Following the uncomfortable reminder from the S&P yesterday about the nation’s financial health, stocks will likely go back to ‘normal’ behavior today. Helping the market shift its focus is positive earnings reports from two major firms and a better than expected housing report. The overall positive tone of the day’s news flow should help stocks claw back some of the losses from Monday.
On the busy earnings calendar this morning, we got upbeat reports from two key blue-chip operators, Goldman Sachs (GS) and Johnson & Johnson (JNJ). We have Intel (INTC) and IBM reporting after the close today.
Goldman came out ahead on both EPS and revenue, dispelling apprehensions that the Wall Street titan’s fall in the global M&A league tables had minimal impact on earnings. Offsetting the deal-making ‘softness’ was trading strength, which came in much more stronger than expected.
JNJ beat EPS and revenue expectations and guided higher for the remainder of the year. The firm is in the news currently with its $20 billion deal to purchase Swiss orthopedics specialist, Synthes.
Among the day’s other earnings reports, the trust banks had mixed results, with Northern Trust (NTRS) and Bank of New York Mellon (BK) missing and State Street (STT) coming out ahead. Harley-Davidson (HOG) came up short, despite ample contribution from its financial services division. And coal producer, Peabody Energy (BTU), beat EPS and revenue expectations.
Housing Starts and Building Permits for March came out better than expected, reversing the negative momentum of the last few months. Housing Starts fell to their lowest level in over two years in February, with permits falling to an almost five decade low. The current level of construction is roughly half of the level considered normal for the U.S. housing market and is roughly 75% below the peak level in January 2006. The weak housing starts numbers have remained a major drag on the economic recovery, a trend that will remain in place going forward despite today’s favorable report.
The market’s reaction to yesterday’s rating agency call may serve a useful service if it nudges Washington to move beyond mere posturing and start taking concrete actions. We will have to wait and see if that will materialize. But today’s reports, both on the earnings as well as housing fronts, provide plenty of resaons for stocks to feel good about.