EmailIt was a rough start to the week for the equity market, which dropped 1.9% after Germany told participants not to expect a grand solution for Europe's debt problems to be announced this weekend.
The admonition was understandable. Europe's debt crisis wasn't built in a week and it certainly won't be cured in a week. There are too many moving parts and too many political opinions for that to happen; nonetheless, the fallout yesterday made it apparent that the market's faith in European leadership has once again been shaken.
While there is still hope Europe will do the right thing, the lesson of yesterday was that nothing can be taken for granted as a done deal in the eurozone until Germany, first, says it is a done deal and all other relevant parties concur with that view.
The market's confidence was not restored overnight either. A Moody's warning that it could put a negative outlook on France's Aaa credit rating in the next several months, weaker-than-expected Q3 GDP growth in China (9.1%), and a disappointing investor sentiment survey in Germany all weighed on foreign averages.
IBM's (IBM) inability to "wow" investors with its latest earnings results (which were good, just not great for a stock that has gained about 20% in the last two months) also put a damper on things.
The earnings reports this morning haven't moved the needle much either, perhaps because there is a lot to sort through to get a good read on where things stand. That is especially true in the case of Goldman Sachs (GS) and Bank of America (BAC).
The former company reported a loss of $0.84 per share and missed the Capital IQ consensus estimate by $0.68, yet its stock is trading modestly higher in pre-market action (the results were bad, but with the stock down 28% since the end of July, that appears to have been expected).
Bank of America reported a profit of $0.56 per share that was driven by a number of special items that has made it difficult to determine the comparability to the Capital IQ consensus estimate of $0.22. Still, it is trading modestly higher in pre-market action, too.
Coca-Cola (KO), Johnson & Johnson (JNJ), UnitedHealth (UNH), EMC Corp. (EMC) and Parker Hannifin (PH) all topped the Capital IQ consensus earnings estimate with their reports, which has offered a measure of support for the broader market.
Separately, the September PPI report created a headline shocker as it showed a 0.8% increase in producer prices (Briefing.com consensus +0.2%). That headline shock soon wore off, though, on the realization that a spike in energy costs, which had more to do with the timing of when the BLS conducted its survey than anything else, accounted for the bulk of the increase.
Excluding food and energy, core prices rose 0.2% (Briefing.com consensus +0.1%). One-third of that advance was attributed to prices for light motor trucks, which jumped 0.6%.
With a lot of information to digest this morning on various fronts, the S&P futures are little changed at the moment and the cash market is on track for a slightly lower open. As a reminder, Fed Chairman Bernanke will be giving a speech at 1:15 p.m. ET at the Boston Fed conference that deals with the long-term effects of the Great Recession. As always, the market will be listineing intently to his remarks.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
