Reality Catching Up to Wall Street on Earnings Misses, Fears

Around June, this author told a particularly self-absorbed, furtive individual that there would be a market "event" shortly before the presidential election, designed to offer the impression that the economy, under president Obama, was failing in multitudinous ways, designed to usher in Mitt Romney as the next occupant of the White House.

Until today, that prediction seemed somewhat unreasonable, as stocks have risen sharply during the summer months, but, as third quarter earnings - in addition to various warnings from the likes of the IMF and World Bank - are proving, the US and global economies are far from what anyone would consider healthy.

Today's sharp sell-off was the product of many misses and warnings by huge multi-national companies that either missed earnings and/or revenue estimates or issued warnings for the months ahead.

Among those companies that fell short of Wall Street's lowered estimates after Thursday's close and prior to Friday's open were McDonald's (MCD), Microsoft (MSFT), Google (GOOG), high-flying Chipolte Mexican Grill (CMG), and General Electric (GE). The misses came behind similar poor showings from Intel (hit a 52-week low today) and IBM, earlier in the week and proved quite a few sell-side analysts correct in predicting that this quarter would be very rough from an earnings perspective.

Truth be told, even those companies beating earnings estimates are not beating by much, with some exceptions, and are generally hitting targets that are lower than the previous years numbers, which, as the market is a continuous-discounting mechanism, means stocks are going in reverse, with earnings falling, not growing.

That alone should explain today's deep, across-the-board, declines, but also brings into question the entire philosophy behind central bank easing and money printing on a global scale. Sure enough, easy money has propped up banks and companies and a multitude of stocks and indices, but the end result of funny fiat money always reverts to a point at which currencies become worthless and derivative instruments, such as stocks, and, further out, bonds, lose value and we could be nearing the conclusion of the failed stimulative experiment that's fixed nothing since the crash of 2008.

Speaking of crashes, today's drop pales by comparison to what occurred 25 years ago to the day, the well-known stock market crash of 1987, when the Dow Jones Industrial Average fell by 23%. It was a seminal market event that will probably (hopefully) never be repeated, as there are supposedly more safeguards and triggers - to say nothing of the PPT - to prevent such a disastrous one-day event.

That is not to say that markets, stocks and indices cannot fall hard over periods of time, though it is far too soon to call today's action the beginning of such a a downward spiral. However, with tech stocks and industrials feeling the heat from investors in an earnings season that has been short on enthusiasm and long on fear, the coming weeks, especially with the November elections as a backdrop, could produce some calamities such as have already been seen in individual stocks, many of which were grossly overvalued and highly speculative, Chipolte and Apple come immediately to mind.

Checking the charts, it's useful to point out that the Dow and S&P broke through their 50-day moving averages and closed just about right on them, a position last seen a week ago, before Monday and Tuesday's "savior" rallies pushed equities back to something of a triple top, which has now broken down in a dramatic reversal. Today's declines on the two indices were the worst since mid-June. Shortly thereafter, both indices progressed above their 50-day MA, but have now returned to the roost, setting up a very unsettling weekend and a potential breakdown on Monday or further on during the week.

As for the NASDAQ, today's worst percentage loser, that index has been screaming red for a month, having busted through its 50-day MA eight sessions ago. Any further deterioration in the beloved NAZ could trigger a serious correction, as it is already down 7% in the past month.

Looking ahead to next week, earnings reports are due out on some big names, such as Cattepillar (CAT), Las Vegas Sands (LVS), Yahoo (YHOO) and Texas Instruments (TXN) on Monday; 3M (MMM), Coach (COH), Facebook (FB) and United Parcel Service (UPS) on Tuesday; and, on Wednesday, Boeing (BA), Eli Lilly (LLY), General Dynamics (GD), Lockheed Martin (LMT) and O'Reilly Automotive (ORLY).

Those mentioned above are but a smattering of companies reporting, in what will be the busiest week of earnings season. CNBC and Bloomberg will be looking for rays of hope, while investors may have a more wary eye toward more companies missing on earnings and revenue.

One economic data point worth noting was existing home sales for September, falling 1.7% to an annual run rate of 4.75 million, well below most estimates.

Until then, the long weekend waiting game, and, on Monday night, the final presidential debate, followed on Wednesday another FOMC rate policy decision, which will probably be nothing more than a formality.

Naturally, there will be the usual can-kicking and posturing from Europe, which still cannot come up with plans for either Greece or Spain, which may or may not be part of the plan to hold off the bad news until after our elections. One can hardly wait.

That is all... for now.

Dow 13,343.51, -205.43 (1.52%)
NASDAQ 3,005.62, -67.25 (2.19%)
S&P 500 1,433.19, -24.15 (1.66%)
NYSE Composite 8,324.14, -118.68 (1.41%)
NASDAQ Volume 2,194,602,500.00
NYSE Volume 3,851,036,250
Combined NYSE & NASDAQ Advance - Decline: 1168-4339
Combined NYSE & NASDAQ New highs - New lows: 166-117
WTI crude oil: 90.05, -2.05
Gold: 1,724.00, -20.70
Silver: 32.10, -0.771

Google's Goof, BLS Correction

Mistakes happen, but, when it comes to stocks and data, mistakes are magnified by gains or losses on balance sheets or portfolios.

Today's comedy of errors was highlighted before the opening bell by the Bureau of Labor Statistics (BLS) and around midday, by Google, with an assist from R.R. Donnelley.

When the BLS released the most recent initial unemployment claims, they were, in effect, correcting an error made last week, when one state did not accurately report claims. The agency never did tell the public which state was under-reported, but the figure of 339,000 was well below the estimates.

On Thursday, the correction showed initial claims at a more reasonable level of 388,000, and the prior week revised to 342,000. OK, so far.

Around 12:30 pm EDT, Google's (GOOG) third quarter results magically appeared online, although the numbers weren't supposed to be released to the public until around 4:15 pm EDT, after the markets closed. Ooops! The stock dropped 68 points in a manner of minutes, blame was heaped upon publisher R.R. Donnelley, which quickly issued a mea culpa and Google stock was halted until 3:20 pm EDT.

Upon re-opening, Google got a bit of a rise, but the damage had been done. Like it or not, the world's number one search engine reported a clean miss on both earnings and revenue, reflecting a general slowdown in the global economy and, quite possibly, a bit of market share being taken by rival Bing, owned by Microsoft.

Once markets recovered from the midday turmoil, it was back to business as usual, which, these days prior to the general election of November 6, seems to be drifting about the unchanged line. Excepting the NASDAQ, which was impacted by Google's 60-point (8%) decline at the close, the major indices finished relatively flat.

Dow 13,548.94, -8.06 (0.06%)
NASDAQ 3,072.87, -31.25 (1.01%)
S&P 500 1,457.34, -3.57 (0.24%)
NYSE Composite 8,442.91, -3.61 (0.04%)
NASDAQ Volume 2,009,088,250
NYSE Volume 3,833,238,000
Combined NYSE & NASDAQ Advance - Decline: 2276-3211
Combined NYSE & NASDAQ New highs - New lows: 308-44
WTI crude oil: 92.10, -0.02
Gold: 1,744.70, -8.30
Silver: 32.87, -0.364

Stocks Hug Flat Line in Earnings Misses, Warnings

Well, Obama won the debate Tuesday night. Anyone who doesn't believe that wasn't paying attention or is seminally biased toward Republicans, One-Percenters, Mormons or all three.

Thus, in addition to a revenue miss from IBM and some warnings from Intel - both Dow components - the wicked mid-earnings-season rally was cut short on Wednesday, though the S&P and NYSE Composite were the percentage winners on the day.

It could be some rotation out of blue chips into, yep, more speculative stocks, which would make sense considering the Fed will continue to pump money in the general direction of Wall Street until its had enough, whatever that level may be.

To take the markets down, there has to be some kind of serious issues, at least something more serious than what financiers everywhere continue to deny: the great indebtedness of sovereign nations and central bank profligacy, but, with options expiry on Friday, this rally seems to have run out of steam rather abruptly, though one could hardly guess that from the new highs on the NYSE (245).

Queueing Europe in 3...2...1...

Dow 13,557.00, +5.22 (0.04%)
NASDAQ 3,104.12, +2.95 (0.10%)
S&P 500 1,460.91, +5.99 (0.41%)
NYSE Composite 8,446.52, +60.05 (0.72%)
NASDAQ Volume 1,777,785,875
NYSE Volume 3,654,417,500
Combined NYSE & NASDAQ Advance - Decline: 3558-1876
Combined NYSE & NASDAQ New highs - New lows: 350-45
WTI crude oil: 92.12, +0.03
Gold: 1,753.00, +6.70
Silver: 33.23, +0.273

Pandit Resigns from CITI; IBM Revenue Miss; Greece Talks Stall; Farm Notes

It was a busy day on Wall Street, with stocks closing at or very near their highs of the day, the two-day rally this week nearly recouping the losses from the prior week on the Dow and S&P, though the NASDAQ, hardest hit last week, has recovered only about 1/2 of its losses.

Stocks got an early boost when Coca-Cola (KO) matched earnings estimates of 50 cents per share and Johnson & Johnson (JNJ) reported third quarter earnings, excluding special items, of $1.25 per share. Analysts, on average, expected $1.21 per share. Both companies are components of the Dow Jones Industrial Average.

Goldman Sachs (GS), the nation's fifth largest bank by assets (though even though hastily granted a commercial bank charter in the midst of the 2008 financial crisis, has yet to open a single retail branch), also beat lowered estimates, citing debt investments and underwriting fees as the main profit drivers.

Industrial production grew by 0.4%, capacity utilization increased slightly from 78.2% to 78.3% in September and the CPI ratcheted up 0.6% in September, due mostly to higher food and fuel costs, which explains why the "official" core rate of an 0.1% increase excludes those necessities. On an annual basis, the September CPI translates into 7.2% inflation, which is probably less than it actually is in the new, Fed-funded world of bizarro-finance.

The big news was the abrupt departure of Citigroup CEO Vikram Pandit and COO John P. Havens, just a day after the company reported third quarter earnings. According to published reports, Citi's board of directors had been plotting Pandit's retirement for months, though Pandit himself said it was soley his decision.

Pandit's departure sent shock waves through executive offices at Fortune 500 companies and elsewhere, as apparently, there are still some BODs that are not rubber-stamping mechanisms.

Stocks got off to a fast start with most of the gains made in the morning, with small additions in the afternoon.

After the bell, IBM reported earnings in line with expectations, but missed on revenue of $24.7 billion, down from $25.8 billion in Q2, setting up for a testy open on Wednesday. Shares of Big Blue were down five points in after hours trading.

The Euro gained sharply against the dollar, boosting US shares even more as the dollar cheapened, but, in news generally sealed off from the US, Greece's talks with the troika fell apart over further austerity measures with negotiators walking out of meetings.

That late-breaking news, combined with the results from IBM and the scoring of tonight's presidential debate will set the tone for the open on Wednesday.

Farm Notes: Did you know that the agribusiness model that the large corporate farms employ (row planting and harvesting) wastes land, water and valuable resources, besides putting harmful chemicals - through the use of pesticides and fertilizers - to produce crops that are significantly less-protein rich than vegetables grown in the average backyard garden?

Also, using intensive gardening methods such as those used for centuries in France and elsewhere, the same amount of vegetables that an agribusiness farm can produce on one acre can be produced on 1/10th or less of an acre with less fertilizer, water and no pesticides.

Gardening, in America and elsewhere, isn't just about a pasttime or a hobby. It's about reclaiming the economy and moral high ground from corporations and the wasteful practices promoted by the Department of Agriculture.

Dow 13,551.78, +127.55 (0.95%)
NASDAQ 3,101.17, +36.99 (1.21%)
S&P 500 1,454.92, +14.79 (1.03%)
NYSE Composite 8,386.47, +92.97 (1.12%)
NASDAQ Volume 1,735,765,375.00
NYSE Volume 3,539,692,250
Combined NYSE & NASDAQ Advance - Decline: 3861-1630
Combined NYSE & NASDAQ New highs - New lows: 278-40
WTI crude oil: 92.09, +0.24
Gold: 1,746.30, +8.70
Silver: 32.96, +0.216

Did Retail Sales Power a Rare Monday Rally?

Retail sales for September, as reported on Monday prior to the opening bell, were up sharply year-over-year and were up 1.1% after a 1.2% rise in August.

So, did the retail sector fuel the rare Monday rally, which was only the third time stocks had shown gains on a Monday in the past 20 weeks?

Well, yes they did, as the Consumer Cyclical space gained 1.11%, the best sector gain of the day. Following were Health Care and Financials, the latter based largely on an earnings beat by Citicroup (C), which beat solidly on revenue as well.

The timing could not have been better for options players as October monthly options settle this week, on Friday, just in time for stocks to head to new highs and savvy options professionals cash in on their bets.

Trading on this Monday was a radical departure from last week's broad decline, with the advance-decline line repairing itself and new highs beating new lows by a 2-1 ratio.

Oddly enough, the market wins either way in the currently-convoluted presidential debate regime that is market psychology. With retail and stocks doing well, one would envisage an Obama victory on November 6, anathema to the markets, but, good numbers are good numbers, so, stock traders went along for the ride.

Sticking with the current thinking, even if retail sales had been poor, stocks would probably have risen anyway, because the poor numbers would indicate a Romney victory, which the market is said to love.

In either case, stocks win, even on a day when commodities were hit hard across the board, especially in the precious metals segment, as gold and silver were pounded lower right from the opening of trading.

That seems to be the game plan, at least for today, by the central bank stock market cartel controlling markets worldwide. Buy riskier assets and sell off those things that are proven to be a reliable store of value.

It's working, as stocks are within 5-8% of all time highs on the S&P and the Dow. It's a very interesting time for both political junkies and market watchers, but should get even more intense during the week and after options expiry on Friday. There's still unfinished business in Europe, mostly regarding Greece and Spain, and a shock from the land of the socialists could easily upset any balancing act currently taking place in the markets.

Most of the attention is focused on Tuesday night's presidential debate, the current wisdom saying that another poor performance by president Obama would practically hand the election over to Mitt Romney, the Republican challenger, making the event must-see TV for all, despite the thinly-veiled sarcasm in that statement.

The debates are largely political porn, with many voters having already made up their minds. If Obama purposely throws Tuesday's debate, as he did the first one, it would give Romney an edge, so, considering how the media whores need to keep the American public on the edge of their seats right up until - and beyond - election day, count on the President to deliver some serious body blows Tuesday night, followed by a negative market reaction Wednesday.

With the election just three weeks away, expect the rhetoric and noise to rise to a crescendo in coming weeks. Along with it could be a climactic rise in stocks, with the Dow touching off new all-time highs and the S&P hot on its heels, or, a dramatic turndown heading into the big fiasco that is election day in America.

Dow 13,424.23, +95.38 (0.72%)
NASDAQ 3,064.18, +20.07 (0.66%)
S&P 500 1,440.13, +11.54 (0.81%)
NYSE Composite 8,296.97, +69.89 (0.85%)
NASDAQ Volume 1,536,536,250
NYSE Volume 3,257,196,000
Combined NYSE & NASDAQ Advance - Decline: 3596-1897
Combined NYSE & NASDAQ New highs - New lows: 133-65
WTI crude oil: 91.85, -0.01
Gold: 1,737.60, -22.10
Silver: 32.74, -0.926