Mixed Earnings News Disappoint

There have been some good results recently but some notable names have disappointed investors with results. Notably among the latter was Travelers (TRV), Johnson & Johnson (JNJ), Halliburton (HAL), Verizon (VZ) and SAP Inc (SAP). After the bell today IBM (IBM) will report earnings which should lead current sentiment on the tech sector overall. After the close IBM reported revenues of only $27.7 billion vs 29.3, however EPS were $5.73 vs $5.19 and the gain in earnings was likely due to IBM spending $13.9 billion in 2013 on share buybacks. This meant 42% of which in Q4 debt increased by $6.4 billion in 2013. Remember the company sold five year bonds yielding only 1% with which was used to buy back shares reducing float. This is at the heart of ZIRP negatives since increasing the company debt for this purpose doesn’t lead to research or other activities to grow the company. This is just financial engineering created by ZIRP. The positives are potentially a higher stock price for investors and bonuses for senior management.

The IMF released their revised forecast of global growth and trade raising their outlook for the former from 3.6% to 3.7%. (Nothing so bold very bold here then!) One must be careful in assessing their accuracy in these matters given the chart below courtesy of Zero Hedge.


There is a battle of pundits taking place as bulls and bears duke it out for headline honors of accuracy. Goldman Sach’s David Kostin maintains his bearish outlook for stocks saying: “The S&P 500 is overvalued by by almost any measure.” Meanwhile Bank of America M/L’s Macneil Curry tells stock investors to “watch out” as seasonal turn much less construction once February rolls around. Like many others he judges complacency to be near the traditional levels that lead to corrections. In between was Bloomberg’s Richard Yamarone warns, “It looks like this year’s economic horse will pull-up lame”, adding, “The Bloomberg Orange Book Sentiment Index has been running below 50 for 49 consecutive weeks which implies a stagnant growth rate in GDP in the 2-to-2.5% range.” This he ventures implies a lack of desirable growth in real disposable person incomes. Bulls? Well, pick any firm with equity product to sell you. Another Tech bellwether, Texas Instruments (TXN) report EPS of 46 cents vs prior 23 cents which met estimates and shares initially fell 1%.. Advanced Micro Devices (AMD) was losing 8% after its report which guided future prospects lower.

Stocks opened higher then fell selectively as Fed’s favorite journalist; Jon Hilsenrath (perhaps floating a Fed “trial balloon”) suggested the Fed may add to (gasp!) their announced taper level policies. That certainly wasn’t greeted well so stocks sold off. But this selling was lived and markets rallied, led by tech (QQQ), to stay modestly positive for the day. However, there still are weakening sectors like Retail (XRT), Consumer Discretionary (XLY), Homebuilder’s (ITB) and many within the Emerging Markets (EEM). The dollar (UUP) ended flat after rallying early and bonds (TLT) rallied slightly. Gold (GLD) sold-off hard at the open but made back over a third of its early losses. Gold Miners (GDX) rallied sharply as did Silver Miners (SIL). Popular Solar ETF (TAN) fell sharply even as Oil (USO) and Natural Gas ETFs (UNG) rallied with the onset of more cold weather.

The Fed launched a small POMO action ending just as market started to rise once again.

Today we featured a short video on the SPDR Gold ETF (GLD) from both weekly and daily chart perspectives.

Our staff also puts together the daily top 20 ETF market movers by percentage change in volume for gainers, decliners and emerging volume. This is a tool that investors can use to shorten their search for suitable ETFs, without being dominated by typical high volume issues or leveraged and/or inverse ETFs.

Volume was still quite light with most of it coming on early selling. Breadth per the WSJ was positive overall.

 

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This earnings season we need to get more “E” (earnings) to justify the high trailing “P” (prices). Most have “forward” PEs estimated at around 15 while the trailing PE is 20ish or overvalued. After the close earnings reports won’t thrill investors methinks.

Wednesday will feature Coach, eBay, F5 Networks, Motorola, Netflix, Norfolk Souther, SanDisk, Textron and United Technologies among others. There aren’t many economic indicators until Thursday.

Let’s see what happens.


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