Change text size

• Email This Article
• Print This Article
• Subscribe

Stocks suffer despite strong new home sales and better than expected earnings from Microsoft (MSFT). Rising bond yields led to selling in rate sensitive sector including financials and consumer related stocks. Gains in shares of MSFT and Caterpillar (CAT) have been offset by declines in shares of General Motors (GM) and Honeywell (HON).

Earnings have been a focus Friday, as they have been all week, but the economy has been a story today as well. New homes sales rose 4.8 percent in December to a level of 1.12 million. This was well above expectations for a reading of 1.05 million units and was surprising given the weakness in Thursday’s existing home sales data. Everything inside the report was positive with inventory levels falling and the median price for a new home unchanged from the year ago period. However, this news, combined with a strong durable goods orders report, has created concerns about higher interest rates. 

Shares of MSFT are bucking the downtrend Friday after the software giant posted better than expected earnings last night. Sales were up 6 percent, although earnings fell 28 percent from the year ago period. However, earnings per share were better than Wall Street estimates on strong sales of the company’s Xbox360. The company is also benefiting from excitement over its Vista operating system and its new Office 2007 program. This are expected to be rolled out to the public next week. MSFT shares are up 1.5 percent on the session and reached a four-year high intraday at $31.48.

CAT shares, another Dow ($INDU) component, are rising more than 2 percent Friday. The heavy-equipment maker announced that its quarterly profits rose 4.3 percent. More importantly, the company confirmed guidance for 2007. CAT has suffered some of late due to the slow down in housing and traders were expecting the company to cut its forecast. CAT earnings were 2-cents short of estimates, but better than expected sales, combined with reaffirming guidance, have kept the stock higher in midday trading.

Dow component Honeywell is seeing its shares fall more than two percent Friday. HON reported earnings of 72-cents a share, which were in line with expectation. The company also reaffirmed its guidance for 2007, although they acknowledge that there are softening global economic conditions. In the past six months, HON shares have rising 17 percent so traders decided to take some profits. 

Shares of GM are lower in midday trading on news the automaker will delay its fourth-quarter earnings report due to accounting issues. However, GM does expect to show a profit in the quarter after three quarters in the red to start 2006. In the past year, GM shares are up 37 percent, but early strength in the year has faded with the stock down about 6 percent this past quarter. ON Friday, the stock is seeing a decline of about one percent. 

Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site

• Email This Article
• Print This Article
• Subscribe

Recent Articles by Jody Osborne, Optionetics.com

• July 30, 2010
  Closing Wrap-Up, July 30
• July 30, 2010
  Morning Watch, July 30
• July 29, 2010
  Economic Watchdog, July 29
• July 29, 2010
  Closing Wrap-Up, July 29
• July 29, 2010
  Morning Watch, July 29