For the week of October 18, 2010, through the close of the market Thursday, the Standard & Poor’s 500 was up 0.35%, while the Dow Jones Industrial Average was up 0.76%. The NASDAQ and The Russell 2000 were both down, 0.37% and 0.71%, respectively.
Strong earnings lead the news this week. McDonald’s Corp. (NYSE: MCD) beat analysts’ expectations for earnings. The chain’s third-quarter net income rose 10%, or $1.29 a share. Global same-store sales rose 6.1% in September, handily beating analysts’ expectations of 3.8%.
Wells Fargo & Company (NYSE: WFC) reported a record third-quarter profit, which sent the financial stock up more than 4% on the news. The bank’s net income inched 4.4% higher to $3.34 billion. Revenue, however, fell 7.1%. Looking deeper into the earnings report, management said they had a 13% increase from community banking and a 2% increase in wholesale banking. Their net charge-offs declined 9%.
We also heard good news from America’s largest exporter, The Boeing Company (NYSE: BA), who announced net income of $1.12 a share. Boeing shipped more 737s and 777s countering delays on the 787 Dreamliner and their 747-8 jumbo jet. Management said full-year earnings will more than double, which sent shares of the stock up more than 3% on Wednesday.
Wall Street darling, Apple, Inc. (NASDAQ: AAPL), reported earnings soared 70% from the previous year and beat analysts’ expectations by 13%. The iPhone was the biggest winner, as the company sold nearly twice as many as the year before. However, the 4.2 million iPads sold were shy of the expected 4.8 million. While most of Apple’s numbers were fantastic, the weak iPad sales, conservative guidance and lower-than-expected margins pushed the stock 2.7% lower.
In the healthcare sector, UnitedHealth Group, Inc. (NYSE: UNH) reported their third-quarter profit jumped 23% from revenue on rising premiums. Earnings per share for the healthcare company came in at $1.14, beating expectations of $0.84 per share. While UNH raised its 2010 guidance for the third time this year, shares still fell 2.6%. Johnson & Johnson (NYSE: JNJ) reported net income only rose 2%. JNJ’s earnings per share beat expectations by 7%, but revenue missed by nearly 2%. The reason for missing expectations likely was due to consumer product recalls and slowed sales of medical devices. A lower tax rate can partially be attributed to the better-than-expected profit.
Overall, 83% of companies have beaten earnings of those who have reported, with a surprise factor of 9.3%. The biggest surprises have come from the Energy, Healthcare, Consumer Discretionary and Industrial sectors. The S&P 500 looks to be trading at 12.5 times earnings, so we find the market cheap. The earnings news bodes well for stocks and the markets.
Interest rates fell again this week when the two-year and five-year Treasuries hit all-time lows on Wednesday, yielding 0.34% and 1.10%, respectively. The 10-year Treasury was yielding 2.55% and the 30-year was yielding 3.96 % at the close of Thursday. Falling rates are believed to have been caused by the Federal Reserve’s quantitative easing efforts.
In economic news, jobless claims plunged by 23,000, which was more than triple the 7,000 drop economists expected. The Fed’s Beige Book indicated Wednesday that the economic recovery growth was “modest.” Manufacturing continues to be a crutch, but housing is still weak. Consumer spending remains restrained and hiring is limited. Home construction unexpectedly rose in September by 0.3%, when economists predicted housing starts would fall 4.2% with the weak job market. Ugly news came from the industrial production numbers, indicating output fell 0.2% in September, the worst decline since June 2009. Manufacturing output declined 0.2%. Utility output and capacity utilization also showed large declines.
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