Daily Comment


April 17, 2014

The major averages posted solid gains yesterday with the Dow Jones Industrial Average gaining 162.29 points (1.00 percent), the S&P 500 Index rising 19.33 points (1.05 percent to bring it back on the plus side for the year), and the Nasdaq Composite advancing 52.06 points (1.29 percent). While China's rate of GDP growth slowed no worse than expected, it reinforced expectations for more government stimulus. A similar dynamic played out the previous day for Japan. Thus, the slowing Asian economies has been viewed, counter intuitively, as good news as it strengthens the case for more monetary and fiscal stimulus.   In U.S. economic news,  housing starts increased 2.4 percent in March to 946,000 from an upwardly revised 920,000 (from 907,000) in February. The consensus expectation had been 970,000. While up, the March figure did not snap back enough to imply that the weakness in January and February was all weather related. Industrial production increased 0.7 percent in March after increasing an upwardly revised 1.2 percent (from 0.6 percent) in February. The average estimate had been for an increase of 0.5 percent.   

In the News

Google Inc. (GOOGL-563.90) reported adjusted first-quarter EPS of $6.27, up from $4.97 in the year-earlier period but $0.14 below the consensus estimate. Revenue also fell short of analyst targets (up 19 percent to $15.42 billion as compared to the forecast of $15.54 billion) and margins narrowed as the price of its ads continued to decline, underscoring the challenges Internet companies face as the world shifts toward mobile devices. The number of "paid clicks" by consumers on Google's ads increased by 26 percent in the first quarter, disappointing some analysts who had hoped for stronger volume growth. The average "cost per click" declined 9 percent, extending a downward trend as mobile advertising, typically cheaper than traditional online ads, make up a bigger slice of its business. In addition, costs reflected heavy spending in new markets such as wearable computers, ultra high-speed Internet access and home automation. Google shares are down about 1.7 percent in the pre-market as of this writing but are off their worst levels.  Yesterday, the stock was up 2.8 percent.  

IBM (IBM-196.40) reported adjusted first-quarter EPS of $2.54, down from $2.70 in the year-earlier period but matching the consensus expectation. Revenue fell 4 percent to $22.5 billion, below the average analyst estimate of $22.9 billion.  It was the eighth consecutive quarter of revenue decline. The biggest drop was in its systems and technology unit, or hardware, where revenue fell 23 percent to $2.39 billion from $3.11 billion. Software revenue grew 2 percent to $5.66 billion from $5.57 billion. Management stated that it "continued to take actions to transform parts of the business and to shift aggressively" to strategic growth areas including cloud, big data analytics, social, mobile and security, and that as 2014 progresses it "will begin to see the benefits from these actions." For the full year, IBM still expects adjusted EPS of at least $18.00. The consensus estimate is $17.84. The stock is down about 4 percent in this morning's pre-market.




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