Futures trading up as Motorola beat expectations and guided upward while EMC was in line and both are up nicely pre-open. There's strength in Europe, strength in Asia, third Quarter GDP in China rose 11.5%. That was in line with expectations. Chinese stocks are the only major market down in Asia, down 5%, probably on worries that more rate hikes are likely.
The market seems to be placing a lot of faith in a Fed rate cut. Lowry's has noted that over the past three sessions, the Dow Industrials has gained 50, 53 and 68 points, respectively, in the final hour of trading. Though Motorola projected earnings above expectations (the magic word), there is clearly weakness in the cell phone business, as business continues to go to large-margin lines.
On the negative side, the weakness in Q4 continues to be in financials and consumer discretionary (retail, autos, and home builders):
1) Home builders Ryland and Pulte reported huge losses. Ryland, as many expected, took a huge loss on inventory valuation and adjustments (in other words, they wrote off or wrote down the value of land and houses they owned). Excluding the inventory valuation adjustments and writeoffs, they would have earned $0.46 a share. While new orders dropped 21% from a year ago, the inventory of unsold houses also declined 30% from a year ago.
2) Analysts now predict financial stocks as a whole will record an increase of only 3.0% in profits in the fourth quarter; at the beginning of the month the estimate was 7.0%. The problem? Analysts are bringing down estimates for the big guys--Citi, Bank of America, Washington Mutual , Merrill. It's quite possible the total estimate could go negative.
--The U.S. down/international up story still strong. Look at Black and Decker : sales in almost every part of their North American operations decreased... but the European business posted a double-digit sales increase. Sales also increased double digits in Latin American and Asia. As a result, they beat expectations. They say the do not expect near-term improvement in the U.S. housing industry or a particularly robust holiday season. Still, they raise their full year guidance.
--Cummins , known for its truck engines, gave earnings and guidance below expectations. Though they blamed the weakness on changes related to emission regulations, the miss was a surprise to the Street; down 9% pro-open. Cummins still has 50% of its sales in the U.S.
--Bank of America down as it forced out the head of its investment banking unit; like Merrill , they are likely shrinking parts of their operations. The move includes a strategic review of what businesses they want to be in;but first up is elimination about 3,000 jobs.They recently reported huge trading losses.
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