Positive Labor Market Report - Analyst Blog
July 28 2011 - 4:20AM
Zacks
The debt ceiling debate continues to monopolize headlines, even as
a barrage of earnings reports and a surprisingly positive labor
market reading try to gain the market's attention. Weekly Jobless
Claims numbers dropped by a bigger-than-expected level, which if
sustained in the coming weeks will represent a significant positive
for the economy.
Weekly Jobless Claims dropped 24 thousand to 398 thousand, dropping
below the all-important 400 thousand level for the first time in 16
weeks. The four-week average, which strips out the week-to-week
volatility inherent in this series, dropped 8.5 thousand to 413.7
thousand.
I don't want to get too excited by this positive number as the
claims data is prone to bouncing around from week to week. But if
this trend remains in place over the coming weeks, this could be an
early sign of that second-half economic recovery everyone has been
hoping for. And that would certainly be something to get excited
about.
But before anything else can happen in the U.S., we need to put the
debt ceiling issue behind us. The most likely outcome in this
debate is an 11th hour temporary increase in the ceiling that
leaves the thornier deficit reduction issue for a later date.
And given what the rating agencies have been saying all along, such
an outcome will not be good enough to avert a rating downgrade. But
it is hard to argue that such a rating downgrade will come as a
surprise to the market. While the loss of the 'AAA' rating would be
a net negative for the economy, it would not be not as material an
event as some have been fearing.
The headlines may not tell you this, but don't forget that we are
in the midst of the earnings season. And by all measures, it has
been a solid performance thus far. Though I must add that the
reports this morning have been kind of mixed.
We had a solid top- and bottom-line beat and positive guidance from
DuPont (DD). But oil super major
ExxonMobil (XOM) missed expectations, even as
volumes and capital expenditures were up significantly from the
year-earlier level.
SprintNextel (S) reported a
noisy quarter, with a bunch of moving pieces that make it difficult
to get a clear picture on first read. The third-largest carrier in
the country lost a greater-than-expected number of contract
subscribers in the quarter, continuing its struggle in this
lucrative market segement.
Colgate Palmolive (CL) came ahead of EPS and revenue
expectations, though margins remained under pressure despite
pricing gains.
Avon Products (AVP) came modestly
short of expectations. Homebuilider
D.R. Horton
(DHI) came out with an earnings beat, but missed revenue
expectations on weak order flow. Results at fellow homebuilder
PulteGroup (PHM) were significantly weaker than
expected.
The best news of the day is on the labor market front, where we saw
a sharp drop in the initial claims numbers. If the Washington drama
wasn't monopolizing everybody's attention today, this news on its
own would push stocks higher. But we can't wish away the debt
debate.
AVON PRODS INC (AVP): Free Stock Analysis Report
COLGATE PALMOLI (CL): Free Stock Analysis Report
DU PONT (EI) DE (DD): Free Stock Analysis Report
D R HORTON INC (DHI): Free Stock Analysis Report
PULTE GROUP ONC (PHM): Free Stock Analysis Report
SPRINT NEXTEL (S): Free Stock Analysis Report
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
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