Why are we at new highs, with mediocre earnings, and global economic weakness? I keep getting asked this question, and it just won't go away.
There are reasons: I give them every day yet no one seems to like them. Here they are (again), anyway:
1) Record earnings;
2) Federal Reserve Chairman Ben Bernanke's dovish testimony last week;
3) G-20 calling for growth (stimulus);
4) China's 7% growth "bottom line"; and
5) The improvement in second half earnings that many expect.
The last few days have seen some of the tightest trading ranges in a long time: the Dow, for example, has been in a roughly 75-point daily trading range seven of the last eight trading sessions. That is well below the average trading range of 125 points.
1) The good news about Apple's earnings may be a big help for the Nasdaq 100, which could really use a helping hand. The Nasdaq 100 has under-performed the S&P 500 Index by about 3 percentage points in the six or so days since Microsoft and Google reported disappointing numbers.
2) Earnings – most, though not all – have surprised to the upside:
c) The problem is mining: Caterpillar missed on top and bottom lines. Resource industry revenue was down 34 percent, while construction was down only 9 percent. They also reduced full year guidance from $7.00 to $6.50, and sales to $56 — $58 billion from $57— $61 billion. The revenue declines appear to be related to reducing dealer machine inventories.
This is painful short term, but it sets up for sales growth in 2014. No sign of a recovery in mining, which is about one-third of revenues: 2013 saw a decline in capital expenditures of 10 percent, and 2014 could be down an additional 20 percent. Ouch!
d) Realogy, the largest real estate firm in the U.S., reported earnings this morning that had been pre-announced last week. Richard Smith, CEO of Realogy, will be on with me and the rest of "Squawk on the Street" crew at 11:40 am Eastern.
Meritage Homes, by the way, reported blowout earnings numbers. As for the recent rise in mortgage rates, CEO Steve Hilton had this to say: "Despite the recent rise in interest rates and home prices, affordability remains excellent and demand for new homes continues to be strong in our markets, as evidenced by our pace of orders increasing over last quarter's pace and well above the second quarter of 2012."
3) Latin American IPO at NYSE: Grana y Montero (GRAM) priced 19.5 million shares at $21.13, above the 16.3 million shares expected to be floated and in the middle of the talked-about range of $19.70 – $23.30. This is the first Latin American IPO of the year: they are based in Lima, Peru, are big in construction and infrastructure (think engineering, management consulting, and real estate). There are several other Latin American IPOs in registration, including airlines.
Jones Energy (JONE), an oil and gas exploration and production company, is also going public, offering 12.5 million shares at $15, below the price talk of $17–$19.
—By CNBC's Bob Pisani