Ahead of Wall Street - October 24, 2011 - Ahead of Wall Street
October 24 2011 - 4:55AM
Zacks
Monday, October 24, 2011
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 get 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 started 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 discussions 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 disppointed 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 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.
Sheraz Mian
Director of Research
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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