We sold on the news!
Investors often “buy on the rumor, sell on the news,” regarding big announcements ranging from product releases to earnings results. While it’s early, there are some signs investors are taking that tack with 3Q earnings.
With major stock indexes up more than 50% from their early March lows, it’s safe to wonder whether the seven-month old rally can maintain momentum throughout the next few weeks amid a plethora of earnings reports that the market is counting on to be pretty strong.
“If stocks sell off even after companies post in-line or slightly better than expected earnings, such market action could be the first sign that a long overdue correction in stock prices is on the horizon,” says Chad Brand, founder and president of Peridot Capital Management.
Early indicators aren’t promising. Johnson & Johnson (JNJ) posts a 3Q profit this morning and boosts its ‘09 outlook, but shares are down 2.6% at $60.90. The losses nearly erased the 3% gain J&J achieved this month prior to today’s action.
Domino’s (DPZ) also reported Tuesday its 3Q earnings soared 76% from a year ago, mainly on debt paybacks and international growth. Its profit exceeded analysts expectations, but shares were recently down 6.6% at $8.75.
To be sure, both JNJ and Domino’s revenue figures fell below analysts’ estimates. Cost-cutting has allowed companies to post better-than-expected earnings. But revenue is garnering extra attention this earnings season as investors are looking for good top-line results as proof that the economy’s still improving.
And even Alcoa (AA) is having trouble sustaining the momentum it exhibited after last week’s results. The Dow component kicked off earnings season last week with a quarterly profit – after three consecutive quarters of losses. Shares jumped to $14.35 last Wednesday on the news, but have since fallen 1.7% and currently trade at $14.10.
Whether these reports mark the beginning of a new trend, or are simply an aberration, will be important in determining whether “a correction or worse might be in the offing,” Jack McHugh writes at The Big Picture. “If we can pay attention to the market reactions on a micro level, they just might reveal some macro level insights.”
DJIA down 42 at 9843; S&P 500 off 7 at 1070.
