The True Beats and Misses of Earnings Season

The old mantra on Wall Street that the only true measure of a company's earnings is how the stock price reacted couldn't be more true.  Below we highlight the companies in the S&P 500 that have been up or down the most on the day of their earnings report this quarter.  Key stocks that made the list on the upside are IBM, Nike (NKE) and Schlumberger (SLB).  There are more key names that show up on the downside however.  Caterpillar (CAT), Best Buy (BBY), Google (GOOG), Intel (INTC) and Yahoo! (YHOO) all make the losers list, and unfortunately, most of them have continued lower.

 

Google (GOOG) Bounces Nicely off 50-Day

Earlier today, we highlighted that Google (GOOG) has typically made nice reversals after gapping down more than 5%.  Today has been no exception thus far.  Google's 50-day moving average gave the stock big support at the open as shown by the price chart below.

The Earnings Roller Coaster Still Heading Higher

As shown below, the percentage of US companies reporting earnings by day this season is still ascending.  Next week we finally hit peak reports before starting the descent the following week.

 

Below we highlight some of the key companies reporting earnings next week along with some historical statistics that you may find useful.  The majority of the key names report Tuesday, followed by Apple (AAPL) and Qualcomm (QCOM) after the close on Wednesday.

US Steel (X) Catches Downgrade from Credit Suisse

Shares of US Steel (X) are trading down $2.50 this morning after being downgraded from Outperform to Neutral at Credit Suisse.  Credit Suisse has had a buy rating on the stock since January 13, 2006.  Since then the stock has gone from $50.12 to yesterday's closing price of $110.56.  Below we highlight Credit Suisse's historical recommendations on X.

Google (GOOG): Lower on Earnings

As of 7am Eastern Time, shares of Google (GOOG) are set to open nearly 7% lower after the company reported weaker than expected earnings due to increased spending on hiring and R&D.  Since the company came public in 2004, there have only been two occurrences where the stock gapped lower by more than 5%, which we highlight with red circles in the chart below.  Following both prior lower opens, GOOG had positive returns from the open to the close with gains of over 3%.

Musings for July 19, 2007

For several weeks now investors have been debating whether or not the private equity boom has peaked or still has more room to run.  In the process, any number of statistics has been presented to support either the bullish or bearish case.  One which we have not seen much mention of is the performance of the ETF which seeks to invest in publicly traded companies that function similarly to private equity firms- its called the PowerShares Listed Private Equity Portfolio (PSP).

If this ETF is accurate in its investment objective, then although the boom in private equity may not be over, it is certainly taking a rest.  Since peaking on June 4th, the index has declined by 7.6%, while over the same period, the S&P 500 has risen by 0.45%.

 

Today's Key ETF Performance: 7/19/07

Below we highlight the recent performance of select ETFs so that readers can easily track trends across various countries and asset classes.  Today we saw gains in almost all areas of the market, with only small declines coming from bond ETFs.

Bespoke offers a variety of ETF products, including our ETF cheat sheets in the left sidebar of this page, as well as our ETF Trends report and Model ETF Portfolio available to Bespoke Premium subscribers.

Highest Yielding Stocks in the Russell 1,000

Looking for income producing stocks?  Below we highlight stocks in the Russell 1,000 that currently have the highest indicated dividend yields. If the company's next dividend has been announced, we provide their upcoming ex-date and the announced dividend per share.  As shown, Frontline (FRO) currently has the highest yield in the index at 11.99%.  Note that while we included REITs in the list, their dividends are taxed as ordinary income. 

IBM Trading Higher on Earnings

IBM is currently trading up just over 4% in the pre-market this morning.  From our interactive earnings database, we went back and found prior times when the stock has had similar gaps to see how it has typically done from the open to the close that day.  As shown below, when IBM has gapped higher on earnings, it has gone down from open to close 10 out of 13 times (since our database begins in 10/01).  Of the four times that it has gapped up more than 4% on earnings, it has gone down from open to close all 4 times for an average change of -1.47%.

Bullish Sentiment Continues on Bespoke

At midweek, the Bespoke Market Poll remains bullish.  When asked for their current view on the S&P 500, 61% of respondents marked "Bullish" while 39% marked "Bearish".  With Google (GOOG) reporting after the close and options expirations tomorrow, there is still a lot left to the trading week.  So take part in the Bespoke Market Poll by voting below, and add your opinion to the consensus.

My current view on the S&P 500 is:
	Bullish
	Bearish
Free polls from Pollhost.com

Trigger Happy Sellers

Futures are pointing to a modestly higher opening this morning, but a look at the trading since yesterday's close shows a big change since a steam pipe explosion in mid-town Manhattan had many investors fearing the worst.  Shortly after the pipe burst, a report came across one of the wires saying, "Building collapses near explosion in midtown Manhattan."  On the news S&P 500 futures sold off by 8 points, before quickly rebounding when it was apparent that no building collapsed, and the true cause of the explosion was made clear. 

To put the sell-off in perspective, the panic by futures traders on news of the explosion had the effect of temporarily erasing $80 billion in market cap from the S&P 500.

Bad Breadth: It's Contagious

Last week we highlighted the fact that breadth (advancers minus decliners) in the market wasn't keeping up with price.  Below is an updated chart of the S&P 500 and its cumulative A/D line, and while we can see that the S&P 500 made a new high on Thursday (7/12), breadth in the market remains below its highs from the Spring.  Looking at the bright side though, at least the market managed to break its trend of lower highs in breadth with each rally in stocks.

Looking across the Atlantic to Europe shows an even less promising picture, at least in terms of breadth. Below we show the Dow Jones Euro Stoxx 50 Index and its 2007 cumulative A/D line.  Here we see that even though the index has made several attempts to surpass its highs from June, each rally has been powered by fewer stocks, creating a pronounced downtrend in breadth. 

Again, as we noted last week, while this does not necessarily mean the major averages of the US and Europe can't continue higher, it does indicate that investors will need to be more selective in their stock picking.

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Where Are Treasury Yields Headed?

The yield on 10-Year Treasuries has declined to just around 5% today as US bond investors are shifting from riskier corporate bonds into safer government bonds.  As far as global yields are concerned, the 5% yield on the 10-Year US Treasury is right in the middle of the rate spectrum when compared to other countries.  As shown below, Japan currently has the lowest 10-year yield while Indonesia has the highest of the countries we analyzed.

Bloomberg polls a large amount of economists for their interest rate projections on the government bonds of various countries.  Based on the average economist estimates over the next 5 quarters, we have calculated the expected percentage change in bond yields from their current levels.  As shown, economists are expecting the 10-Year US Treasury yield to increase 5.6% to 5.28 by the third quarter of 2008.  While this is an increase, it is still a historically low number.  Japan's 10-year yield is expected to increase 15.79%, but that only amounts to a change from 1.9% to 2.2%.  Of the countries whose yields are currently in the 4 to 6 range, Canada is expected to have the largest increase by 3Q '08 (13.91%).  Economists are currently bullish on long-term government bonds (i.e., expecting yields to fall) in Switzerland, Czech Republic, Poland, Mexico, South Africa, Taiwan and Indonesia.

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Update: Bespoke's Second Quarter Earnings Calendar

We have just updated earnings report dates on Think B.I.G.'s Earnings Calendar.  The calendar now highlights expected report dates through 7/31 and gives detailed information on past reports so you're prepared when companies report this quarter.  For a more in-depth, interactive version of the Earnings Calendar to search for specific stocks, sign up at www.BespokePremium.com.

Humphrey Hawkins: Bernanke's Semi-Annual Report To Congress

As if the news flow today wasn't already enough with earnings, economic reports, and Bear Stearns (BSC) telling investors in its two subprime hedge funds that their investments are worth nearly nothing, this morning we will also get Fed Chairman Ben Bernanke's semi-annual report to Congress on monetary policy.  As the table below shows, historically this testimony has increased short-term volatility for both stocks and bonds.