Weekly Market Report 07-15-2005

S&P 500 Index reaches a four year high

By Rick Paler


The market had a great performance this week. The S&P 500 saw a seven day rally and closed at a four year high. The Dow Jones Industrial Index closed at a four month high and the NASDQ closed at its best levels this year.

Several factors have contributed to the positive returns. Economic conditions are good, inflation continues to be a non-issue, corporate earnings remain strong and a flat bond yield curve combined with low interest rates have made stocks more attractive.

Second quarter earnings season is now in full bloom. To date the second quarter appears as if it will not disappoint. Wall Street analysts are estimating that the year-over-year earnings growth for the S&P 500 will now come in at 7.5%. But based about my experience I believe that the 7.5% growth estimate is a little low. The trend is that the street has been underestimating earnings growth. I would not be surprised if the S&P 500 post earnings growth more towards 9% or more. In the next few weeks earnings reports from key bellwether stocks will give better incite. This might just be the beginning of a strong bull rally.

This week Apple Computer (AAPL) reported that their second quarter revenues grew to $3.52 billion up 75%. Earnings beat the streets estimates of only $0.31 per share, coming in at $0.37 per share. Strong sales if iPod’s and PC’s continue at the company.

General Electric (GE) reported that earnings came in at $0.44 per share matching estimates. All of the company’s eleven units showed double-digit growth. The company also raised their full year guidance to a $1.80 - $1.83 range.

UnitedHealth Group (UNH) posted earnings of $0.61 per share up 36% from the year-ago period beating analysts’ estimates. Revenues grew 28% to $11.11 billion. The company also gave future guidance stating that they expected next quarter’s earnings to come in at $0.63 per share and full year earnings of $2.46 per share. The company also stated “We expect to continue to drive substantive gains in 2006, with earnings per share up at least 15%, excluding any contributions from the recently announced merger with PacifiCare.”

BB&T Corp (BBT) reported that their second quarter net fell 3.3% on an accounting adjustment. Earnings per share at the bank holding company came in at $0.70 per share. Excluding the adjustment earnings were $0.75 per share, which matched the streets estimate.

PepsiCo (PEP) reported a strong quarter with earnings easily beating analyst’s estimates of $0.67 per share. The drink and snack company earned $0.70 per share. They also gave full year guidance of $2.56 to $2.59 per share.

In economic news, several reports were released and each report indicated that the economy continues to be strong. The May trade deficit, unexpectedly fell to $55.3 billion. This was due to lower energy prices and strong U.S. exports.

Both the June CPI and PPI a key measurement of inflation came in better than expected. The reports indicated that inflation is well under control. Additionally the June industrial production hit record levels and the July New York Empire Manufacturing Index rose to the best levels this year. The University of Michigan Consumer Confidence hit the highest level since December 2004 coming in at 96.5

The bond yield cure continues to be flat, difference between the 5 year Treasury note and 30 year Treasury bond is less than one half of one percent.. This week the 5 year Treasury note closed yielding 3.96%. The 10 year noted yielded 4.17% and the closing yield on the 30 year bond was 4.41%.

Next week traders will be fixated on earnings and hurricanes. The hurricane season appears as though it will be worse than expected. If this is true it has the potential to hurt the oil sector and help the building sector.

Next week, companies releasing earnings that will be of interest are 3M Company (MMM), Bank of America (BAC), Citigroup (C), Amgen (AMGN), Ford Motor Company (F), Intel (INTC), Johnson & Johnson (JNJ), Motorola (MOT), US Bancorp (USB), Wachovia (WB), Well Fargo (WFC), Yahoo Inc. (YHOO), eBay (EBAY), Pfizer (PFE), Qualcomm (QCOM), Autoliv (ALV), D.R. Horton (DHI), Google (GOOG), Microsoft (MSFT), Nokia (NOK), Coca-Cola (KO), and Fortune Brands (FO).