PowerTrend Brief: Markets Looking for Direction Amid a Sea of Earnings Reports

Last week, we waded deeper into 2Q 2012 earnings season as nearly 16% of the companies that comprise the S&P 500 reported their results. While there were some positives to be had with Google (GOOG), Microsoft (MSFT) and Autonation (AN), there also were a number of misses and weaker outlooks at Yum! Brands (YUM), Johnson & Johnson (JNJ), Cypress Semiconductor (CY), and Chipotle Mexican Grill (CMG) to name a few. Testifying before Congress, Federal Reserve Chairman Ben Bernanke confirmed that the economic recovery in the United States, indeed, has slowed and that currently there is little consensus as to what should or should not be done. Also last week, a number of financial institutions — Bank of America (BAC), Credit Suisse Group (CS), Citigroup (C), Goldman Sachs (GS) and Morgan Stanley (MS) — announced plans for additional headcount reductions as they look to rein in their respective cost structures.

Also of note last week, two initial public offerings (IPOs) for Palo Alto Networks (PANW) and Kayak Software (KYAK) were priced and the shares had a warm reception, up 26% and 27%, respectively. To me, it comes as little surprise that these offerings were well received, given the nature of their respective businesses. Palo Alto is a Silicon Valley-based firm that designs network-security products and fits squarely within the Safety & Security PowerTrend, while Kayak, an online travel site operator, meshes well within the Always On, Always Connected PowerTrend. I would note that these two IPOs, along with that of ServiceNow (NOW), have helped to offset the sour taste of technology IPOs that resulted from the plagued Facebook (FB) offering. With more than 25 companies having filed to go public in the coming weeks and months, the IPO calendar looks to be far warmer than it has in a number of months.

The net effect left the major stock market indices little changed on the week, with both the S&P 500, as well as the Dow Jones Industrial Average, up less than 0.5%. Taking a step back, we find that the S&P 500 has gained more than 6.5% since its recent June 1 bottom at 1,278. On its face, that move may lead many observers to think that bullish optimism has returned. But digging deeper into the data, we find that upward move has been fueled by stable, slower growth sectors and stocks. Examples of such companies and stocks that have delivered that strong performance include the Coca-Cola Company (KO), Colgate-Palmolive (CL), Unilver (UN) and Kraft Foods (KFT). Aside from offering products that people will consume in a good or a bad economy, those companies also offer strong brands and equally strong dividend yields. It’s little wonder that the iShares Dow Jones Select Dividend ETF (DVY) hit a four-year high last week.

The pace for corporate earnings will accelerate this week with more than 1,300 companies sharing their 2Q 2012 results. Included among them will be a number of prominent companies, whose commentary will move the markets. This situation will be especially the case, given a slower flow of economic data during the coming days. In particular, earnings announcements will come from McDonald’s (MCD), Apple (AAPL), Ford (F), Caterpillar (CAT), Starbucks (SBUX), Colgate-Palmolive (CL) and recently public Facebook (FB) — before the end of trading this week. Friday not only brings us the first reading on U.S. Gross Domestic Product (GDP) for the second quarter, but it also kicks off the 2012 Rocky Mountain Economic Summit & Retreat, which brings together economists and entrepreneurs from around the country to discuss economic issues facing the United States, as well as issues affecting businesses.

As investors continue to digest the rash of earnings, strategists will be busy tabulating the results to refine their earnings forecasts for the S&P 500. Currently, expectations still call for the S&P 500 to deliver 2012 operating earnings of $103.36 per share, up 5.6%. Breaking that down into the first half of the year vs. the second half, we find that second half 2012 earnings are only expected to rise 2.4% vs. the first half of the year. If more companies that comprise the S&P 500 reduce their earnings expectations for the coming quarters, that guidance could weigh not only on existing earnings expectations but also on the stock market.

Sincerely,

Chris Versace
Editor, PowerTrend Brief

P.S. Today’s challenging market conditions require even more knowledge than ever for investors and traders like you to keep pace with the latest market intelligence to safeguard your portfolio and to profit from opportunities that only may be available for short periods of time. Join me at this year’s MoneyShow San Francisco, August 24-26, at the San Francisco Marriott Marquis to hear recommendations and advice about how best to profit in 2012 and beyond! Register FREE today by clicking here, by going to ChrisVersace.sanfranciscomoneyshow.com or by calling 1-800/970-4355 and mentioning priority code 027877.

This Week Ahead

Aside from the considerations that I shared above, here’s what else I’ll be watching this week for PowerTrend Profits subscribers:

Monday, July 23
Baidu Inc. (BIDU)
BrightPoint Inc. (CELL)
Carter’s Inc. (CRI)
Coca-Cola Enterprises (CCE)
Crane Co. (CR)
Eaton Corp. (ETN)
Gorman-Rupp Co. (GRC)
Idex Corp. (IEX)
McDonald’s Corp. (MCD)
PetMeds Express (PETS)
Rush Enterprises (RUSHA)
Standard Motor Products (SMP)
Texas Instruments (TXN)
Vitamin Shoppe (VSI)

Tuesday, July 24
FHFA Housing Price Index (May)
Air Products and Chemicals (APD)
Altria Group (MO)
Annies’s Inc. (BNNY)
Apple Inc. (AAPL)
AT&T Inc. (T)
BE Aerospace (BEAV)
Broadcom Corp. (BRCM)
Buffalo Wild Wings (BWLD)
Domino’s Pizza Inc. (DPZ)
E.I. Dupont (DD)
EMC Corp. (EMC)
Illinois Tool Works (ITW)
Netflix Inc. (NFLX)
NXP Semiconductors (NXPI)
Panera Bread (PNRA)
Reynolds American (RAI)
Under Armour (UA)
United Parcel Services (UPS)

Wednesday, July 25
MBA Mortgage Index (Weekly)
New Home Sales (July)
Akami Technologies (AKAM)
Ameriprise Financial (AMP)
AOL Inc. (AOL)
Boeing Co. (BA)
Caterpillar Inc. (CAT)
Citrix Systems (CTXS)
Cooper Industries (CBE)
Equinix Inc. (EQIX)
Flextronics Inc. (FLEX)
Ford Motor Co. (F)
Kaiser Aluminum (KALU)
PepsiCo Inc. (PEP)
Tupperware Brands (TUP)
USG Corp. (USG)
Whole Foods Market (WFM)

Thursday, July 26
Weekly Initial & Continuing Jobless Claims (Weekly)
Durable Orders (June)
Pending Home Sales (June)
3M Co. (MMM)
Amazon.com Inc. (AMZN)
Ball Corp. (BLL)
Callaway Golf (ELY)
Cash America International (CSH)
Cerner Corp. (CERN)
Coinstar Inc. (CSTR)
Colagate-Palmolive (CL)
Dow Chemical (DOW)
Dunkin’ Brands Group (DNKN)
Facebook Inc. (FB)
International Paper (IP)
Kimberly-Clark Corp. (KMB)
Potash Corp. (POT)
Starbucks Corp. (SBUX)

Friday, July 27
Initial Gross Domestic Product reading (2Q 2012)
2012 Rocky Mountain Economic Summit & Retreat
American Axle and Manufactured Holdings (AXL)
Arch Coal (ACI)
Chevron Corp. (CVX)
Merk & Co. (MRK)
Newell Rubbermaid (NWL)
Weyerhaeuser Co. (WY)

Upcoming Appearance

• Listen for my weekly appearance each Monday on Amercia’s Morning News to talk about the economy, the stock market, stocks and more.