Sell The News

Sell the news, even when it's better than expected. Goldman Sachs beat expectationsby a wide margin: $4.93 diluted earnings per share GAAP vs. analyst expectations of $3.54 (this includes the TARP expense). Bear in mind that: 1) the range of analyst estimates was $2.82 to $4.65 (!), and 2) the stock was up 5 percent yesterday on the Meredith Whitney upgrade.

Revenue strength of $13.76 billion well above First Call expectations of $10.66 billion.

Equity trading, debt and underwriting was strong, but fixed income trading was at a record level.

Will anyone else post Goldman-style numbers? The Street does not believe it: Goldman has outperformed its peers since the November and March bottoms in the market.


1) Shares of Johnson & Johnson up 1 percent pre-open after beating estimates. The healthcare giant saw its U.S. sales fall 6.7 percent and international sales decline 8 percent, primarily due to a 13 percent drop in pharmaceutical sales and the negative impact of the weaker dollar. The Dow component also reaffirmed full-year guidance of $4.45-$4.55, inline with estimates of $4.51.

2) CSX up 1 percent ahead of the open following a better-than-expected Q2 report. The earnings beat was significantly helped by the railroad company's ability to cut costs by 27 percent (!), offsetting the 24 percent decline in revenues due to lower traffic.

Railroads have been hit especially hard by weak demand in the current economic slowdown. Indicative of this are CSX's ugly volumes - freight volumes were down 21 percent, coal and chemical shipments dropped 20 percent, and metal shipments plunged 53 percent!

3) Shares of CIT Group are rising 22 percent after shares dropped 12 percent yesterday. The rebound comes on hopes that the government will indeed step in and help the commercial lender's near-term liquidity crisis, staving off a potential bankruptcy protection. Standard and Poor's also cut its credit rating to highly speculative, citing in part its failure to get government-guaranteed funding.

4) The stimulus package will not be televised. Martin Marietta, the second largest producer (after Vulcan Materials) of granite, stone, and other materials for highway, commercial and residential construction, down 3 percent pre-open as they provided full year earnings guidance of to $2.70-$3.30, well below consensus estimate of $3.55.

The culprits:

a) a weaker-than-expected recovery in the US economy;

b) a marked decrease in transportation infrastructure spending resulting from a decline in state revenues and a longer-than-expected delay in federal stimulus projects moving to the construction stage; and

c) an adverse weather-affected H1 of the year.

5) Video game developer Take-Two Interactive is down 11 percent pre-open after slashing its second half earnings and revenue forecasts. The revision is attributed to a slump in sales of catalog and new release games and the postponement of the launch.



Questions? Comments?