Market Remains Optimistic - Analyst Blog
October 24 2011 - 5:00AM
Zacks
Market optimism about the European situation refuses to die down
despite the delay in the agreement on a comprehensive plan out of
the weekend summit meeting. The expectation now is that the plan
will be unveiled at another summit meeting on Wednesday. We also
have a number of key economic reports on the domestic front coming
out this week, with the first read on the third quarter GDP report
as the most significant.
Euro-zone leadership appears to be coming around to the realization
that the current unsettled situation carries serious risks to their
economic outlook in general and their banking sector in
particular. The resultant uncertainty is feeding into the broader
economy and starting to weigh on consumer and business confidence.
This morning's weak PMI reading is a reflection of this
reality.
The market's optimism about the deal is a vote of confidence of
sorts in the nature of the plan currently under discussion between
the countries involved, particularly Germany and France. The plan
will reportedly provide for bank recapitalizations, further
strengthening of the rescue fund, and a major restructuring of
Greek debt. The market has long been a looking for a simultaneous
tackling of all these inter-related aspects of the problem and
appears to be reassured that the leaders are finally coming around
to doing that. It is far from clear at this stage if we will have
the comprehensive plan on Wednesday. But judging by the market's
reaction thus far, it is particularly disappointed by the
delay.
In economic reports this week, we get the first look at the third
quarter GDP report on Thursday, Durable Goods on Wednesday, and the
Personal Income and Outlays reading on Friday. Recent positive
economic readings have helped bring down recessionary fears and the
GDP report may bring growth numbers as high as in the 2.5% to 3%
range. This would be a significant improvement over how the economy
performed in the first half of the year.
On the earnings front, with almost a quarter of the reports
already in, we are seeing a fairly reassuring picture. The growth
rates and extent of positive surprises are comparable to what we
saw in the last quarter. There is still some tentativeness with
respect to estimates for next year, but this will
likely improve as the reporting cycle matures.
Of the key earnings reports this morning, we have a solid earnings
and revenue beat from
Caterpillar (CAT).
Eaton (ETN) came inline with earnings expectations
on modestly better than expected revenue, but the company lowered
the high end of its earnings guidance.
Roper
Industries (ROP) also came out an earnings and revenue
surprise and raised guidance.
Lorillard (LO), the
cigarette maker, missed expectations.
With some of the more exaggerated fears about the domestic economy
easing and the earnings season unfolding in a reassuring enough
fashion, all eyes are now on Europe. A prompt conclusion to the
current round of discussion and the unveiling of a plan will go
some way towards lifting market uncertainties.
CATERPILLAR INC (CAT): Free Stock Analysis Report
EATON CORP (ETN): Free Stock Analysis Report
LORILLARD CO (LO): Free Stock Analysis Report
ROPER INDS INC (ROP): Free Stock Analysis Report
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