Just jumpped into the trading world


Posted by Bob O’Brien

Earnings season continued its rehabilitative efforts successfully enough to keep alive some measure of enthusiasm for the recent rally – or at least keep fears sufficiently at bay – to allow the market to stretch its advance into a sixth consecutive week.

Citigroup (C)manifested the change in tenor about as well as any of the multiple financial institutions that reported this week, as it posted its first quarterly profit since the fourth frame of 2007, and validated the recovery expectations of the investors who pushed the stock some 400% higher from the depths of the early-March selloff, when shares could be had for the price of a bottle of Coke.

General Electric (GE) likewise gave a profit accounting that hinted that, while further challenges exist, the worst of its obstacles had been cleared – having cut its dividend and seen its credit rating toppled from the highest rank already this year – as profits came in ahead of forecasts.

The fundamental performances of companies reporting gave Wall Street enough of a tailwind to propel equity prices higher, despite some overbought conditions. The average stock in the Standard & Poor’s 500 (GSPC) is about 10% above its 50-day moving average, a key technical consideration for stock-market chart mavens; double-digit advances above those moving averages typically spark concerns that shares have become overbought.

Meanwhile, while the average rally off a bear-market low generally runs out after about 37 trading days, according to JPMorgan research, the current rally has gone on for some 39 sessions – another technical consideration.

Nevertheless, the market managed to record enough of a gain to ensure its sixth consecutive weekly advance, after the S&P rose about 1% in Friday’s trading. The index has moved more than 28% off the March 9 lows that represented, at least for now, the bottom of the bear-market cycle.

Some challenges await next week, when earnings season heads into high gear. While investors could have said they found themselves surprised by the alacrity with which corporate America has bested first-quarter targets – on average, three out of four financial companies have beaten estimates – they won’t be quite as surprised by upbeat bottom-line surprises in the coming weeks. There’s worries that a ‘’sell on the news” sort of initiative could grip the market.

Next week brings a pretty healthy dose of blue-chip figures to digest, with numbers out of Bank of America (BAC) due Monday, McDonald’s (MCD) Wednesday, andFord Motor (F) Thursday.

Hasbro Seeks To Calm Fears As Mattel Did

The commentary accompanying an earnings release from its bigger rival has shares of Hasbro (HAS) climbing the proverbial wall of worry ahead of its own results release due Monday.

Shares of the number two toymaker have climbed 6% in Friday’s trading as investors anticipate the first-quarter profit performance. Rather than pure bottom line – and Hasbro, in contrast to its bigger rival Mattel (MAT), is expected to post a profit, not a loss – Hasbro will be looked at for what it has to say about inventory levels and cost cutting, and just how it approaches what has been one of the dreariest campaigns in the toy business in years.

For the record, Hasbro is seen recording earnings of 14 cents a share on $645 million in sales, following what proved to be the industry’s worst-selling holiday season in some 40 years.

Even though Mattel recorded a loss for the comparable period – and a slightly sharper loss than had been expected, to boot – it managed to talk about efforts to bring production in line with demand, so it could avoid being left with unwanted inventory following disappointing sales periods.

Investors are going to want to hear similar commentary out of Hasbro, but will also be looking for where the company has seen opportunities – film-related toy products, for instance, have been relative outperformers – that it can exploit this year.

Bank Of America Ahead Of Earnings Looks Like JPMorgan

It wouldn’t come as completely surprising if investors register a somewhat bland reaction to the earnings out of Bank of America (BAC), out on Monday. For one thing, the stock already has mounted a pretty spectacular run, jumping some 250% off the early-March lows, outdistancing virtually every banking rival save forCitigroup (C).

Investors may also feel as though they’ve already heard the saga that BofA is going to spin, because it will sound so very much like the story that JPMorgan(JPM) related Thursday: that of a big bank that got that much bigger by acquiring a mortgage operation and a major investment banking operation.

With the purchases of the former Countrywide and Merrill Lynch operations – controversial as each has been – BofA should increase its exposure to the mortgage lending environment, which has seen a spike in activity as lending rates have declined, and from its institutional trading enterprises, now that the credit markets have unlimbered.

All told, BofA is expected to record 5 cents a share in profits for the period, though the estimates are wide enough – from a loss of 26 cents on the low end to a profit of 26 cents on the high – that some deviation from the consensus isn’t just possible, it’s likely. Most of the major banks have reported some figure that’s at least a mean or two away from the expectations. That chief executive Ken Lewis said earlier this month that the bank’s performance in March wasn’t as strong as had been the case in January and February puts another wild card into the deck ahead of BofA’s first-quarter results.

More so than its banking rivals, BofA is probably going to trade on issues associated with, but not directly linked to, its profit performance. Some analysts continued recently to insist that BofA would find itself forced to raise more capital.

And then there’s the issue of Lewis himself, who has become a light bulb for the moth of controversy over his dual chairman / chief executive role. Two major advisory bodies suggested that shareholders vote to seperate the positions, which suggests the April 29 annual meeting might have more action than the reaction to Monday’s earnings statement.

More Cautious Comments About The Prospect Of CAT Rally

Analysts have been a lot more cautious about a recovery in Caterpillar (CAT) than investors have been. Over the course of the last month, buyers dove into the stock, bidding shares up nearly 50% versus the early March lows, with most of them betting that stimulus spending and other government initiatives, here and abroad, would lift the fortunes of the capital equipment sector.

In that time, eight of the 20 analysts actively covering the company have reduced their estimates for Cat’s 2009 performance. The latest came Friday, when Credit Suisse ratcheted down its numbers for the year, saying it found dealers less optimistic about a rebound in sales next year than had previously been the case.

CS said that, based on its survey of dealers, the folks on the front line expected sales to decline 15% to 20% this year, versus previous estimates that the pullback would be on the order of 10% to 15%. Instead of a 20% sales bump next year, those dealers saw U.S. sales flat, at best, or even down 10%.

The firm cut its view on 2009 earnings to $1.25 – the Street is at $1.81, even after multiple reductions recently – and next year to $1.80, versus consensus of $1.95.

Cat shares eased 4% Friday, after having crept above $33 a share Thursday, the highest it’s traded since early February.



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