October 20, 2017

Stocks gapped up at the open this morning (Dow +119 pts; SPX +.38%). The cyclicals (banks, transports, semiconductors) are leading the way. The defensives (consumer staples, real estate, utilities) are in the red. This is largely the result of some very encouraging earnings announcements. The VIX Index backed down to 9.8. Bonds are selling off again. The 5-year Treasury yield is up around 2.0% for the first time since mid-March. The 10-year Treasury note yield is up around 2.38%. 

Verizon Communications (VZ) reported solid third quarter results yesterday. Revenue rose 3% from year ago levels, but earnings fell 3%. Subscriber growth was ahead of expectations; the company added 274,000 new wireless customers. And customer churn remained below 1%. Investors greeted the announcement positively, and Wall Street analyst Craig Moffett explained that “revenue growth escaped the worst fears of the bears.” He acknowledged that the wireless industry isn’t “suddenly a growth business again,” but “things are at least improving.” The stock was up 1% yesterday. 

Danaher (DHR) also beat Wall Street forecasts when it reported quarterly results yesterday. Revenue growth shot up 10% and earnings accelerated 15%. Profit margins improved markedly. The key dental supplies segment posted positive growth for the first time since the fourth quarter of 2016. The stock, which had been flat since early March, surged 4.7% yesterday and is up another 1% today. 

Travelers (TRV) reported 5% revenue growth in the third quarter, which exceeded Wall Street forecasts. Costs due to recent hurricanes surged and clearly impacted profits, but not to the extent expected. The CEO indicated that storm/fire impact would be temporary and that the company would consider resuming stock buybacks in the fourth quarter. In addition, new policy sales were very strong in the quarter. The stock was up 2.4% yesterday. 

Schlumberger (SLB) reported a decent quarter this morning, but management warned that analysts are probably overestimating fourth quarter earnings. The company grew revenue and earnings by 13%, and 68%, respectively in the third quarter. That’s the strongest revenue growth in years. So far, so good. However, SLB’s CEO said that demand for oilfield services in the US “seems to be moderating” as his customers are more concerned with preserving cashflow than investing for growth. The stock is down 2.8% this morning. 

Honeywell (HON) is up .6% after reporting third quarter results that were slightly ahead of expectations. Revenue rose 3% from year-ago levels and earnings were up 9%. And excluding acquisitions/divestitures, revenue growth reached 5%. Profit margins expanded due to cost cutting as well as strength in aerospace and warehouse automation. 

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