Market Yawns Despite Strong Earnings


Strong earnings from scores of companies were reported yesterday, but like on Monday the market yawned.  It is clear that instead of earnings, investors are focused on QE2 and the dollar.

Highlighting the many companies with excellent earnings are Ford Motor Co. (NYSE: F ), which posted its sixth quarter of profit in a row. And higher earnings than expected were also reported by Amgen (NASDAQ: AMGN ), Biogen (NASDAQ: BIIB ), Bristol-Myers (NYSE: BMY ), Texas Instruments (NYSE: TXN ), Coach (NYSE: COH ) and Johnson Controls (NYSE: JCI ).

Despite some early earnings surprises, a higher dollar was the focus of the opening. In Asia the dollar rose against the yen, and in Europe there was a rush to buy the greenback. Even after the opening in New York, the dollar continued to rally reaching an intraday high of 81.58 yen and $1.3831 for the euro. The euro closed at $1.3837.

The Consumer Confidence Index for October improved to 50.2 from 48.5; expectations were for 49.0. But even with such a surprising improvement there was little impact on the stock markets.

And Treasurys had little effect on stocks prices. The benchmark 10-year note fell 21 ticks, raising its yield to 2.64%, and the 30-year Bond fell more than a point bringing its yield up to 4.00%.

At the close the Dow Jones Industrial Average was up 5 points to 11,169, the S&P 500 was flat at 1,186 and Nasdaq rose 6 points, closing at 2,497. The NYSE traded 965 million shares with decliners over advancers by 1.26-to-1. Nasdaq crossed 534 million shares with decliners very slightly ahead of advancers.

What the Markets Are Saying

As noted above, there is little that is having an impact on stock prices other than Fed news regarding QE2 and the movement of the dollar. And this includes some of the best earnings that investors have seen in many quarters which the market is ignoring.

But why? The stock market has a long history of "discounting" news. By that I mean Q3′s earnings estimates were well known to be understated, and so when over 70% of the S&P 500 earnings reports are "surprises" the market may have already taken those earnings into account and priced stocks accordingly.

But that doesn't totally account for the zero impact of unexpectedly positive economic news, like Monday's report of better existing home sales and yesterday's better Consumer Confidence numbers. There is little that is more perplexing to stockholders than a stock market that dismisses good news. And there are few circumstances that are more disturbing, since the next reaction may be selling in the face of good news and a reversal of momentum.

The big question is this: Has the market already discounted QE2? If so then the bulls may have reached a point of exhaustion, and the next move is back down to the major support zone at 1,130. We should know the answer to that question with the market's response to the Fed's actions following its meeting on next Tuesday when the governors are expected to outline the next stimulus package. Perhaps the current lethargy is a signal telling us to wait this out and hope that the package has more impact than QE1.

Today's Trading Landscape

For earnings to be reported today, click here .

Economic reports due today include: MBA Purchase Applications, Durable Goods Orders (the consensus expects 1.6%), New Home Sales (the consensus expects 300 K) and EIA Petroleum Status Report.

If you have questions or comments for Sam Collins, please e-mail him at .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: F

Sam Collins

Sam Collins

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