Equities Update: Economy Trumps Earnings

4:20 PM, Oct 20, 2009 --

• NYSE down 55.19 (0.76%) to 7,167.02.
• DJIA down 47.76 (0.47%) to 10,044.43.
• S&P 500 down 5.65 (0.51%) to 1,092.26.
• Nasdaq down 8.83 (0.41%) to 2,167.49.

GLOBAL SENTIMENT

• Hang Seng up 0.83%
• Nikkei up 0.98%
• FTSE down 0.36%

UPSIDE MOVERS

(+) AAPL topped Q4 expectations, guides in line for Q1 revs, below Street for earnings.

(+) CAT raised FY earnings ranges.

(+) NVAX launched pivotal study of H1N1 vaccine.

(+) LXK beat with earnings.

(+) MPS sold for $13.80 a share.

DOWNSIDE MOVERS

(-) PFE turned lower despite beating Q3 estimates, sales decline.

(-) DD gave up early gains despite topping with Q3 results, raising guidance.

(-) BSX declined last night and so far today despite earnings beat.

(-) DSTI said CEO leaving; terminates letter of intent with EPOD Solar.

MARKET DIRECTION

Stocks averages end broadly lower, and in the middle of the day's range, pulling back from the fresh 2009 highs hit in the previous session.

Stocks fell after mixed economic data overshadowed solid earnings reports from industrial heavy-hitters Caterpillar (CAT) and DuPont (DD) and tech giants Apple (AAPL) and Texas Instruments (TXN), which reported after the bell yesterday.

New home construction was essentially flat in September at a seasonally adjusted annual rate of 590,000 units; a big drop in multifamily units was offset by an increase in starts of single-family homes, the Commerce Department said. Building permits for single-family homes dropped 3% to a 450,000 rate.

Also reported, producer prices declined by a deeper-than-expected 0.6% last month, driven primarily by lower energy costs. The core PPI, which strips out volatile food and energy prices, fell 0.1%, not the 0.1% gain that Wall Street expected.

Earnings news centered on tech shares and major industrials, but weren't enough to sustain vulnerable gains posted initially Tuesday.

Apple (AAPL) is higher after the company reported Q4 revs of $9.87 bln, well ahead of the analyst mean of $9.2 bln on Thomson Reuters. EPS was $1.82 per share, better than the Street view of $1.42 per share, if comparable. The stock is up 6% out of the gate.

Texas Instruments (TXN) gained after reporting last night Q3 EPS of $0.42 vs $0.43 a year earlier and topping the Thomson Reuters mean analyst estimate for $0.39. Revenue of $2.88 billion is down 15%. The Street expected $2.82 billion. The stock is 1.57%

Yahoo! (YHOO) is due with its Q3 results after the bell tonight, and analysts polled by Thomson Reuters are expecting the company to report a profit of $0.07 per share on revenue of $1.12 billion.

Caterpillar (CAT) gained after reporting Q3 earnings of $0.64 per share, down from $0.75 per share a year ago. Sales and revenue were $7.298 bln, down 44% from $12.98 bln recorded in last year's quarter. The Street view was $0.06 per share in earnings on revenue of $7.47 bln.

For the full year 2009, the company expects sales and revenue of $32 to $33 bln, profits of $1.10 to $1.30 per share, up from a previous range of $0.40 to $1.50 per share, and EPS, ex items, of $1.85 to $2.05 per share, up from previous guidance of $1.15 to $2.25 per share. The Street is at $33 bln in revenue and earnings of $1.49 per share.

DuPont (DD) turned lower despite reporting Q3 EPS of $0.45 vs $0.40 a year earlier, which included a $0.16 per share charge for hurricane damage. Results top the Thomson Reuters mean analyst estimate for $0.33. Sales fell to $6.16 billion from $7.72 billion. The Street looked for $6.14 billion. The company now expects adjusted 2009 earnings of $1.95 to $2.05 a share. Its previous forecast was $1.70 to $2.10. The Street is at $1.83.

Among the biggest losers today is Boston Scientific (BSX), which reported late Monday Q3 sales of $2.02 bln, about in line with Street estimates of $2.04 bln. Adjusted EPS was $0.19 per share, a nickel better than the analyst mean on Thomson Reuters.

For Q4, the company expects sales of $2.025 bln to $2.125 bln, vs. Street

estimates of $2.112 bln. Adjusted earnings are seen at between $0.17 and $0.21

per share, vs. expectations of $0.17 per share.

BSX shares were further pressured by a downgrade at Wells Fargo to market perform from outperform.

The dollar rebounded from 14-month lows to dent commodity prices. Crude closed down 0.7% at $79.09 a barrel after hitting $80 in electronic trading earlier in the day.

Comments

[robert.b.fe...:]

Uncle Buck is taking a beating and will continue to do so as long as the current crop of geniuses stay the course. Brazil has initiated a 2% tax on foreign investment cash inflow. Australia has raised their interest rates and we await the end game complacently. Hope and change are not a strategy for success.

Oct 20 06:56 PM

[tripleblack:]

Yes, I agree, and I have been waiting for the Brazilian taxes to bite in the wake of the Olympics win. 2% may be just the FIRST bite, too...

Australia's small increase still resonates, and I bet at the time that Canada would be next. We'll see.


On Oct 20 06:56 PM robert.b.ferguson wrote:

> Uncle Buck is taking a beating and will continue to do so as long
> as the current crop of geniuses stay the course. Brazil has initiated
> a 2% tax on foreign investment cash inflow. Australia has raised
> their interest rates and we await the end game complacently. Hope
> and change are not a strategy for success.

Oct 20 07:40 PM

[ebworthen:]

"Economy Trumps Earnings"

A headline to cut and paste for the future.

Oct 20 11:02 PM

[Dan Schmeidler:]

My main concern here is how these improved earnings are going to effect the trade on the U.S. dollar. Up until now, rising equities have benefited from both improving economic indicators AND a sell-off in the U.S. dollar. The obvious effects of these counter-trends will sooner or later (have to) reveal themselves within equities and in resistance levels that will become harder and harder to break. That type of exhaustion could lend itself to a nice and smooth downward glide - fueled by the emergence of a strengthening U.S. dollar. In other words, I just don't see how these stocks can benefit from this type of an environment for that much longer.

Oct 20 11:35 PM

[manya05:]

Earnings keep going up as overseas revenues keep rising as the dollar plunges, and cost-cutting has reached the bone. Meanwhile sales are flat. What can sustain earnings growth to justify the high market valuations? Either an increase in demand for goods (OK, miracles do happen sometimes), or, a continued decline in the dollar that has a double effect: overseas revenue keeps growing by itself due to FX effect, plus, increased demand as we look "cheap" to the world. If neither one of these scenarios materializes, the market is in for a big air pocket.

Oct 21 02:52 AM