The markets were mixed this week through the close on October 28, 2010, with the Standard & Poor’s 500 Index up 0.05%, the Dow Jones Industrial Average down 0.21%, the NASDAQ up 1.13% and the Russell 2000 down 0.34%. We saw one of the bigger moves in interest rate yields this week with the two-year Treasury yielding 0.38%. The five-year, 10-year and 30-year Treasuries all had double-digit point movements yielding 1.28%, 2.69% and 4.06%, respectively.
The big news this week was again in the earnings announcements. 3M Company (NYSE: MMM) reported earnings of $1.11 billion, or $1.53 per share. Revenue growth was strong at 11%, but management revised 2010 earnings per share down, expecting $5.59 to $5.63. The news sent shares down sharply; however, we are not surprised by the news or the market’s reaction.
The Sarbanes-Oxley Act of 2002 mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud. One of the key mandates requires senior management to certify the accuracy of the reported financial statement. No matter how gangbusters earnings may be, management will always downplay forecasts for the next quarter or year because of this law. Every company is becoming a sandbagger, which is leading to mixed market performance. We feel investors need to see through lackluster guidance when evaluating stocks.
E.I. du Pont de Nemours & Company (NYSE: DD) reported net income fell less than expected at 10% to $0.40 a share. Aflac Incorporated (NYSE: AFL) reported strong sales growth in Japan, which buoyed the insurer to better-than-expected earnings. Net income of $690 million, or $1.46 per share beat analysts’ expectations of $1.39 per share. Procter & Gamble Company’s (NYSE: PG) profits fell 6.8% following the sale of a pharmaceuticals unit and higher commodity costs but P&G still managed to beat analysts’ estimates. Exxon Mobil Corp. (NYSE: XOM) income soared 55% on higher oil prices and increased production. The oil giant’s revenue increased about 16% to $95.3 billion.
Companies are averaging 28% growth with about 75% of those who have reported beating estimates. We feel this is great news for the market as we head into an exciting fourth quarter. Retailers are reportedly getting a head start on the holiday shopping season offering “Black Friday” sales before Halloween. Media outlets offered news on early Black Friday specials at Target, Wal-Mart, Toys “R” Us, Sears, Home Depot, Best Buy and Amazon.com.
Accompanying the stock market’s earnings, investors also heard good economic news. The National Association of Realtors announced that existing home sales rose 10% in September, marking the most month-over-month gain on record. New home sales also rose 6.6% over the previous month. We feel the low borrowing costs have helped stabilize the housing industry that has been plagued by foreclosures and a poor job market. However, we would still like to see some consistency from month to month.
Durable goods orders jumped 3.3%, marking its biggest rise since January, with an increase in non-defense aircraft and aircraft parts orders. New civilian aircraft-related orders more than doubled to $12.85 billion. We have stated before that companies are sitting on a lot of cash, so we suspect this is largely business jets and corporate aircraft purchases.