Intel Reported a Stunning 2nd Quarter.
Wednesday, July 14, 2010. 9:15 am.
After the close yesterday, Intel (INTC) reported earnings of 51 cents a share in the 2nd quarter compared to a loss in the same period last year. Even more impressive, Q2 revenues were up an astounding 34%. Earnings and revenue easily beat both the company’s prior guidance and Wall Street’s estimates.
The company also raised its guidance for the rest of the year, and made very positive remarks regarding the economy, saying corporations have begun upgrading computers and servers, encouraged by an improving economy and the new cycle of computer models and operating systems.
Not So Uplifting Reports.
All the market cared about yesterday was the 2nd quarter results of Alcoa and CSX, easily ignoring a significant amount of not so positive forward-looking information.
For instance:
Britain’s Office of Budget Responsibility warned that Britain’s new austerity budget will result in greater public-sector job losses than originally reported.
There was also the report that the U.S. trade gap worsened to $152.3 billion in May, its worst level in 18 months, as increased imports from China more than offset the small growth in U.S. exports, an imbalance that is weighing on the slowing U.S. economic recovery. The larger than expected trade deficit caused several economists, including those at J.P. Morgan Chase, and Macroeconomic Advisors, to significantly lower their estimates of 2nd quarter GDP by 0.8 percentage points, to 2.4%.
And the report from the National Federation of Independent Businesses that small business confidence declined in June after several months of improvement. In the June poll only 10% of small businesses plan on new hiring, down from 14% in May, while 8% plan to lay-off employees, up from 7% in May. The number of small businesses planning to make capital expenditures over the next few months fell to 19%, just 3 points above the 35-year record low. Small businesses account for most of the employment in the U.S.
Then there was a warning from global bank HSBC’s chairman that the financial crisis is not over and markets should not be complacent regarding the possibility of future shocks.
And the Commerce Department report that wholesale inventories in the U.S. rose 0.5% in May for a fifth straight month,while sales fell for the first time in more than 12 months, indicating that manufacturing will be slowing going forward, in an effort to work off unsold inventories.
This morning the Congressional Oversight Panel reported that the TARP bank bailout program that helped large banks so substantially, may have actually harmed smaller banks, which are now struggling to try to pay back the taxpayer loans. Part of the problem is that when the large banks took their share of the money, adding billions of capital and liquidity to their balance sheets, investors were happy to buy up the large amounts of additional shares the banks issued, providing the banks with still more capital, which they used to pay back their TARP loans. Small local banks don’t have that same access to the stock market. The Chair of the panel said it’s troubling because the program was not intended as a bailout of Wall Street, but to boost lending and support consumers and home ownership, and small banks are also basically the lenders to small businesses. The panel concluded that many smaller bailed-out banks could collapse or be taken over because they can’t afford to pay back their TARP money, “while the ‘too big to fail’ banks grow even bigger.”
This morning the Mortgage Bankers Association reported that mortgage applications for home purchases sank to a 13-year low last week in spite of near record low mortgage rates.
And the Commerce Department reported that retail sales fell 0.5% in June, the second straight monthly decline, with auto sales down 2%.
In this morning’s headlines:
Wall Street Journal: ‘Fed Sees Slower Growth. Federal Reserve officials are likely to reveal Wednesday a cut in their assessment of the growth outlook, and are divided on how aggressively they should act if the economy slows further. . . . . Having already cut interest rates to near zero most of the Fed’s options for spurring growth aren’t very appealing.”
So it’s not all about 2nd quarter earnings beating estimates.
Yesterday in the U.S. Market.
A very impressive rally day, especially given that it was primarily based on Alcoa’s 2nd quarter earnings report, in which it beat Wall Street’s carefully conservative estimates by 2 cents a share, while ignoring a number of troublesome reports, such as the NFIB’s report that small business sentiment declined in June after several months of improvements, and Merrill Lynch’s report that its survey reveals that fund managers have turned bearish on their outlook for global economies for the first time since during the recession.
The Dow shot up from the open and did not show any sign of turning negative, closing up 146 points for the day, very close to its intraday high. Volume was not heavy at just 1.1billion shares on the NYSE, but was better than Monday. And market breadth was positive, with roughly five times as many stocks up as down on both the NYSE and the Nasdaq.
Yesterday’s intraday chart:
The Dow closed up 146 points, or 1.4%. The S&P 500 closed up 1.5%. The NYSE Composite closed up 1.7%. The Nasdaq closed up 2.0%. The Russell 2000 closed up 3.4% The DJ Transportation Avg. up 2.0%.
Of the safe haven etf’s, the U.S. dollar etf UUP closed down 0.2%. The 20-year treasury bond etf TLT closed down 0.9%. Gold surged up $14 an ounce after its big, but lesser plunge yesterday, and is now up $2 an ounce for the week so far.
Yesterday in European Markets.
European markets also closed up strongly yesterday. The London FTSE closed up 2.0%. The German DAX closed up 1.9%, and the France CAC closed up 2.0%.
Asian Markets Closed Up Last Night.
Among individual markets:
Australia closed up 1.3%. China closed up 0.8%. Hong Kong closed up 0.6%. Japan closed up 2.7%. India closed down 0.3%. Indonesia closed up 0.7%. New Zealand closed up 0.6%. Singapore closed up 0.8%. South Korea closed up 1.3%. Taiwan closed up 1.5%.
Markets This Morning.
European markets are down some this morning. London is down 0.7%. Germany is down 0.2%, and France is down 1.0%.
Oil is down $.53 a barrel at 76.62.
Gold is down $5 an ounce at $1,208.
Markets In the U.S.
This week will be a fairly heavy week for potential market-moving economic reports, but not beginning until tomorrow. Reports will include Retail Sales for June, minutes of the Fed’s last FOMC meeting, the Producer Price Index, and Consumer Sentiment. To see the full schedule of the week’s reports click here, and look at the left side of the page it takes you to.
This morning’s report was that Retail Sales fell 0.5% in June, somewhat worse than the consensus forecast of a 0.4% decline.
Still to come are the minutes of the Fed’s last FOMC meeting, which will be released at 2 p.m. this afternoon.
Meanwhile the market is not as excited about last night’s earnings report from Intel as might have been expected.
Pre-Open Indicators.
Our pre-open indicators are pointing to the Dow being down 30 points or so in the early going.
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