Morning Trades—After Dow 10K

Buy the rumor...sell the...Goldman Sachs down 3 percent pre-open, S&P 500 futures dropped 10 points right after Goldman reported earnings far better than expectations ($5.25 vs. $4.24). Even topline was better than consensus: $12.37 billion vs. $11.02 billion.

How did Goldman beat by such a wide margin? There appears to be two factors:

1) big gains corporate and real estate principal investments ($911 million); and

2) they paid less salary relative to their revenues: the ratio of compensation to revenues dipped to 43%, compared to 48% in the last quarter.

Trading remained strong: even though Fixed Income, Currency and Commodities (FICC) made less than the second quarter, it still generated $6 billion in revenues, about half the total.

The investment banking backlog "increased significantly."

Early read on earnings: most companies are beating earnings expectations, banks in particularly are beating by a wide margin, while topline growth is a bit more modest. Peter Boockvar at Miller Tabak estimates that 18 of 20 companies have beat earnings estimates while only 10 have exceeded revenue estimates.


1) futures came off their lows at 8:30 AM; several economic indicators were released, but the Empire Manufacturing number came in at twice the expectation: 34.57 vs. 17.25 consensus.

2) Citigroup down 2 percent reported a loss of $0.27 (includes items related to its exchange offer and preferred stock dividends) vs. consensus of a loss of $0.38, revenues slightly above consensus: $20.4 billion topline vs. $20.04 b consensus).

3) While everyone was obsessing on Goldman and Citi, cell phone giant Nokia is down 9 percent pre-open reported earnings and sales well below expectations. They said there were some positive signs but the global consumer spending outlook for next year is uncertain.

4) On Monday Pier One gave some hope that the retail environment may be turning around amid improved traffic and margins at its stores.


Echoing that commentary this morning are comments from DSW, which is soaring 10 percent pre-open. The shoe retailer now sees a 6 percent to 8 percent rise in Q3 same store-sales on improved customer traffic. In addition to the sales pickup, the retailer sees higher margins, enabling it to significantly raise its full-year earnings guidance to $0.70-$0.80 from $0.37-$0.45.

It does, however, remain "cautious in its expectations for the fourth quarter as it expects the economic environment to remain challenging."

5) Harley-Davidson down 6 percent after missing estimates ($0.11 vs. $0.21 est.) on lower margins. While motorcycle sales continued to post a steep year-over-year drop of 21 percent in the third quarter, that was better than the 30 percent drop in Q2 sales.

The motorcycle manufacturer expects to ship 222,000-227,000 motorcycles in 2009, at the high end of its lowered guidance issued at the end of the second quarter.



Questions? Comments?