It's Illogical to Say Never in this Market

This is the day that we've been waiting for since the last round of corporate earnings and more so since last Friday when the jobs report was a dud. There are many earnings to sift through today so the session could feel like those final two hours after the conclusion of FOMC gatherings.

Obviously, investors are eager to get good news, and may even be wiling to dismiss those that come up short as long as there is a silver lining or two. Yes, I wrote a couple of times that this time would be different. Heck, I thought this time had to be different because it seems illogical that the market could rally indefinitely on so-so earnings results.

Well, in life they say "never say never", and in the stock market "it's illogical to use the word illogical." And, of course, nothing that happens in the market is never illogical, right?

We'll see.

On Tuesday night, earnings results were released by restaurant giant Yum Brands (YUM). The company earned $0.70 per share on $2.78 billion in revenue. That crushed consensus on the bottom line as the Street was looking for earnings of $0.58 per share, but missed on the top line (Street was looking for $2.79 billion). Initially, the stock soared as management was able to raise FY guidance to $2.14 per share from previous guidance of $2.10 per share. Profits climbed 32.0% in China and 18.0% in the United States. During the quarter, the company opened 267 new restaurants, 88 of which were in mainland China.

The Street is also anxiously awaiting news from the Congressional Budget Office (CBO), which seems to have gone into the tank since its fearless leader was called over to the White House. The good news is that conservative Democrats have demanded a slow go with respect to a bill being heaped upon lawmakers. If the price is not right according to the CBO, I look for any of these Democrats, if not all, to cause many problems for the President.

• Blanche Lincoln -AR
• Evan Bayh -IN
• Mary Landrieu -LA
• Claire McCaskill -MO
• Ben Nelson -NE
• Mark Pryor -AR
• Jim Webb -VI
• Joe Liebermann -CT

Economic Data

Mortgage applications made an impressive 16.4% jump last week from the previous week as mortgage rates continued to trend down (4.89% from 4.94%). Both refinancing applications and applications for new purchases were up significantly, indicating that consumers are interested in both readjusting their payments as well as buying homes whereas purchases had been lagging for a long time.

Overall, applications are at their highest level since May. The news is positive but questions still remain as to what percentage are being accepted, while studies continue to show that struggling homeowners who refinance go back into default a few months down the road the majority of the time.

Written by Charles Payne, CEO and Principal Analyst of Wall Street Strategies (wstreet.com) providing independent stock market research to over 30,000 subscribers, in more than 60 countries. Mr. Payne is a regular contributor to the Fox Business and Fox News Networks. For more information about Mr. Payne, please refer to the company’s website www.wstreet.com.