Year-to-date on Friday, January 28, 2011, the Standard & Poor’s 500 Index is up 1.49%; the Dow Jones Industrial Average is up 2.13% and the NASDAQ is up 1.28%; however, the markets moved significantly lower on Friday on news of the riots in Egypt aimed at a political overthrow. We projected 1495 for the S&P in 2011, and while we are well below that, the S&P did close at 1300, and the Dow broke 12,000 during the week of January 24, 2011. We are also in the middle of earnings season. On January 1st, first quarter earnings projections were to be up 31.9% and mid way through, companies are averaging projections of 34.6% growth.
Earnings essentially drive the stock market. Companies that miss by a penny will fall, and companies that beat by a few cents get little reaction. A company has to beat estimates by a lot to really see some movement. It has only been in recent years that lower guidance or downgrades from ratings agencies have had so much impact on a stock’s price. This is because the markets understand that companies are more conservative when reporting guidance because of the laws that hold management accountable.
On Monday, McDonald’s Corp. (NYSE: MCD) reported net income was $1.24 billion, or $1.16 a share, on revenue of $6.21 billion, meeting analysts’ expectations. Recovering from more than a year of embarrassing recalls—17 in total—Johnson & Johnson (NYSE: JNJ) reported Tuesday earnings fell 12% to $1.94 billion or $0.70 a share. Johnson & Johnson’s revenues were also down about 5.5% from a year ago. Ongoing costs of recalls and overall health care costs could continue to pressure the company’s earnings. In Wednesday’s earnings announcements, The Boeing Company’s (NYSE: BA) shares tumbled to a five-month low as the company reported profit declined 8.2%. The company reported profit of $1.16 billion or $1.56 a share, down from $1.27 billion, or $1.75 a share. While management said the company plans to deliver 485 to 500 airliners in 2011, the stock’s shares still ended down for the day. QUALCOMM, Inc. (NASDAQ: QCOM) reported earnings surged 39% driven by growing global demand for smartphones and tablets that run on high-speed data networks. Revenue grew 25% to $3.35 billion, beating analysts’ expectations of $3.2 billion. Procter & Gamble (NYSE: PG) reported Thursday the company earned $1.13 a share, beating expectations of $1.10 a share.
Overall, we see the economy as strong. As the economy gets stronger, people begin to feel more confident in their jobs. We have seen reports showing payrolls are up, income is up and spending is also up. Unemployment remains the only weakness. Initial jobless claims for the week jumped by 51,000, but we feel the jump is likely weather related. Also, seasonal adjustment issues may have contributed to the much larger than anticipated gain in initial claims. Continuing claims rose by 94,000. All told, this is a disappointing report, but we do not feel it accurately reflects the health of the labor market.
Interest rates remained fairly flat for the week with the 10-year Treasury yielding 3.41% on Thursday.