"What gives?"
CYCLICAL COMPANY EARNINGS. The focus all of a sudden is back on economically sensitive companies. These are often called cyclical companies because the company prospects tend to correlate with economic cycles. On Wednesday, Dow 30 stocks Alcoa, Caterpillar, DuPont and others rose sharply on the belief that strengthening global economies mean that profits for these companies are ready to turn higher. This morning, several economically sensitive companies have reported excellent earnings numbers, lending additional support to this belief. General Motors (GM 89 3/4) reported first quarter profits of $3.04 per share, significantly ahead of the average forecast of $2.86 per share, and up 34% from the year-ago level of $2.27 per share. Ford (F 62 3/4) reported an also impressive 20% year-over-year gain in first quarter profits, to $1.46 per share from $1.22 per share last year. The consensus estimate for F was $1.39 per share. Revenue gains were less impressive as GM came in at 6% and F 3.5%. The airline business joins the auto business this morning with good numbers as well. Boeing (BA 38) had first quarter profits of $0.50 a share. This industry never really slowed down, and BA's problems were really of their own making, but the profit is nevertheless significantly better than the year-ago $0.05 per share, and the consensus estimate of $0.43 per share. Revenues were up 11%. Meanwhile, Delta Air Lines (DAL 71 3/16) reported fiscal Q3 (Mar) earnings of $1.42 per share, also way ahead of the expected $1.25 per share and the year-ago level of $1.23 per share, although revenues were up only 3%. With the strong numbers in these economically sensitive companies, the market focus on cyclical stocks may continue near term. This doesn't necessarily mean that drug, financial, or technology stocks will suffer if the cyclical stocks start drawing more investor attention. On a relative basis, however, that may well happen. It is worth noting that drug stocks, for example, have sagged the past few days. This is a trend worth watching.
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