From Briefing.com: Weekly Recap - Week ending 24-Jul-09
The stock market logged another impressive week as investors cheered better-than-expected earnings reports, with the S&P 500 surging 4.1%, marking an 11% gain since July 10.
The best performing sectors were materials (+8.1%), energy (+5.6%) and utilities (+5.6%).
The week got off to a positive bias on report from The Wall Street Journal that CIT Group (CIT) had reached an agreement with its bondholders to secure $3 billion in rescue financing, which was later confirmed by the struggling lender. Whether CIT will be able to avoid bankruptcy remains to be seen, although this will give the lender some time to explore its options.
With only a handful of economic releases, the main focus this week was the large amount of earnings reports -- 142 S&P 500 companies reported their quarterly results, including 12 Dow components.
Earnings for the most recent quarter largely came out ahead of expectations, with 111 beats, 10 in-line and 21 misses. But the earnings beats were largely due to cost cutting measures, not upside surprises on the top line. Specifically, 72 companies posted revenue that failed to live up to expectations, and 102 reported year-over-year declines in revenue.
For instance, Microsoft met analyst EPS estimates in its fiscal fourth quarter at $0.36, but the software giant's revenue decline of 17% y/y to $13.1 bln was well short of the $14.4 bln consensus. Shares of MSFT fell 4.0% for the week.
There were 11 other Dow components that reported -- Merck (MRK), United Tech. (UTX), DuPont (DD), Coca Cola (KO), Caterpillar (CAT), Boeing (BA), Pfizer (PFE), 3M (MMM), AT&T (T), McDonald's (MCD), American Express (AXP) -- all of which topped EPS expectations. Yet the revenue results reflect the difficult corporate environment -- only two companies posted positive (nearly flat) y/y revenue, and seven missed the consensus revenue estimate. The market's reaction to the earnings reports were mostly positive, led by a 23.6% surge in shares of CAT.
The economic calendar was light this week, although there are a handful of notable mentions. Initial claims for the week ended July 18 jumped 30,000 to 554,000. The consensus estimate stood at 557,000 so the increase was expected. The latest figure left the four-week moving average at 566,000, which is down from 585,000 in the prior week. Although the decline in the four-week moving average is a welcome sign, new jobless claims are still well above normal levels.
Existing Home Sales in June increased 3.6% from May to a seasonally adjusted annual rate of 4.89 million units. That was above the consensus estimate of 4.84 million, yet with the slight downward revision for May to 4.72 million from 4.77 million, the 2-month period was precisely in-line with estimates. The June report validates the notion that existing home sales are stabilizing at a depressed base. Still, housing faces significant hurdles, such as rising unemployment and excess inventory.
In other news, Fed Chairman Bernanke addressed Senate and House finance committees this week in his semiannual report. The chairman did not give any real surprises, noting that current economic conditions warrant the low fed funds rate for an extended period of time. Bernanke expects a gradual economic recovery in 2010, with some acceleration in 2011.
The advance this week sent the Dow, Nasdaq and S&P 500 to their best levels of the year, with the Dow now in positive territory.
The coming week brings another barrage of earnings reports, as well as a pickup in economic data. The advance Q2 GDP reading, due on Friday, is expected to show a decline of 1.5%.
Index Started Week Ended Week Change % Change YTD %
DJIA 8743.94 9093.24 349.30 4.0 3.6
Nasdaq 1886.61 1965.96 79.35 4.2 24.7
S&P 500 940.38 979.26 38.88 4.1 8.4
Russell 2000 519.22 548.46 29.24 5.6 9.8
08:32 am Microsoft (MSFT)
Shares of Microsoft (MSFT 25.56) are under pressure Friday after the company's fiscal fourth quarter report failed to impress investors.
Microsoft reported fiscal fourth quarter earnings of $0.36 per share, including the effect of revenue deferral which reduced earnings per share by $0.02 and excluding $0.02 of legal charges, impairments to investments and additional severance charges related to the previously announced plan. The results matched the First Call consensus that expected earnings of $0.36 per share. Operating income of $3.99 billion represented a 30% year-over-year decline.
Revenues fell 17.3% year-over-year to $13.1 billion, well short of the $14.37 billion consensus.
"Our business continued to be negatively impacted by weakness in the global PC and server markets," said CFO Chris Liddell.
On the company's conference call, Liddell said that Microsoft sees tough comparables for the rest of the calendar year but he also added that there are some signs that things may have bottomed out.
Despite those assurances, shares of MSFT are down more than 7.5% about an hour ahead of Friday's opening bell. |
