Positive Earnings with a few Surprises Buoyed the Markets Higher

For the week of Monday, April 24, 2012 through Friday, April 27, 2012

• Standard & Poor’s 500 Index: 1.80%
• Dow Jones Industrial Average: 1.53%
• NASDAQ Composite: 2.29%

The big story this week was earnings as companies’ numbers looked good. We saw a surprise in Industrials with good news from Boeing and Illinois Tool Works. In the Technology sector, Apple was so far ahead of expectations, the stock was up $50 mid week. We still see room for growth for Apple; however, at a more reasonable pace. UPS reported numbers that were consistent with economic growth. In all, earnings are up 8%, above the 6% expectations. Earnings news will continue to dominate next week. We feel that by the end of earnings season, the markets will still be ahead of expectations and the focus will be on the next quarter.

Economic Data

• Case Shiller Home Price Index:
  • Existing-home price declines softened in the three months ending in February compared to the same period in January.
    • The 10-city composite dropped 3.6% from last year, compared with a 4.1% drop last month.
    • The 20-city composite is down 3.5% over the same period, slightly better than the 3.9% drop last month.
  • However, on a seasonally adjusted basis, each composite posted modest gains:
    • 0.1% in the 10-city.
    • 0.2% in the 20-city.
• New Home Sales:
  • March new home sales fell 7.1% from the February pace to a level of 328,000.
    The Census Bureau revised February sales upward substantially.
  • The number of homes available for sale declined, and the median house price is up 6.3% year-over-year.
• Durable Goods:
  • Down significantly from February, new orders for durable manufactured goods fell 4.2% in March.
  • Excluding transportation, new orders fell 1.1%.
  • Total shipments rose 1%, while inventories were up 0.4%.
  • The details of the report were mixed with core capital orders falling 0.8%, but shipments grew 1%.
• Federal Open Market Committee Meeting:
  • During the meeting to set monetary policy, the Fed continues to view the economy as expanding moderately, since it maintained the status quo.
  • There were only a few changes to the statement acknowledging some improvement in housing, some increase in inflation, and no improvement in the global financial market.
  • The balance sheet, interest rate policy, and communication strategy remained the same.
• Jobless Claims:
  • Initial claims fell by 1,000 to 388,000 from 389,000.
  • Claims from last week were revised up from 386,000 to 389,000.
  • Continuing claims also inched higher last week.

Earnings

• Apple, Inc. (NASDAQ: AAPL)
  • Apple reported its second best quarter ever, almost doubling its net income over the year-ago quarter.
  • The record March quarter sales of iPads and Macs helped Apple post more than $39 billion in revenues, exceeding estimates by almost 20%.
  • iPhone sales were short of December’s record 37 million, but well more than the 18.7 million units sold a year ago.
  • iPad sales accounted for 11.8 million units, about 150% higher than the year-ago quarter, but 25% lower than the previous quarter.
• Aflac, Inc. (NYSE: AFL)
  • Aflac Inc. reported that investment results helped first-quarter profits to double.
  • Net income increased to $785 million, or $1.68 a share, from $389 million, or $0.83, a year earlier.
  • Operating profit, which excludes some investment results, was $1.74 a share, beating the $1.65 estimate.
  • Aflac has said it’s cutting back investments in European financial firms amid the region’s debt crisis
  • The insurer said new annualized premium sales in Japan, the company’s largest market, jumped 54%, led by deals through banks.
    • In dollar terms, new annualized premium sales were $659 million, and
    • Premium income in Japan rose 12% to $4.1 billion.
• Norfolk Southern Corp. (NYSE: NSC)
  • Norfolk Southern reported quarterly profits beat expectations, and an increase in general merchandise and intermodal revenue more than offset a drop in coal.
  • Pricing gains and fuel surcharges drove revenue higher.
  • Norfolk Southern reported net income increased to $410 million, or $1.23 per share, in the first quarter from $325 million, or $0.90 a share a year before.
• The Boeing Company (NYSE: BA)
  • Boeing reported that revenue jumped by 30% to $19.38 billion and a profit of $923 million, or $1.22 a share, up from $586 million, or $0.78 a share, a year ago.
  • Analysts expected earnings of $0.94 on revenue of $18.37 billion.
  • Operating margin rose to 8.1% from 6.7%.
  • Boeing adjusted its 2012 per-share earnings estimate to $4.15 and $4.35 to reflect a reduction in a litigation-related reserve.
• PepsiCo, Inc. (NYSE: PEP)
  • PepsiCo Inc. posted a 1% drop in profits in the first quarter compared to a year ago, as it had a price hike to make up for rising costs.
  • PepsiCo earned $1.13 billion, or $0.71 per share, for the quarter compared to $1.14 billion, or $0.71 per share, a year-ago.
  • The company says it raised prices in the latest quarter on the strength of its brands.
• Exxon Mobil Corporation (NYSE: XOM)
  • Exxon Mobil’s quarterly profit dropped 11% to $9.45 billion, or $2 a share, down from $10.65 billion, or $2.14 a share, a year ago.
  • Analysts expected Exxon Mobil to post earnings of $2.10 a share.
  • Total revenue for the quarter rose to $124.05 billion from the prior year’s $114 billion, while costs increased to nearly $107 billion from more than $95 billion.

Interest Rates

• Rates remained flat this week, as the biggest move was two basis points.
• The two-year Treasury fell one basis point to 0.26%
• The five-year Treasury held steady at 0.83%
• The 10-year Treasury dropped three basis points staying below the 2% mark for the second straight week.
• The 30-year Treasury yield fell one basis point to 3.10%, holding at its six-month average.

Disclosures:

This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.