Benchmarks ended in the green on Monday buoyed by upbeat
earnings results and announcement of a rescue plan by Portugal's
central bank. The S&P 500 rebounded from its biggest weekly
decline in two years and the Dow halted its four-day losing streak.
However, weakness in the utilities sector offset some of the gains.
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Ahead of Wall Street
The Dow Jones Industrial Average (DJI) rose 0.5% to close at
16,569.28. The Standard & Poor 500 (S&P 500) rose 0.7% to
close at 1,938.99. The tech-laden Nasdaq Composite Index closed at
4,383.89; rising 0.7%. The fear-gauge CBOE Volatility Index (VIX)
declined 11.2% to settle at 15.12. A total of 5.6 billion shares
were traded yesterday, lower than last five day's average of 6.2
billion. Advancers outpaced declining stocks on the NYSE. For 60%
stocks that advanced, 37% declined.
Shares of Berkshire Hathaway Inc. (
) gained 3.1% after reporting strong second quarter earnings
growth. The company reported second quarter operating earnings of
$1.75 per share, compared to $1.59 per share reported in the
year-ago quarter. Earnings were in line with the Zacks Consensus
Estimate. Total revenue came in at $49.8 billion, up 11.3% year
over year. The increase was driven by higher contribution from
Insurance, Railroad, Utilities and Energy as well as Finance and
Financial Products segments.
Berkshire Hathaway's Insurance Group was the best performer in
terms of revenue growth. Revenues from Insurance Group increased
4.5% year over year to $10.8 billion led by higher premium earned
from GEICO, General Re and Berkshire Hathaway Primary Group.
According to Thomson Reuters, 381 companies out of S&P 500 have
reported second quarter earnings. Among these companies, 68.8% have
beaten estimates on earnings, and 64.1% have topped expectations
for revenues. Annual earnings growth for the second quarter is
However, Michael Kors Holdings Limited's (
) shares declined nearly 6% despite posting better-than-expected
fiscal first quarter earnings per share of 91 cents. Earnings
outpaced the Zacks Consensus Estimate of 81 cents. Nonetheless, the
company reported a steep increase in inventories. Inventories rose
65% from the year-ago quarter. The company also anticipates margins
to decline in the next quarter. The company forecasted its fiscal
second quarter earnings to be between 85 cents and 87 cents, lower
than that of the fiscal first quarter.
Markets were also boosted by steps to combat Portugal's banking
crisis. On Sunday, Portugal's central bank announced a rescue plan
of Banco Espírito Santo (BES). BES had incurred loss of €3.58
billion in first half of 2014. This is the biggest loss in
Portuguese banking history. The central bank announced it will
split BES into a "good bank" and a "bad bank". The 'good bank' will
receive a bailout of €4.9 billion from the bank resolution fund.
Out of this, €4.4 billion will be provided by the Portuguese
government as a loan and the rest as cash.
The "good bank" will be called Novo Banco. BES' potential assets
such as deposits and loans, which can be repaid, will accrue to the
"good bank". Good bank will use BES' existing branding and
framework to continue its operation.
BES will be the "bad bank". The "problem" assets of the bank will
remain with BES. Shareholders and the creditors will be liable for
these assets and may lose all of their investments. The Espírito
Santo Financial Group which is one of the owners of BES and Crédit
Agricole, one of the biggest French lenders, are included in the
group. Investors welcomed this plan as it may help Portugal recover
from the banking crisis.
Some of the day's gains were eroded by a decline in the utilities
sector. Utilities Select Sector SPDR (XLU) was the only decliner
among the S&P 500 sectors. It declined 0.5% on Monday. Key
utilities stocks from the sector such as Ameren Corporation (
), Exelon Corporation (
), Southern Company (
) and Entergy Corporation (
) decreased 0.7%, 0.6%, 0.5% and 0.8%, respectively.
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BERKSHIRE HTH-B (BRK.B): Free Stock Analysis
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