Morning Market Update

Mixed Morning Amid Flood of Earnings

Stocks are mixed in morning trading with the Dow and S&P both nearly unchanged, while much stronger-than-expected earnings from Apple Inc. are buoying the tech sector and the Nasdaq is trading nicely higher. The Dow is flat despite better-than-expected earnings from members, Boeing Co., AT&T Inc., McDonald’s Corp, and United Technologies Corp., but some of the revenue figures were softer than analysts anticipated. Financials earnings are also in the spotlight, with Wells Fargo & Co. and Morgan Stanley both exceeding the Street’s bottom-line figures. In other earnings news, Yahoo Inc. announced earnings above the Street’s forecast but its revenues were a bit short of expectations. Treasuries are mixed in early action after mortgage applications rose. Overseas, Asia was higher on optimism in the tech sector, while Europe is under pressure on weakness in financials and materials.

As of 8:53 a.m. ET, the June S&P 500 Index Globex future is at fair value, the Nasdaq 100 Index is 11 points above fair value, and the DJIA is near fair value. Crude oil is down $0.04 at $83.81 per barrel, and the Bloomberg gold spot price is down $0.95 at $1,139.80 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is up 0.2% to 81.19.

Apple Inc. (AAPL $245) reported fiscal 2Q EPS of $3.33, well above the $2.46 consensus of Wall Street analysts, with revenues surging almost 50% year-over-year (y/y) to $13.5 billion, compared to the $12.1 billion that the Street was looking for. The company sold 8.75 million iPhones in the quarter, up 131% y/y, 10.89 million iPods, a 1% y/y increase, and 2.94 million Mac computers, a 33% unit increase y/y. The company said it expects 3Q revenue to be between $13.0-13.4 billion, and EPS in a range of $2.28-2.39. The Street is forecasting 3Q revenues of $13.1 billion and EPS of $2.70.

Dow member Boeing Co. (BA $71 ¹) reported 1Q EPS of $0.70, compared to $0.63 that analysts were forecasting, with revenues declining 8% y/y to $15.2 billion, roughly inline with the Street’s forecast. BA said it expects full-year EPS to be between $3.50-3.80, including the previously disclosed $0.20 per share charge related to healthcare legislation. Analysts are expecting the company to post full-year EPS of $3.83.

Fellow Dow member AT&T Inc. (T $27) announced 1Q EPS ex-items of $0.59, above the $0.54 that was forecasted by analysts, with revenues coming in mostly flat y/y at $30.6 billion, just shy of the $30.7 billion that the Street was anticipating. The company posted a 1.9 million net gain in total wireless subscribers, with a 3.3 million net increase in 3G postpaid integrated wireless devices on it network, and a 255,000 net increase in wireline broadband connections.

Meanwhile, McDonald’s Corp. (MCD $70) posted 1Q earnings ex-items of $1.03 per share, compared to the $0.96 per share that analysts were anticipating, with revenues increasing 10% y/y to $5.6 billion, above the $5.5 billion that the Street had forecasted. Global same-store sales—sales at stores open at least thirteen months—at the Dow component rose 4.2%, led by gains in Europe of 5.2% and 5.7% in Asia/Pacific Middle East and Africa, while its US sales increased 1.5%.

Rounding out the day for the Dow, United Technologies Corp. (UTX $74) posted 1Q profits ex-items of $0.98, eight cents above the estimate of analysts, with revenues declining 1% y/y to $12.1 billion, versus the $12.3 billion that had been expected.

Morgan Stanley (MS $30) announced 1Q EPS of $1.03, much higher than the $0.58 that analysts were expecting, with net revenues jumping from $2.9 billion to $9.1 billion, compared to the $8.0 billion that was expected.

Wells Fargo & Co. (WFC $34) reported 1Q EPS ex-items of $0.50, above the $0.42 that was forecasted on the Street, with revenues increasing 2% y/y to $21.4 billion, which was shy of the $21.8 billion that the Street forecasted.

Yahoo Inc. (YHOO $18) 1Q EPS ex-items of $0.15, six cents above the forecast of analysts, with revenues after traffic acquisition costs declining 2.6% y/y to $1.1 billion, short of the $1.2 billion that was anticipated.

Mortgage applications rise to highlight short economic docket

The lone release on today’s economic calendar was the US MBA Mortgage Application Index, increasing 13.6% last week, after the index, which can be quite volatile on a week-to-week basis, fell 9.6% in the previous week. The advance came amid a 15.8% jump in the Refinance Index, and a 10.1% gain in the Purchase Index. Moreover, the increase in the overall index came on a 14 basis-point decrease in the average 30-year mortgage rate, which fell to 5.04%, remaining above the record low of 4.61% that was reached at the end of March 2009. Treasuries are mixed in morning action.

Europe giving back some of yesterday’s solid gains

Stocks in Europe are under pressure in afternoon action, following yesterday’s solid advance, led by weakness in basic materials after mining firm BHP Billiton (BHP $79) announced a weaker-than-forecasted iron ore output report and said it had uncovered possible violations of anti-corruption laws. BHP said it is conducting an internal investigation and is cooperating with the relevant authorities. The company added that at this time it is not possible to predict the scope or duration of the investigation or its likely outcome. Financials are also among the largest decliners across the pond, as talks between debt-ridden Greece and officials from the EU, European Central Bank, and the International Monetary Fund (IMF) to discuss conditions that would allow the nation to tap into the recently agreed upon 45 billion euro financial rescue package. Greece has been trying to raise sufficient capital in the open markets, but soaring rates that it has to pay to entice market participants have caused some uneasiness and if Greece can not adequately fund its capital need in the open market, the aforementioned fund will need to be used. Per Bloomberg News, the Greek Finance Minister said, “There is no chance that Greece will be left hanging in the month of May, whether borrowing from the market or borrowing from our partners,” adding that the talks could take more than 10 days. However, strength in technology issues on favorable earnings in the US and Asia, and as the airline industry begins to get back to normal following the massive travel disruption from the ash clouds of the Icelandic volcano are helping limit some of the losses in the euro-zone.

On the economic front, UK jobless claims fell by 32,900 in March, compared to the decline of 10,000 that economists’ surveyed by Bloomberg had forecasted, and the minutes from the last Bank of England monetary policy meeting showed policymakers voted unanimously to keep its main lending rate unchanged at a record low of 0.5%, while keeping its bond purchase program on hold.

The UK FTSE 100 Index is 0.9% lower, France’s CAC-40 Index is down 0.7%, Germany’s DAX Index is off 0.2%, and Greece’s Athex Composite Index is declining 1.4%.

Asia mostly higher amid tech strength

Stocks in Asia finished mostly higher, with major equity markets in Japan, Taiwan, South Korea, all posting solid gains of over 1% as technology issues—aided by Apple Inc’s better-than-expected earnings in the US—led the way. Also, Japan’s largest computer memory chip maker Elpida Memory Inc. (ELPDF $18) moved nicely higher to add to the optimism in the tech sector after it reported an unexpected full-year profit. However, shares in China were mixed, with the Shanghai Composite Index gaining 1.8%, while Hong Kong’s Hang Seng Index declined 0.5% on a solid drop in shares of China Mobile (CHL $51) in reaction to yesterday’s 1Q earnings announcement from the world’s largest phone carrier by market value that missed analysts’ expectations and after the government said it may raise sales taxes and accelerate land auctions to prevent the forming of a property market bubble, according to Bloomberg News.

Elsewhere, Australia’s S&P/ASX 200 Index rose 0.6% after a report showed the nation’s Leading Index increased by 0.5%, but gains were limited by uneasiness in the resource sector after mining firm BHP Billiton’s iron ore output report and possible violations of anti-corruption laws. In other economic news, the Bank of Thailand kept its benchmark interest rate unchanged at 1.25% for the eighth-straight policy meeting, and the Stock Exchange of Thai Index fell 1%, while Japan’s Leading Index for February was revised higher from 97.9 to 98.5.