Market Talk

Stocks are under pressure, more pressure now than they were when we taped today’s video. The S&P 500 has slid into this 1292-1288 band that’s offering some support, and so far that support is holding, albeit there have been a couple slips below it.

Hey, wha’ happened?

US stock futures modestly lower premarket following yesterday’s big SEC settlement with Goldman Sachs, Google 2Q results, as well as results from GE and BofA this morning.

Stock markets currently higher in Europe, mixed in Asia overnight. Looks as if investors in Japan are more worried about the US economy than US investors — the Nikkei slumped nearly 3% to its lowest level in more than a month as the yen soared vs the dollar on fears over US growth prospects.

GS up 4.5% premarket; GOOG down 4% as results missed expectations. GE off 1.1% as revenue declined overall, falling in three of five business segments. But there was improvement at GE Capital.

June CPI due at 8:30am; Reuters/Univ of Michigan consumer sentiment out at 9:55am. S&P futures off 0.90; 10-yr slightly lower, yield at 2.98%.

Paul Vigna and Madeleine Lim analyze the potential fallout from SEC charges against Goldman Sachs (GS). “This was a big shot from Washington to the height of Wall Street,” Paul says.

Also, they discuss the lack of revenue growth in Bank of America (BAC) and GE earnings. And, to no surprise, there’s still uncertainty surrounding Greece. Check it out, it’s Tomorrow’s News Today.

- Palm’s headed toward a fork in the road as there’s a growing belief that its future contains only two paths: acquisition or insolvency, Jon Stokes writes at ars technica.

- Bronte Capital blogger John Hempton says BofA engaged in some shady accounting engineering during the boom, similar to Repo 105. But BofA defends its accounting procedures. “Efforts to manage the size of our balance sheet are routine and appropriate, and we believe our actions are consistent with all applicable accounting and legal requirements,” BofA tells ProPublica. It all sounds strikingly similar to what Ernst & Young recently said about Lehman, DealBook notes.

- “With all eyes on financial institutions, sovereign defaults, state bankruptcies and pension shortfalls, I’ll humbly submit reason #11 to be wary of this scary bull – unforeseen systemic risk emanating from quant models gone awry,” Todd Harrison says. “This is the first time in history 10-year interest rate swap spreads turned negative…I would venture to guess it wasn’t ‘modeled’ that way by the quant geeks.”

- GE shares up 24% this year and 80% over last 12 months. That’s noteworthy, especially since GE underperformed the broader market during much of the 2000s, Bespoke notes. “Is GE finally ready to lose the ‘dead money’ label?”

- New home sales hit a record low last month and months of supply rose to 9.2 months. “Obviously this is another extremely weak report,” Calculated Risk says.

- Blogosphere loves Sprint Nextel’s (S) new 4G phone – Evo. Engadget says it’s a “breathtaking” device. “Evo 4G is the best Android phone out there. It may even be the best phone, period,” Gizmodo adds.

- “The administration may be distancing itself from the Volcker Rules, but the same is not true of all Senators,” Simon Johnson says.

- Will Apple’s (AAPL) iPad live up to the hype? Kara Swisher discusses on WSJ’s Digits show.

- Bank of America (BAC) says it will make principal forgiveness a priority for certain subprime mortgages.

- Starbucks (SBUX) to offer its first-ever cash dividend and announced it will boost its stock-buyback plans.

I’ve long considered the whole earnings vs. Street expectations thing to be one big rigged game. When writing about earnings, I try as much as possible to avoid even talking about “Street expectations,” preferring instead the more reliable comparison to the previous year’s corresponding quarter. This is the best comparison of a company’s sales and earnings; sequential comparisons are helpful but, given the seasonality with some companies, can be misleading (think about a retailer’s fourth quarter compared to their first.)

I long ago developed a mistrust of “Street expectations.” For one thing, those “expectations” are largely based on “guidance” supplied by the companies themselves. Not hard to see the ripe opportunity for gaming there. For another, it was always curious how some companies always beat expectations — GE is absolutely notorious for it — and I’ve always suspected that it was pretty easy for the accountants to come up with a number that somehow “topped” what the Street was looking for. A tax loss here, a carry-forward there, mark this one to make believe, it’s not that hard when you think about it. There are probably hundreds of ways to do it.

Now, though, we have some measure of proof that companies are “managing” earnings per share in order to beat expectations. From the Journal:

A new study provides further evidence suggesting many companies tweak quarterly earnings to meet investor expectations, and the companies that adjust most often are more likely to restate earnings or be charged with accounting violations.

The study, which examined nearly half a million earnings reports over a 27-year period, reached its conclusion by going beyond the standard per-share earnings results that are reported in pennies and analyzing the numbers down to the 10th of a cent.

Continue reading…

- “For the last 10 months, as stocks have rallied with only minor interruptions, even the bulls have warned that at some point a ‘correction’ would hit,” LA Times’ Tom Petruno says. “Is this finally it?”

- Not a lot to cheer in NBC Universal’s 4Q results. But don’t worry GE, it’ll all just be a memory soon enough.

- Obama’s bank plans don’t bode well for venture capital industry, Infectious Greed blogger Paul Kedrosky says.

- Gluskin Sheff chief economist David Rosenberg succinctly lists what’s plaguing the economy. “Greece. Portugal. Ireland. China tightening. Bank bashing. Foreclosures. The housing and mortgage market. Jobs. The Fed’s exit strategy (if it happens),” he says. What does it all mean? “There is no quick fix,” the Pragmatic Capitalist says.

- Bernanke’s confirmation vote suddenly looks like it’s in jeopardy. Not a good sign, especially since it would have some “unpredictable macroeconomic consequences all on its own,” Matt Yglesias writes.

- Betting on Bernanke not such a sure thing anymore. As more senators come out against reconfirming Ben Bernanke as Fed chairman, the betting markets are starting to sour on him, Catherine Rampell writes at NYT’s Economix blog. Odds of Bernanke being reconfirmed have fallen from 93% to 80%, according to Intrade

- The Economics of Contempt blog wonders if Obama’s plan is merely a “transparent political stunt”?

- People love to criticize. But Reuters blogger Felix Salmon says he’s “cautiously optimistic” about the future impact of Obama’s bank plan. “No, it won’t singlehandedly prevent another financial crisis – but I’m getting a bit tired, at this point, of people criticizing necessary moves on the grounds that they’re not sufficient,” he says.

- “Fear and greed are the odd couple whose constant squabbling dictates the direction of financial markets,” Liam Denning writes in a WSJ Heard on the Street column. Keep an eye on the VIX.

- The Last of Lost – ABC’s hit series set for its final season. How awesome is this show? Obama actually rescheduled his “State of the Union” address a few weeks ago so it wouldn’t conflict with the season premiere.

So GE, like any number of other financial and financial-related outfits, thinks the credit market’s woes have peaked. Of course, any number of financial and financial-related outfits didn’t think the subprime market could have a big effect on the market, but that’s another story.

We’re also looking at Barney Frank’s idea to scrap to Fannie and Freddie, which seemed to come out of left field. And speaking of left field, how many things are coming out of there these days?

Fourth-quarter earnings season so far seems to be delivering the solid results the Street and investors expected, as evidenced most recently by Google and Goldman Sachs yesterday.

Trouble is, those expectations are apparently well priced in, as a growing list of high-profile names have sold off after posting upside earnings results. GOOG, for example, down 3.7% premarket after once again beating Street views, although it wasn’t quite the kind of blowout performance investors have come to expect.

Perhaps GE will break that string this morning, with shares up 1.8% premarket at $16.25 after better-than-expected 4Q EPS. McDonald’s also out with numbers that topped Street views, and its shares are higher as well.

The problem is, despite those two bellwethers, and a 200-point slide yesterday, there is not the slightest hint of any kind of rebound for equities, with S&P 500 futures down 2.10 and DJ futures down 30.

No economic data on the calendar. US dollar index a little weaker, though gold and oil are both lower, too.

- The Journal’s live-blogging the Ben Bernanke hearings.

- Some folks are starting to get antsy concerning Bernanke.

- What to do about double-digit unemployment? Forget a jobs summit — Bernanke must go. Dylan Ratigan explains why.

- Falling jobless claims marks half the battle.

- Is the monthly jobs report’s psychological impact on the market waning?

- Comcast/GE finally reach deal on NBC U.

- Retailers had a tough November as same-store sales missed analysts’ muted expectations. The industry still recorded a slight increase from prior-year levels.

- TARP’s moral hazard not going away anytime soon.

- Bank of America (BAC) finally ready to repay taxpayers.