Market Primer: Thursday, October 24: Investors Switch Focus To Earnings

One third of the S&P 500 companies’ earnings reports have been released, of which 66.3 have come in above profit expectations.

However, only 54 percent have put out better than expected revenue, which falls below the 61 percent long-term average.

With US investors finally focused on earnings season rather than the host of economic problems that have plagued markets recently, many are worried that the earnings growth seen in the third quarter has not been generated by revenue.  

Top News

In other news around the markets:

• German officials have accused the US of tapping German Chancellor Angela Merkel’s phone calls, which the US has denied. Merkel has said that if the allegations are true, it would be a grave breach of trust between the longtime allies.
• China’s flash PMI data showed that the nation’s manufacturing sector expanded at its fastest pace in seven months. A surge in new orders helped drive October’s manufacturing PMI to 50.9, above the 50 point mark that indicates expansion.
• As the EU summit gets underway on Thursday, the region’s goal to unite the region’s banks and forge political integration could be slipping away. Most aren’t expecting to see any major progress as German officials have hardened their stance against a eurozone-wide banking union where the entire region backs the bloc’s lenders. Without the region’s largest economy on board, progress is unlikely.
• The US Department of Justice has said that at least nine banks will face probes as the government moves forward with its investigation into the sales of mortgage-backed securities. Bank of America, Citigroup, Credit Suisse Group, Deutsche Bank, Goldman Sachs, Morgan Stanley, Royal Bank of Scotland, UBS and Wells Fargo are all being investigated for misleading buyers.

Asian Markets

Asian markets were mixed on Thursday with the Japanese NIKKEI up 0.42 percent but the Shanghai composite down 0.95 percent and the Shenzhen composite down 0.56 percent. The Hang Seng index was also lower, down 0.81 percent, but the South Korean KOSPI was up 0.54 percent.

European Markets

Europe’s markets were mostly higher on Thursday, the UK’s FTSE was up 0.30 percent and the eurozone’s STOXX 600 gained 0.15 percent. The German DAX gained 0.45 percent, but Italy’s MIB lost 0.32 percent.

Commodities

Brent futures were higher, up 0.60 percent and WTI futures gained 0.15 percent. Gold was up 0.22 percent and silver gained 0.52 percent. Industrial metals were lower with aluminum posting the largest loss, down 1.86 percent.

Currencies

The euro gained 0.22 percent against the dollar and the pound was up 0.19 percent against the American currency. The yen to dollar ratio was mostly flat and the Australian dollar gained 0.30 percent against the dollar.

Earnings

Notable earnings released on Wednesday included:

• Caterpillar, Inc. CAT reported third quarter EPS of $1.45 on revenue of $13.40 billion, compared to last year’s EPS 0f $2.54 on revenue of $16.44 billion.
• Boeing Company BA reported EPS of $1.80 on revenue of $22.10 billion, compared to last year’s EPS 0f $1.35 on revenue of $20.01 billion.
• Bristol-Myers Squibb Company BMY reported third quarter EPS of $0.46 on revenue of $4.07 billion, compared to last year’s EPS 0f $0.41 on revenue of $3.74 billion.
• Motorola, Inc MSI reported third quarter EPS of $1.32 on revenue of $2.11 billion, compared to last year’s EPS 0f $0.84 on revenue of $2.15 billion.
• AT&T Inc. T reported third quarter EPS of $0.66 on revenue of $32.20 billion, compared to last year’s EPS of $0.63 on revenue of $31.46 billion.

Pre-Market Movers

Stocks moving in the pre-market included:

• Wyndham Worldwide Corp WYN gained 2.65 percent in pre-market trade, adding to its 4.02 percent rise over the past five days.
• Goldman Sachs Group Inc GS gained 1.42 percent in pre-market trade after falling 0.95 percent on Wednesday.
• Perrigo Co PRGO gained 0.66 percent in pre-market trade after losing 1.96 percent in the past week.
• U.S. Bancorp USB lost 0.61 percent in pre-market trade after gaining 0.80 percent over the past five days.

Earnings

Earnings reports expected on Thursday include:

• Amazon.com, Inc.AMZN is expected to report a third quarter loss of $0.09 per share on revenue of $16.77 billion, compared to last year’s loss of $0.60 on revenue of $13.81 billion.
• Microsoft Corporation MSFT is expected to report EPS of $0.54 on revenue of $17.79 billion, compared to last year’s EPS 0f $0.53 on revenue of $16.01 billion.
• Ford Motor Company F is expected to report third quarter EPS of $0.37 on revenue of $33.98 billion, compared to last year’s EPS 0f $0.40 on revenue of $30.25 billion.
• 3M Company MMM is expected to report third quarter EPS of $1.75 on revenue of $7.85 billion, compared to last year’s EPS 0f $1.65 on revenue of $7.50 billion.
• Raytheon Company RTN is expected to report third quarter EPS of $1.33 on revenue of $5.81 billion, compared to last year’s EPS of $1.51 on revenue of $6.04 billion.

Economics

PMI will be the main event on Thursday’s economic calendar with manufacturing PMI due from the US, the eurozone, Germany and France; and services PMI expected from the eurozone, Germany and France. Other notable releases are US new home sales and housing starts, US initial and continuing jobless claims, and the Spanish unemployment rate.

For a recap of Wednesday’s market action, click here.

Tune into Benzinga’s pre-market info show with Dennis Dick and Joel Elconin here.