Stock Market Today: It's Easy to Beat Earnings Estimates When You Aim Low
By , Money Morning•
The stock market today opened higher as earnings continue to be "not as bad as expected" and industrial production shows signs of stabilizing.
Here's our market roundup for investors:
Earnings continue to beat estimates- The third quarter was supposed to be a dismal earnings season but lowered expectations are giving companies a boost. Johnson and Johnson (NYSE: JNJ) and Goldman Sachs Group Inc. (NYSE: GS) reported better-than-expected profits this morning and each offered investors something else to cheer about. JNJ's third-quarter profits fell 7% from last year but its adjusted EPS of $1.25 beat Wall Street's estimates of $1.21. Goldman had a third-quarter profit of $1.51 billion, compared with a year-earlier loss of $393 million and easily beat both earnings and revenue forecasts. Besides the strong earnings, Goldman announced that it would increase its quarterly dividend to 50 cents from 46 cents and JNJ raised its 2012 earnings forecast. JNJ stock is up 1.4% in early trading and GS stock is up 1.0%.
Decreased expectations have allowed companies to report numbers that might have been disappointing but now look encouraging. JNJ pulled this off as the forecast it issued today for 2012 earnings was lower than the projection it had last quarter. Even though earnings for the most part have beat expectations there is still the uncertainty of the fiscal cliff and slowing economic growth.
"Investors are cycling back into risk as earnings as well as economic numbers in the U.S. are somewhat better than expected," Chad Morganlander, a Florham Park, NJ-based fund manager at Stifel Nicolaus & Co. told Bloomberg News in a telephone interview. "Economic growth will continue to be sluggish even with the flickers of hope that we've seen this morning."
Those "flickers of hope" include the following:
Industrial production in U.S. tries to rebound- After falling 1.4% in August industrial output rose 0.4% in September. Economists had expected a 0.2% in the reading. Manufacturing which accounts for about 12% of the economy, gained 0.2% in September after falling 0.9% in August. But those September gains were not enough to save the quarter. Industrial production declined at a 0.4% pace in the third quarter. Manufacturing fell 0.9%, its first quarterly drop since the recession ended in 2009. The August decline was partially due to stalled oil production ahead of Hurricane Isaac and September's increase was due to resuming those activities, so next month's numbers will be key to assessing what direction manufacturing is headed.
CPI rises again on soaring gas prices- The consumer price index increased more than expected in September yet inflation concerns remain mild. The 0.6% rise in the cost of living equaled the CPI's increase in August but both months were led by surging fuel prices- gas rose 9% in August and 7% in September. Those gains have led to a 2% increase in consumer prices over the past 12 months but economists are not concerned with inflation due to still lower demand. Some analysts have even stated that the Federal Reserve will allow prices to rise faster than their 2% target if it helps boost the economy. "There isn't any meaningful risk of short-term core inflation," Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC told Bloomberg. "When it comes to everyday goods and services, the lack of demand just isn't going to push prices higher."
The Dow Jones was up 120 points, or 0.90%, and the S&P 500 was up 13.48 points, or 0.94% as of noon.