Tuesday, January 27, 2009

More Examples of Stocks Reacting Positively To Weak Earnings Reports

The market is bouncing again this morning, despite some more weak economic reports as well as some weak corporate profit reports. Remember, in the short-term, it matters more how stocks respond to the news than the news itself. This happens because sometimes stocks have already priced in, or discounted, the news items.

In economic news, consumer confidence came in at 37.7, a new low. But with the headlines in the media of rising unemployment, who can blame them. Also, the November Case-Shiller home price index of 20 major metropolitan areas fell -18.2% yr/yr, another new low. I think housing should stabilize by the back half of the year, and that should be a positive catalyst for the equity markets.

In corporate news, American Express (AXP) and Texas Instruments (TXN) both reported weak earnings, but both stocks are higher today nonetheless. AXP said it expects write-offs to rise in the coming quarters, while TXN issued downside guidance as well.

Amgen (AMGN) also missed earnings by a penny, but its stock is lower. And Bristol Myers (BMY) beat consensus estimates and it stocks is moving nicely higher.

China remain closed last night, but Japan's market surged +4.9% higher. The Japanese govt. is committing $16.7 billion to companies threatened by the credit crunch.

The dollar is mixed this morning, while most commodities are lower. Oil is down below $44. The 10-year yield is lower to 2.61%. And the VIX is down another -5.3% to 43.25. Nice.

Trading comment: The financials are bouncing this morning, which should support the broad market. Yesterday, when the banks rolled over, it weighed on the market. So keep an eye on the XLF. I am still in my recent trades.