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The flood of corporate earnings reports just keeps on coming — and that has major implications for your wealth.
Let’s start with the good news. Apple (AAPL, Weiss Ratings: A-) blew it out, beating earnings and sales forecasts amid strong demand for its new iPhone 6. The company sold 39.3 million iPhones in the quarter, more than the 38 million investors were expecting.
That helped offset any concern over falling iPad sales. As a result, several analysts raised price targets and growth forecasts in the wake of the news. That helped send Apple shares very close to an all-time high.
But other household name companies couldn’t get things done. Take Coca-Cola (KO, Weiss Ratings: B). Net profit dropped 14 percent to $2.11 billion from $2.45 billion, while sales of $11.98 billion missed the average forecast of $12.14 billion.
Coke announced plans to shave costs by $3 billion annually over the next five years. But frankly, with overall volumes flat to down around the world and consumers increasingly turning away from high-sugar carbonated beverages, the company’s promises are coming up empty for investors.
|McDonald’s global comparable store sales fell 3.3 percent in Q3 … worse than the 2.9 percent decline expected.|
McDonald’s (MCD, Weiss Ratings: B-) was another major disappointment. Its third-quarter profits plunged 30 percent to $1.07 billion, or $1.09 a share, from $1.52 billion, or $1.52 a share, in the year-earlier period. Worldwide sales fell 3.3 percent, a sign the company is continuing to struggle against competitors that offer food perceived to be fresher and healthier.
So is there a broader message here?
Well, it looks like some of the biggest multinationals out there are having trouble generating strong growth in a slowing world economy. Great marketing and in-demand new products can help companies like Apple offset that. But when you have huge household-name companies like McDonald’s, Coke, Wal-Mart and IBM all struggling, I think it’s another reason to be a bit more cautious with your investing strategy.
|“It looks like some of the biggest multinationals out there are having trouble.”|
But that’s enough from me. What’s your take here? Is Apple signaling an “all clear” for stocks heading into year end? Or is the news from the likes of Coke and Mickey D’s saying something else entirely? Do you believe the overall earnings season will be a strong one? Or are the problems in overseas economies going to offset any strength Corporate America is benefitting from here?
You know the drill: Jump on to the comment section to get the discussion going. Here’s the link.
|Our Readers Speak|
What will earnings mean for stock prices? What about the Fed or the ECB? Lots of you sounded off on those topics over at the website.
Reader Sir2 said: “People who bad mouth the Fed should look at some facts … The U.S. economy is growing; whereas, Europe, that tried austerity, is falling into recession.”
Sorry to disagree there, but I believe QE here in the U.S. didn’t contribute much to the “real” economy at all (even if it did help inflate asset prices). We have been recovering in spite of — not because of — the Fed’s QE policies.
Meanwhile, Reader Fred offered up the following on the connection between earnings and stock prices: “Earnings hits and misses do not correlate well historically with the stock market going up … or down. This whole concept is a HUGE canard yet the talking heads at CNBC and other such outlets keep carrying on as if it is gospel. If you chart both activities over long periods of time, you will have a lot of trouble trying to make any such connection.”
Fred, I believe earnings are important for many individual stocks — witness some of the huge post-earnings moves we’ve seen already this quarterly reporting season.
When it comes to the market as a whole, I think earnings go into the pricing equation along with several other inputs. That makes it hard to isolate whether stocks rose in a given quarter or year because of earnings growth, interest rate policy, geopolitical developments, or one of any number of other factors.
Speaking of other factors, there’s plenty of skepticism about the recent bounce in stocks — not to mention the overall trend in stocks the past few years.
Reader Dale K. said: “What we’re seeing is a bounce on its way up with no real legs. It will bring in a very harsh downturn, a true correction. “
And Reader Mike added: “We do not have free markets, just interventions by the central banks and government propaganda instead of legitimate financial reporting. While one can make some money in this Ponzi scheme, you need to drink a gallon of Maalox!”
Yes, judging from the last few weeks, I’d bet sales of heavy-duty antacids are going strong at Duane Reade outlets near the NYSE! So keep those suggestions and market insights of yours coming here!
|Other Developments of the Day|
First it was asset backed bonds. Then covered bonds. Now rumors are flying that the European Central Bank will buy corporate bonds.
The stated goal: To boost the European economy. What it will really accomplish: Nothing for the real economy, just like every other hair-brained scheme out of Europe. But it did help spike stock futures in the early morning hours.
Is the gub-mint going to make it easier for borrowers to get mortgages … again? Plans appear to be in the works, according to the New York Times.
The paper reported that the Federal Housing Finance Agency wants to ease requirements that force banks to buy back bad loans they’ve sold to Fannie Mae and Freddie Mac in the event of default. The FHFA is also discussing a new plan that would permit buyer down payments of as little as 3 percent.
The battle against ISIS continues in both Iraq and Syria. Militants are set on wiping out Yazidi resistance in Iraq, and taking over Ramadi, the regional capital of Iraq’s Anbar province. That could open the door for a move on parts of Baghdad.
Until next time,
P.S. Time is almost up to enroll in Martin’s FREE Retirement Course! Make sure to click this link before midnight tonight! He will be presenting the first module tomorrow at 2 PM Eastern Time!