October 18, 2012 at 09:52 AM EDT
Dismal Earnings Are Beating Estimates – But.
Thursday, October 18, 9:45 a.m. It’s fun to watch the quarterly gaming of earnings reports so that no matter what, the reports sound positive to investors whose research and analysis consists mostly of checking out the quick sound bites on financial TV shows. Invariably corporations provide new guidance in the week or two prior to [...]

Thursday, October 18, 9:45 a.m.

It’s fun to watch the quarterly gaming of earnings reports so that no matter what, the reports sound positive to investors whose research and analysis consists mostly of checking out the quick sound bites on financial TV shows.

Invariably corporations provide new guidance in the week or two prior to reporting and Wall Street revises its estimates by more than the guidance implies, and voila, no matter how bad the company performed, or how long its earnings downtrend has been underway, the reports ‘beat Wall Street’s estimates”.

So-called ‘one-time costs’ usually help too, even though so often each time there are different one-time costs to blame that keep the profits disappearing. And it is bottom line profits that business owners (investors) are invested for, not excuses that may or may not repeat next time.

In the last two days, Morgan Stanley (MS) reported a huge year-on-year swing, from a profit of $2.2 billion profit to a huge loss of $1.02 billion, on an equally huge 79% decline in revenue. Ah, but if it were not for one-time charges, it would have made 26 cents a share, beating Wall street’s estimate of 24 cents.

Boston Scientific (BSX) reported it swung from a profit of $142 million or 9 cents a share in the 3rd quarter last year, to a loss of $725 million, or 52 cents a share this year. But excluding one-time costs it would have made 16 cents a share, beating Wall Street’s estimate of 11 cents a share.

Union Pacific (UNP) reported earnings of $2.19 a share, up from $1.85 a share a year ago, beating the estimates of $2.18 a share by one cent. How does Wall Street get it so precise?

But yet, it hasn’t been as easy for Wall Street this time. Third quarter reports are missing estimates more often than normal.

And as I suggested a couple of weeks ago revenue trends will be as important as earnings this time, as revenues are more indicative of what lies ahead.

And for instance IBM reported earnings of $3.62 a share, beating Wall Street’s estimates by a penny, but revenue fell short of estimates, declining 5.4%, and IBM did not raise its guidance for future quarters for the first time in quite a while.

Xilinx reported an earnings decline but beat estimates by 5 cents a share. However, revenue was down and the company revised its sales down for the current quarter.

And so it goes.

The 3rd quarter earnings reporting period is actually coming in as expected, disappointing in spite of the game of under-promising in order to beat estimates continuing. The game is just not working as well, not hitting the targets as often as in the past.  

And investors seem to be noticing this time, the market stalling as the reports continue.  

No political conspiracy in unemployment claims after all.

The better than expected jobs reports of the last couple of weeks set off a frenzy of claims that they were being manipulated to help the Obama re-election odds.

How it could be believed that the thousands of long-term employees in numerous states, as well as in Washington, who collect and compile the data could be suddenly coerced into joining forces to cook the data is difficult to imagine.

Assuming they have about the same mix as the general population, roughly 50% Democrats and 50% Republicans, how could that happen without a lot of employees being offended and blowing the whistle?

And now we can see that, at least with the unexpected plunge in weekly unemployment claims last week, the explanation that one state had not turned in its data on time, seems to be likely, since the unusual plunge of 30,000 claims last week, was followed by an increase of 46,000 this week.

The important number as always is the 4-week moving average, which takes into account the possible weekly gyrations. And it was up this week by only 750 to 365,500.

To read my weekend newspaper column click here: Consumers and Investors are Confident Even As Global Recession Threatens. Oct. 12, 2012

Subscribers to Street Smart Report: There is a hotline from last evening, and an in-depth U.S. Market signals and recommendations update  from yesterday in your secure area of the Street Smart Report website.

Yesterday in the U.S. Market.

Trading volume picked up some to 0.7 billion shares traded on the NYSE

The Dow closed up 5 points, not measurable as a percentage. The S&P 500 closed up 0.4%. The NYSE Composite closed up 0.7%. The Nasdaq closed up 0.1%. The Nasdaq 100 closed down 0.1%. The Russell 2000 closed up 0.8%. The DJ Transportation Avg. closed up 0.6%. The DJ Utilities Avg closed up 1.1%.

Gold closed up $1 an ounce at 1,749 an ounce.

Oil closed down $.10 at $91.99 a barrel.

The U.S. dollar etf UUP closed down 0.5%.

The U.S. Treasury bond etf TLT closed down 0.9%.

Yesterday in European Markets.

European markets closed up yesterday. The London FTSE closed up 0.7%. The German DAX closed up 0.2%. And France’s CAC closed up 0.8%. Greece closed up 1.8%. Ireland closed up 0.1%. Italy closed up 1.6%. Spain closed up 2.4%. Russia closed down 1.9%.

Asian Markets were up Tuesday night and again Last Night .

The Asia Dow closed up 0.7% Tuesday night, and up 0.9% last night.

Among individual markets last night:

Australia closed up 0.7%. China closed up 1.5%. Hong Kong closed up 0.4%. India closed up 1.0%. Indonesia closed up 0.5%. Japan closed up 2.0%. Malaysia closed up 0.3%. New Zealand closed up 0.9%. South Korea closed up 0.2%. Singapore closed up 0.5%. Taiwan closed unchanged. Thailand closed up 0.8%.

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Markets This Morning:

European markets are mixed. The London FTSE is down 0.1%. The German DAX is up 0.4%. France’s CAC is down 0.4%. Spain is down 0.9%.

Oil is down $.45 a barrel at $91.66

Gold is down $10 an ounce at $1,742.

This Morning in the U.S. Market:

This week is an average week for potential market-moving economic reports, including Retail Sales, Industrial Production, Housing Starts, Existing Home Sales, etc. To see the full list click here, and look at the left side of the page it takes you to.

Monday reports were that Retail Sales were up 1.1% in September somewhat better than the consensus forecast of a rise of 0.9%. And the Fed’s Empire State (NY) Mfg Index improved some but remains negative in October at –6.2%, not as much improvement as the consensus forecast of –0.4.

Tuesday’s reports were that the Consumer Price Index (CPI) rose 0.6% in September, a bit worse than the consensus forecast of 0.5%. The core rate (with food and energy costs removed), was up only 0.1%. And Industrial Production was up 0.4% in September, from the big decline in August (which was revised down further to a decline of 1.4%). The rebound of 0.4% was better than the consensus forecast of an increase of 0.2%. And the Housing Market Index, measuring the optimism of home-builders, rose to 40 in September from 38 in August, the 5th straight monthly improvement, and getting closer to the level of 50 to 70 that is considered normal.

Wednesday’s report was that U.S. Housing Starts were up a big 15% in September to the highest level in four years, and permits for future starts jumped 11.6%, both numbers easily beating forecasts.

This morning’s report was that new weekly unemployment claims jumped a huge 46,000 last week to 388,000. But that was after last week’s unusual decline of 30,000 claims. So the 4-week moving average was up this week by only 750 to 365,500.

Still to come are the Fed’s Phila Business Index, and Leading Economic Indicators, both of which will be released at 10 a.m. 

Our Pre-Open Indicators:

Our pre-open indicators are pointing to the Dow being down 20 points or so in the early going.

To read my weekend newspaper column click here: Consumers and Investors are Confident Even As Global Recession Threatens. Oct. 12, 2012

Subscribers to Street Smart Report: There is a hotline from last evening and an in-depth Global Markets update from yesterday your secure area of the Street Smart Report website. There will be an in-depth U.S. Markets update there tomorrow.

I’ll be back with the next regular blog post on Saturday morning, as usual later than on the week-days, probably around 11:00 a.m.

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