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Earnings season continued at a torrid pace, with large cap stocks beating on revenues and/or earnings per share. The EU finalized a bailout plan, and reports seem encouraging that Congress will reach a budget deal soon.
We’ve had to suffer through a perfect storm of bad news since May. Now, we seem to be getting a perfect storm of good news. Even the most recent housing construction data was better than expected.
Unemployment, however, continues to lag. And as we’ve discussed at length, there’s no reason to expect hiring to improve significantly, especially with spending cuts coming at the federal level.
Corporate earnings have been driven by emerging markets. Anytime you hear that a company beats expectations, you can bet that overseas sales were a big reason why. So it’s somewhat ironic that Caterpillar (NYSE:CAT) missed earnings estimates because of weakness in Japan.
After all, Caterpillar is the very epitome of a company that benefits from emerging market growth. Demand from China and higher commodity prices have led to incredible demand for Caterpillar’s machines.
Caterpillar didn’t miss by much. Before charges related to the Bucyrus acquisition, it reported $1.72 a share when expectations were for $1.75. It’s not the end of the world: Caterpillar also raised full year profit guidance.
I would view this morning’s weakness for Caterpillar shares as a temporary event.
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Stocks have been on a tear since the June 26-27 lows. The S&P 500 has jumped nearly 100 points in three weeks. I won’t be surprised to see stocks take a breather, but I also won’t be surprised to see new 52-week highs before the end of August.
In fact, I’ll be surprised if we don’t.
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I don’t know if you caught the news from American Airlines (NYSE:AMR) that it’s about to buy 460 new airplanes for $38.5 billion. This may seem like a radical move for a company that doesn’t make much money. But one of the reasons American Airlines doesn’t make much money is high fuel prices.
The main reason for buying all these new planes is that they are more fuel efficient. I love the fact that even though business is tough AMR is actively investing in its future.
I sure wish this type of attitude were more prevalent in Congress. Simply cutting spending does not set America up for success. There needs to be investment that encourages growth and innovation. And when things look bleak is the absolute perfect time to do it. Jason Cimpl of TradeMaster had a great comment in his morning commentary about what he thinks the government needs to do in the future, HERE.
Congress would do well to pay attention to how businesses react when they face threats.
As always, feel free to write me anytime at [email protected].