Better than expected earnings reports are powering the market's rally and the NASDAQ is poised to mark its 11th gain in a row. Yet the stock market's gains are relatively minor. Energy stocks are under performing while technology continues to steal the spotlight. Meanwhile Federal Reserve Chairman Ben Bernanke has moved from the House Financial Services Committee to the Senate Banking Committee as he completes the second half of his semiannual report before congress.
Asian markets were mixed again. The Chinese Shanghai index soared 2.6% for its biggest one-day gain in weeks. The energy sector led the Chinese market higher and the market closed at a new one-year high. The Hong Kong Hang Seng snapped a multi-day winning streak and posted a 1.3% loss as the market collapsed in the last two hours of trading. Meanwhile the Japanese NIKKEI rallied 0.7% for its sixth gain in a row, a feat it hasn't accomplished in several months.
European stocks continued to shine. Investors shrugged off sobering economic news out of Britain. England's National Institute of Economic and Social Research forecasts that the economy would turn positive in the fourth quarter but the economy wouldn't truly turn healthy until 2013. Elsewhere the Confederation of British Industry (CBI) said that the country's manufacturing orders plunged to their lowest levels since 1992. Economists were expecting the orders survey to drop from -51 to -45 but it went the other direction and fell to -59. Yet stocks fought back from morning losses to close higher and most of the major European markets scored their 8th gain in a row. This is the longest stretch of gains sine December 2006. The English FTSE rose 0.28%. The German DAX gained 0.5%. The French CAC-40 squeaked by with a 0.07% gain.
As I said earlier another wave of better than expected earnings are fueling the market's rally. Yet it seems like investors are becoming desensitized to these improved results. Granted expectations were relatively low so it's easier for companies to beat estimates. Most of these companies are beating on the bottom line due to improved cost cutting. What should be encouraging is the rising number of companies that are raising their earnings forecast. I'll try and hit some of the highlights in the latest round of earnings.
Apple Inc. (AAPL) makes the top of the list. The company reported last night with a profit of $1.35 a share. Estimates were in the $1.16-1.17 zone. Revenues beat estimates at $8.34 billion for the quarter. The company sold 2.6 million Mac computers and 5.2 million iPhones. The demand for the new 3GS iPhone is so great they can't produce enough of them. Several analysts have raised their price target on AAPL toward $200 a shares. The stock gapped open higher and is trading around $157.50 (+3.8%). Elsewhere in the tech sector semiconductor producer AMD didn't fare so well. AMD reported a loss of 62 cents a share, which was 15 cents worse than analysts expected. AMD's news is not having an impact on the sector as the SOX semiconductor index is up 2.5%.
Dow-component Boeing (BA) beat Wall Street's estimates by 20 cents with a profit of $1.41 a share. The company reaffirmed their guidance and the stock is hovering around unchanged. The market remains frustrated with BA's often delayed dreamliner model and investors want to hear improvement on the project. Another Dow-component is Pfizer (PFE), the largest drug company in the world. PFE beat estimates by a penny but did so on cost cutting. Revenues fell more than 9% to just under $11 billion for the quarter. PFE did raise its 2009 earnings guidance, which is fueling a pop in the share price toward $16.00. Rival drug maker Eli Lilly (LLY) also raised their 2009 earnings guidance after they reported earnings that were 10 cents better than expected. The stock is down about 18 cents at 34.25.
In the financial sector Morgan Stanley (MS) reported earnings this morning that were much worse than expected. Analysts were looking for a loss of 49 cents a share. MS delivered a loss of $1.37 a share. It's unclear whether analysts' estimates included MS paying back the TARP funds and other one-time charges. The company's CFO said that commercial real estate remains a problem and they're not seeing any signs of a bottom in the commercial real estate sector. Shares of MS dipped toward its long-term trendline of support and bounced. Meanwhile banking giant Wells Fargo (WFC) reported earnings that were 23 cents better than expected and revenues actually beat estimates. WFC gapped open lower this morning but has pared its losses to just -2.3%.
Crude oil is pulling back after a multi-day bounce and that appears to be undermining the energy sector. The OIX oil index, OSX oil services, XNG natural gas, and the UTY utilities indices are all trading lower. Normally when the dollar drifts lower, like today, oil trends higher. Other commodities are showing strength like gold and copper.
Tomorrow we can look for the weekly initial jobless claims, the latest existing home sales numbers, and on Friday we'll get another read on sentiment.
Currently the S&P 500 index is up just over two points but it appears to be struggling with resistance near 960. The NASDAQ composite is up 10 points around 1925. The Dow Industrials are down about 14 points near 8900. The small cap Russell 2000 index is up just under four points and hovering near the 530 level.
Let's take a quick look at charts for the major averages:
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
Scanning the OptionInvestor.com play list I see that tobacco producer Lorillard (LO) managed to breakout over resistance at $70.00 but the rally is fading. The move looks like a false breakout or a bull trap. Put play candidate CMP is beginning to fade lower again. This might be a new entry point.