Opening View: Bulls Bolstered by Blowout Earnings

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Futures are pointing higher this morning, as a round of upbeat earnings has bolstered the bulls' spirits. More specifically, tech titan Apple Inc. (AAPL ) reported blowout earnings as a result of demand for its best-selling iPad, while banking heavyweights U.S. Bancorp (USB ) and PNC Financial Services (PNC ) reported better-than-expected profits as a result of less capital devoted to bad loans. Amid this backdrop, futures on the Dow Jones Industrial Average (DJIA ) are hovering 33.6 points north of fair value, while the S&P 500 Index (SPX ) is trading nearly six points above fair value.

Dow, S&P and Nasdaq futures

Jumping right in... Tech titan Apple Inc. (AAPL - 376.85) unveiled a fiscal third-quarter profit of $7.31 billion, or $7.79 per share, more than doubling its year-ago earnings of $3.25 billion, or $3.51 per share. Revenue for the quarter skyrocketed 82% to $28.57 billion. The results, as usual, crushed analysts' expectations, which called for a profit of $5.85 per share on $25 billion in revenue. Even more encouraging, gross margin expanded to 41.7% from 39.1%, snapping a four-quarter streak of declines. The Cupertino, Calif.-based company moved 9.25 million iPads during the quarter, with Chief Financial Officer Peter Oppenheimer asserting that Apple "sold every iPad we could make."


VMware (VMW - 106.02) banked a second-quarter profit of 55 cents per share, on an adjusted basis, while revenue increased 37% to $921 million. Analysts were looking for earnings of just 47 cents per share on $873 million in revenue. Looking ahead, VMW predicted third-quarter revenue of $915 million to $940 million, topping analysts' consensus estimate of $898 million. "The quarter's strong performance reflects the continued adoption of virtualization as a key technology for the next era of computing," said CEO Paul Maritz in a statement.

Yahoo (YHOO - 14.59) reported a second-quarter profit of $237 million, or 18 cents per share, up 11% from its year-ago earnings of $213 million, or 15 cents per share. Net revenue dipped 5% to $1.08 billion. The bottom-line results fell right in line with analysts' expectations, but YHOO's top-line number missed the consensus forecast of $1.11 billion. However, CEO Carol Bartz chalked up the revenue shortfall to her ongoing turnaround efforts. "We experienced softness in display revenue in the second half of the quarter due to comprehensive changes we have made in our sales organization to position ourselves for more rapid display growth in the future," said Bartz in a company release.

Just moments ago, U.S. Bancorp (USB - 25.03) said its second-quarter net income rose 57% to $1.2 billion or 60 cents per share, up from $766 million, or 45 cents per share, a year ago. Revenue, meanwhile, rose 3.8% to $4.69 billion, as the banking issue devoted less capital to bad loans, and made more money off interest income. These figures easily toppled the consensus estimate for earnings of 45 cents per share on $4.52 billion in revenue.

It was a similar story for USB's sector sibling PNC Financial (PNC - 55.83), as the banking issue also reported better-than-expected earnings as a result of less capital tied up in bad loans. In fact, during the latest quarter, credit-loss provisions arrived at $280 million, compared with $823 million a year ago and $421 million in the prior quarter. Breaking down the numbers, PNC reported a profit of $912 million, or $1.67 per share, up from a year-earlier profit of $803 million, or $1.47 per share. Total revenue fell 7.9% to $3.6 billion. Analysts had predicted the financial firm to report a profit of $1.46 per share on $3.62 billion in revenue. PNC is up over 2% ahead of the open.

Earnings Preview

Today's earnings docket will feature reports from American Express ( AXP ), Altria Group ( MO ), Intel ( INTC ), Abbott Laboratories ( ABT ), Cheesecake Factory ( CAKE ), eBay (EBAY), F5 Networks (FFIV), Qualcomm (QCOM), and Xilinx (XLNX). Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

Existing home sales for June will hit the Street on today, along with the usual update on U.S. petroleum supplies. A flurry of data will be released Thursday, including weekly jobless claims, the Philly Fed index for July, and the Conference Board's index of leading economic indicators for June. There are no major economic reports scheduled for Friday.

Market Statistics

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,466,020 call contracts traded on Tuesday, compared to 760,604 put contracts. The resultant single-session put/call ratio docked at 0.52, while the 21-day moving average was perched at 0.63.

NYSE and Nasdaq summary

Volatility indices

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Overseas Trading

Stocks in Asia closed higher today, as stronger-than-forecast tech earnings once again provided a lift. Right on the heels of IBM's upbeat report, Apple unveiled its own robust second-quarter figures, providing a halo boost for sector cohorts such as Toshiba and Foxconn. Traders also cheered signs of progress on the U.S. debt ceiling debate, after President Obama backed a bipartisan budget proposal from the Senate. However, Chinese-listed equities sat out the rally amid concerns over slower economic growth and still-simmering inflation. By the close, Japan's Nikkei and South Korea's Kospi each rose 1.2%, Hong Kong's Hang Seng added 0.5%, and China's Shanghai Composite edged 0.1% lower.

Strong Apple earnings and easing U.S. debt concerns are also propping up investor sentiment in Europe, where markets are trading higher at midday. Banking stocks are another pocket of strength, as French President Nicolas Sarkozy and German Chancellor Angela Merkel meet up to discuss sovereign debt issues ahead of Thursday's summit of euro-zone leaders in Brussels. At last check, the French CAC 40 is up 1.7%, London's FTSE 100 is 1.1% higher, and the German DAX has added 0.4%.

Overseas markets

Currencies and Commodities

Crude futures are trading higher this morning, continuing Tuesday's positive momentum. Specifically, stronger-than-expected housing data on Tuesday revived hopes for oil demand, sending black gold barreling into the black by the close. Ahead of the open, crude oil is hovering 1.3 points, or 1.3%, higher. Meanwhile, the dollar has slipped 0.4 point, or 0.5%, as economic concerns at home and abroad continue to weigh on the U.S. currency. Finally, after a record run, gold futures have slipped 10.7 points, or 0.7%, this morning, as the recent slew of upbeat earnings reports have decreased the "safe-haven" asset's appeal.

Currencies and commodities

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This article appears in: Investing , Options

Referenced Stocks: ABT , AXP , CAKE , INTC , MO

Schaeffer's Investment Research

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