Strong Earnings Make Yesterday's Retreat Look Overdone

Stocks prepare for an early rally, though the rest of the day's outlook isn't so certain.
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For a long time, some people have been complaining about the narrowness of the market. Sure, it's gone higher, they've said, but only a few big stocks are driving it. Most stocks are struggling. They even gave it a name: the stealth bear market.

The idea of a stealth bear market always seems a tad specious. When the total market capitalization of U.S. stocks go higher, that's bearish? Sure, a hundred little stocks went down as

General Electric

(GE) - Get Report

jumped, but guess what? GE is a lot more important than those hundred little stocks.

Still, there's danger in narrow breadth: It's the stock-market equivalent of putting too many eggs in one basket. So even though the

S&P 500

got trounced yesterday, and the total market capitalization of U.S. stocks declined, people liked to see that advancers beat decliners. And they liked the rally into cyclicals, taking it as evidence of rotation in the market.

So are people going to start talking about a stealth bull market?

On the strength of that rotation, a raft of good earnings reports and a general sense that yesterday's selling was overdone, stocks are cued to head higher this morning.

At 9 a.m. EDT, the

S&P 500

futures were up 5.2, about 7 above fair value and indicating a move up at the bell.

Still, the market's upside appears limited beyond the open. "Yesterday, we didn't have such a hot performace," said Jim Benning, trader at

BT Brokerage

. "People are a little concerned about that. I'd be surprised to see them in the short run go a whole lot higher."

Strong weekly jobless claims put pressure on Treasuries. The 30-year was down 15/32 to 95 25/32, lifting the yield to 5.54%.

Japanese technology stocks sank in sympathy with their U.S. brethren, and that weighed on the broader market. The

Nikkei

slipped 37.6 to 16,727.08.

Active foreign buying helped Hong Kong stocks post gains. The

Hang Seng

added 128.1, or 1.1%, to 11,962.23. Since the market crashed in 1997, Hong Kong stocks have run into trouble whenever they approached the 12,000 level. But it appears the Hang Seng may be gathering the strength to clear the barrier this time around.

Elsewhere in Asia, South Korean stocks shined as lower local interest rates beckoned new money into the market. The

Kospi

hopped 34.6, or 5%, to 722.01 -- its highest level since August 1997.

Continental European bourses were trading lower.

Deutsche Telekom

(DT) - Get Report

, down 6% on its plans for a secondary offering, weighed on the Frankfurt market. The

Dax

was lately off 2.2 to 5179.96. In Paris, the

CAC

was off 47.02 to 4302.24.

As in the U.S. recently, rotation has been the name of the game in London lately. "It seems to be more stocks, rather than markets," said David Smith, managing director of

Cantor Fitzgerald's

London office. "The basic industries have been attracting quite a lot of interest here."

As a result, mid-caps have been outperforming larger issues. While the

FTSE

was up only 1 to 6494.6, the

FTSE 250

, which tracks London's second tier, was up 50.9 to 5688.4.

Other than the move toward smaller things, London traders have been speculating on what

Warren Buffett

may be buying. Unable to find the stocks that fit his investing style in the U.S., the

Berkshire Hathaway

(BRK.A:NYSE) chief has been on the hunt in Britain. "It's really a combination of this rotation, plus try to spot what Warren Buffett is buying," said Smith of what's driving the U.K. market.

Thursday's Wake-Up Watchlist

By

Brian Louis

Staff Reporter

  • General Motors (GM) - Get Report posted first-quarter earnings of $3.04 a share, beating the First Call 16-analyst estimate of $2.89 and up from $2.27 in the year-ago period.
  • Ford (F) - Get Report reported first-quarter operating earnings of $1.46 a share, beating the First Call 10-analyst outlook of $1.39 and up from the year-ago operating earnings of $1.22. In other news (earnings estimates from First Call):
  • Advanced Micro Devices (AMD) - Get Report after the close reported a first-quarter loss of 81 cents a share, narrower than the 13-analyst estimate of a loss of 92 cents a share. TheStreet.com wrote about AMD in a story last night.
  • Morgan Stanley Dean Witter upgraded Alcoa (AA) - Get Report to neutral from underperform.
  • Ameritrade (AMTD) - Get Report after the close reported second-quarter earnings of 14 cents a share, double the six-analyst consensus and reversing the year-ago loss of a penny a share.
  • Apple (AAPL) - Get Report after the close reported second-quarter earnings of 60 cents a share, 3 cents higher than the 18-analyst estimate and above the year-ago 38 cents.
  • BankBoston (BKB) posted first-quarter earnings of 75 cents a share, beating the 20-analyst estimate of 73 cents, but down from the year-ago 79 cents.
  • Boeing (BA) - Get Report posted first-quarter earnings of 50 cents a share, beating the 15-analyst estimate of 43 cents and up from the year-ago 5 cents.
  • Delta Air Lines (DAL) - Get Report posted third-quarter earnings of $1.42 a share, beating the 11-analyst estimate of $1.29 and up from the year-ago $1.23.
  • Donaldson Lufkin & Jenrette (DLJ) reported first-quarter earnings of 84 cents a share, blowing past the seven-analyst estimate of 70 cents.
  • First Union (FTU) posted first-quarter operating earnings of 88 cents a share, in line with the 26-analyst estimate and up from the year-ago operating earnings of 83 cents.
  • General Dynamics (GD) - Get Report withdrew its $1.4 billion takeover bid for Newport News Shipbuilding (NNS) after the Defense Department rejected the combo.
  • Unisys (UIS) - Get Report posted first-quarter earnings of 32 cents a share, beating the 11-analyst estimate of 24 cents and up from the year-ago 14 cents.
  • Safeway (SWY) reported first-quarter earnings of 40 cents a share, beating the 17-analyst outlook by 2 cents and up from the year-ago 33 cents.
  • Charles Schwab (SCH) posted first-quarter earnings of 34 cents a share, beating the seven-analyst estimate of 33 cents and up from the year-ago 16 cents.