility in early trading, the major European markets have turned mostly higher. The German DAX Index is adding 0.90 percent and the U.K.’s FTSE 100 Index is moving up 0.39 percent, while the French CAC 40 Index is trading almost flat.

German business sentiment unexpectedly improved in April, according to the results of a survey by the Ifo Institute. The business sentiment index based on the survey edged up one-tenth of a percentage point to 109.9 in April compared to expectations for a reading of 109.5. The current conditions index and the expectations index also came in better than expected.

The U.K. Office for National Statistics reported that the U.K.’s retail sales volume rose a bigger than expected 1.8 percent month-over-month in March. Economists expected a more modest improvement of 0.5 percent.

In corporate news, Swiss food company Nestle reported better than expected first quarter organic sales. French utility Suez Environment reported a 5.5 percent drop in first quarter core earnings.

Stocks in Focus

McDonald’s (MCD) reported first quarter earnings and revenues that came in line with estimates.

General Electric (GE) said its first quarter operating earnings and revenues exceeded expectations.

Microsoft (MSFT) reported third quarter earnings of 60 cents per share, better then the consensus estimate of 58 cents per share. Revenues rose 6 percent to $17.41 billion, squeezing past the $17.18 billion consensus estimates.

Expeditors International (EXPD) released preliminary results for the first quarter, forecasting earnings of 35-37 cents per share, which is below the consensus estimate of 43 cents per share. The company attributed the predicament to lower shipping volumes, especially with respect to airfreight customers.

Rambus (RMBS) reported a wider first quarter loss for its first quarter, while revenues were flat with the year-ago period.

Capital One Financial (COF) reported first quarter earnings and revenues that came in ahead of estimates.

E*TRADE’s (ETFC) first quarter earnings and revenues beat expectations despite declining from the year-ago period.

SanDisk (SNDK) reported a decline in its first quarter non-GAAP earnings to 63 cents per share from $1.03 per share in the year-ago period. Revenues fell 7 percent to $1.21 billion. The results were below expectations, while the company also cautioned that it expects a similar trend in the second quarter as well but expects sequential revenue growth in the third and fourth quarters.

Schlumberger’s (SLB) first quarter adjusted earnings were a penny ahead of estimates and revenues also exceeded expectations.

Riverbed Technology (RVBD) reported first quarter earnings that came in line with estimates, while revenues trailed expectations. Chipotle Mexican Grill’s (CMG) first quarter results were also better than expected.

Ethan Allen Interiors (ETH) announced a 29 percent increase in its quarterly cash dividend to 9 cents per share. The company also released some preliminary third quarter numbers. The company now expects net sales growth of 8 percent and adjusted earnings of 17-19 cents per share. Analysts estimate 7.80 percent sales growth and earnings of 19 cents per share.

AMD (AMD) reported first quarter non-GAAP earnings of 12 cents per share on revenues of $1.59 bullion, down 2 percent year-over-year. The results were ahead of estimates. For the second quarter, the company expects sequential revenue growth of 3 percent, plus or minus 3 percent.

Altera (ALTR) reported first quarter earnings and revenues that declined from the year-ago and also missed consensus estimates.

City National (CYN) reported better than expected first quarter results. Meanwhile Gardner Denver (GDI) reported first quarter adjusted earnings of $1.40 per share on revenues of $604 million. The company lowered its full year adjusted earnings guidance to $5.60-$5.80 per share. The first quarter results exceeded estimates, while the 2012 earnings guidance trailed estimates.
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