Trader Talk

Stocks Are Popping and Here's Why

The trend continues: earnings beat, but revenues light. But that's good enough: stock futures are popping on the news.

Why? Two reasons:

1) guidance for the big companies are, for the most part, in-line or above expectations.

2) it's all about stabilization. United Technologies summed up the whole raison d'etre for the current rally: "The year over year rate of decline in orders across the business appears to have stabilized, although orders remain lower than previously anticipated."

Major earnings:

1) Caterpillar up 11 percent pre-open as they reported earnings of $0.72, well ahead of expectations of $0.22, but topline of $7.25 billion was well below expectations of $8.86 billion. As for guidance, well, you could drive a backhoe through this one: $1.15 to $2.25 vs. First Call consensus of $1.02, but the high end of the guidance is, well, up there.

Stock futures popped 2 or 3 points on the Caterpillar earnings; Deere also trading up 3 percent.

2) United Technologiesbeat on bottom line, made it clear it was due to cost cutting, but revenues of $13.2 billion were also below consensus of $13.92 billion. Full year guidance of $4.00-$4.20 is close to consensus of $4.07 but topline growth of $53 billion for the full year is below expectations.

3) Dupont's of consensus expectations, but again topline of $6.86 billion was below First Call estimates of $7.15 billion. They did affirm 2009 guidance ($1.70 to $2.10, vs. First Call estimates of $1.71), and said cost reduction efforts were paying off.

4) Coca-Colaalso beat on bottom line, but revenues of $8.27 billion was below expectations of $8.66 billion.

5) Merck was the exception, beating on top and bottom line.

6) In a much-discussed editorial in the WSJ this morning, Ben Bernankesaid "We are confident we have the necessary tools to withdraw policy accomodation, when that becomes appropriate, in a smooth and timely manner."

7) Back-to-school spending will fall by 8.5 percent to 12 percent this year, according to a survey by America's Research Group and UBS. In total, 34.4 percent of parents surveyed said they plan to spend less this year than last year. Concern over job security, higher debt and dwindling income were pinpointed as the main reasons for cutting back. The back-to-school season is one of the key shopping seasons, and is usually seen as a harbinger for spending during the Christmas holiday season. In 2008, back-to-school spending was off about 5% year over year.



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