Reality Bites, Market Falls
Yikes
It would appear the rally from the August lows has petered out. A string of lousy earnings reports from the big banks has thrown cold water on the bulls, and leadership is narrowing to the point of disappearing. The misinformation campaigns are being debunked as well; the Chinese bank Citic is denying that it is currently speaking with Bear Stearns regarding an investment in the firm, and the stock continues to slide today.
SunTrust (STI-NYSE) whiffed and the bulls will need to pull out the perennial takeover rumors to save the day. Of course Bank of America is the true disaster du jour. How does this taste?
Bank of America Corp., the second- largest U.S. bank, said profit declined 32 percent in the third quarter, more than analysts estimated, after trading losses, defaults and writedowns cost almost $4 billion.
Net income fell to $3.7 billion, or 82 cents a share, from $5.4 billion, or $1.18, a year earlier, the Charlotte, North Carolina-based company said today in a statement. The average estimate of 16 analysts surveyed by Bloomberg was $1.06 a share. Bank of America shares fell more than 3 percent after the earnings announcement. Bloomberg
Ebay also offered up a head fake. After trading up afterhours yesterday the SellSide ganged up on it this morning. The Marketplace is over half of corporate revenue, and benefited from a weak dollar and lower than expected tax rate. No earnings quality there, and a beat down is assured for today.
On the plus side, Nokia is recapturing lost ground and the broader market is working off overbought stochastics.
As the day grinds on all eyes will focus on Google, whose earnings tonight might set the tone for tomorrow’s trading. The stock has built in some hefty expectations over the past month:
The search giant’s stock is trading near new highs and is up about 12% since the company announced second-quarter earnings in July. And the shares are up almost 25% since August lows, which followed a rare profit miss because of aggressive hiring, among other reasons.
Google’s gains follow a period of relative stagnation for the stock. Before the latest run, shares traded at around levels the search giant first saw at the end of 2006. Meanwhile, the buzz over the last quarter has ranged from new video ads it introduced to the prospects of the company getting into the mobile phone business.
But it’s the company’s core search business that has powered gains this quarter. And tweaks that Google made to its ad-displaying algorithm over the quarter have investors expecting that the company may trump its heady expectations. TSC
Too, there is the strange question of what is going on in China. Yesterday news broke that the Chinese government was going allow the exchange of shares in differing classes, which would narrow the valuation gap between the A-shares and H-shares, and would offer up an arbitrage bonanza.
Vincent Chan, an analyst at Credit Suisse Group analyst wrote in a report that, “It is reasonable to expect a much bigger impact on the A shares prices than a positive impact on H share prices,’’ The percentage of free-float listed A shares is much smaller than for H shares, he wrote. If the two types of shares became fungible, large amounts of H shares would be swapped into A shares.
Those Chinese are shiftier than the folks at 383 Madison. Perhaps sooner or later they will get into bed.
Bank of America Earnings Drop on Loan Writedowns
Bloomberg
Google Gets Hot Again
TSC
Chinese Shares in U.S. Rise Most in 6 Years on Arbitrage Study
Bloomberg
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