Il Primo Ministro greco Lucas Papademos riceve l'approvazione del governo su tagli al bilancio che corrispondono al 7% del Pil nei prossimi tre anni e su una ristrutturazione finalizzata a ridurre di €100 mld gli oltre €200 mld di debito detenuto dai creditori privati, atteso il voto del parlamento • Standard & Poor's declassa il merito creditizio di 34 banche italiane tra cui UniCredit a BBB+ da A, Intesa Sanpaolo a BBB+ da A e Banca Monte dei Paschi di Siena a BBB da BBB+, S&P anticipa "una redditività decisamente debole per le banche italiane nei prossimi anni" • La produzione industriale italiana aumenta a dicembre +1,4% da novembre +0,3%, oltre le stime degli economisti +0,5%, anche se i dati del quarto trimestre -2,1% suggeriscono che la terza economia della zona euro è entrata nella seconda recessione dal 2009 • I Btp decennali salgono per la quinta settimana consecutiva, il periodo di recupero più lungo in oltre cinque anni, la prossima settimana il Tesoro vende €4 mld di buoni al 6% con scadenza 2014 • L'euro cala dal massimo di due mesi contro il dollaro, il mercato azionario europeo cala dal massimo di sei settimane e l'azionario Usa registra la prima settimana di perdite del 2012 dopo che i ministri delle finanze europee non hanno concesso il pacchetto di aiuto necessario a prevenire il collasso economico della Grecia

mercoledì 18 aprile 2012

Market Comment - April 18

(Marco Bonelli) The magic of lower tax-rates...

GOOG reported 1Q12 non-GAAP EPS of $10.08, beating estimates ($9.64) and recording solid year-over-year growth (1Q11 non-GAAP EPS were $8.08). But wait a moment, the effective tax rate for 1Q12 dramatically dropped from 25% in 1Q11 to now 18%!

IBM reported 1Q12 non-GAAP EPS of $2.78, beating estimates ($2.65) and recording a solid year-over-year growth (1Q11 non-GAAP EPS were $ 2.41). And guess what, the effective tax rate for 1Q12 dramatically dropped from 25% in 1Q11 to now 20.6%!

INTC reported 1Q12 non-GAAP EPS of $0.56, beating estimates ($0.51) but they didn't record solid year-over-year growth, they rather posted a decline in earnings (1Q11 non-GAAP EPS were $0.59)! INTC effective tax rate in 1Q12 was 28.2% compared to 27.7% in the same quarter last year. Not any more encouraging, the company guides margins for Q2 lower and expects flat revenues!


These are just snap-shots from the technology sector and may not apply for all companies and all industry sectors; however, simply looking at the three blue-chip companies from the tech sector that reported Q1 results so far, the rule appears to be that year-over-year earnings growth is only possible with some magic tweaking of the income tax rate. In other words, the last quarters, companies slashed costs, which resulted in strong earnings growth; with little or no cost left to be taken out (without jeopardizing your core operations), you manipulate the tax-rate, which results in strong earnings growth - but very low quality!

Sticking with IBM, the company that "beat" earnings last night on lower than expected revenue growth and basically no year-over-year revenue growth overall; here is a little case study: IBM has been one of the classic earnings growth stories and one of the poster children from the technology sector. The stock hit a low of $65.50 in November 2008 and traded higher in a very solid up-trend; the steeper up-trend was broken in February 2010 but the stock resumed its advance in a less-steeper up-trend that was tested in August and September last year and held until now (currently at $176). The stock broke out to new all-time highs throughout Q1 and posted a record high on April 3 ($210.69), which was slightly above the resistance of the trading channel from the 2008 up-trend. After last night earnings, we are back in that channel with resistance at $205 and support (the up-trend line from 2008) at $176 - in other words, the sky is usually not the limit!

Once the Dow Jones, the SPX and the Nasdaq Composite crossed above their 50day MA (which were breached in Monday's sell-off), the rally in all averages took off! AAPL's rebound after five days down certainly helped but all other "reasons" (Spanish short-term bond auction, overall confidence regarding Spain and Europe or strong earnings) were the typical scrambling for explanation of the sort of unexplainable, which is also not correct because you add QE3 hopes after weak Housing Starts and Industrial Production for March and throw in some short-covering after the averages regained the 50day MA and the kind of broad-based (you would still expect a better market breadth with the Dow Jones almost up 200 points and the Nasdaq gaining 54 points) rally on below average volume suddenly makes a lot of sense.

The rally definitely helped sentiment as the short-term, shallow correction scenario got confirmed. In addition STX and YHOO surprised positively last night, other earnings this morning were reported in line to slightly better than expected and maybe concern about Spain and the paralyzing focus on Europe is exaggerated. Some investors may also look at the Dow Jones Transportation Index: the index was the first to break its up-trend from October but instead of breaking down, it formed a wide channel (5400 - 5050), traded sideways for almost three months and defended its position above the 200day, 100day and even 50day MA - something you would call healthy consolidation!

Earnings will further dominate over the next couple of weeks and it's up to investors if these corporate reports in combination with mostly weaker than expected macro-economic data are enough to stay invested in the market!

Trade well.


(Marco Bonelli is the Managing Director of International for CL King & Associates in New York. The opinions expressed are his own.)

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