Zacks Earnings Trends Highlights: Apple, Bank of America, Goldman Sachs, General Electric and Berkshire Hathaway

CHICAGO, Aug. 30, 2011 /PRNewswire/ -- Zacks Research Equity Strategist, Dirk Van Dijk says that S&P 500 earnings are continuing to show red ink. He tracks companies on the web site, naming names, while forecasting trends for the months ahead.

Solid Earnings Season, Stocks Look Cheap

Earthquakes, hurricanes -- what's next? Locusts, or maybe frogs? Yet despite all that, it was not too bad a week for the market. Yeah a bit of volatility, but a much better week than most that we have seen in recent weeks.

Two of the biggest stories were Steve Jobs giving up the CEO post at Apple (Nasdaq: AAPL) and Warren Buffett investing $5 billion in Bank of America (NYSE: BAC) preferred stock. Both were unexpected, at least as to the timing. Jobs will stay on as CEO, but it looks like due to health issues he will have a very limited role.

On a day to day basis I'm sure that Apple will do fine under its new CEO, Tim Cook. The big question is if the pace of innovation can keep up without Jobs around. Health issues are not new for Jobs, so they have had some time to prepare, and try to institutionalize the innovative culture there. Only time will tell if they succeeded.

Buffett's investment in BAC looks very much like the ones he did with Goldman Sachs (NYSE: GS) and General Electric (NYSE: GE) in the depths of the 2008 meltdown. Both of those worked out pretty well for him and Berkshire Hathaway (NYSE: BRK.B).

With earnings season over, those were the things that the market focused on, along with a smattering of mixed economic data, and of course the earthquake and hurricane. I don't think the data really confirmed one way or another if a new recession is on its way.

New Home Sales

New Home Sales were weaker than expected, and June was revised down. We need a rebound in New Home Sales to really get the economy moving again. At least in every previous recession since WWII, residential investment has been the key part of the economy that gets everything moving again. On the other hand, with the lowest 15 months of new home sales in history being in the last 15 months, residential investment has shrunk to the point that it really can't do much additional damage to the economy.

Eventually, the pressures of a rising population and additional household formation will allow residential investment to pick up. When that happens the overall economy will start doing much better, but it does not look like that is going to happen anytime soon.

Durable Goods Orders

We got better New Orders for Durable Goods last week. They came in much stronger than expected, rising 4.0%, well above the expected 1.9%, and June was revised up to being down just 1.3% from down 2.1%. Durable Goods is, however, a very volatile series, and most of the improvement came from the most volatile part of it, Transportation equipment, especially orders for civilian aircraft.

There was also strength in the other major part of transportation equipment, orders for cars and trucks. That mostly reflected easing of the supply chain constraints caused by the Japanese disaster. Excluding Transportation equipment, things were still better than expected, rising 0.7% rather than the expected drop of 0.4%. The June numbers were also revised up from a rise of 0.1% to a rise of 0.6%.

The durable goods number is strong evidence that we are not yet in a new recession. I would note however that the strength was narrowly based, and orders for things like Machinery and Computers were down. Thus it would be premature to sound the all clear signal.

GDP Revisions

We also got the second look at second quarter GDP. It was revised down to 1.0% from an already very anemic 1.3% from the first look. However, the quality of the growth was much better. More than all of the decline can be traced to inventories actually being drawn down in the second quarter, rather than being built up.

Inventory investment is very low quality growth, which tends to be reversed in subsequent quarters.  Of a bit more concern were the downward revisions to net exports, which is much higher quality growth. Most of that came from our exports not being as strong as we had thought, but also some from higher imports.

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Contact: Dirk Van Dijk, CFA
Phone: 312-265-9211

SOURCE Zacks Investment Research, Inc.

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