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Market Update

Spotty Earnings Grab Spotlight From Global News

January 23, 2015

Relief that Europe is doing more to revive its struggling economy pushed U.S. stock averages to their best gains in two weeks on Thursday—enough to tip the S&P 500 (SPX) back to positive for the year. The momentum is setting up early gains Friday and for the week as major averages look to snap a three-week skid. In fact, the SPX crossed above its 50-day moving average for the first time since the first week of January.  Remind me: was it just a short week ago that fear for the bottom falling out could be felt all along Wall Street? What a difference a few days make. Chatter now returns to SPX 2100.


S&P 500 (SPX) moved above near-term resistance at 2050 Thursday and cleared its 50-moving average for the first time since early January. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Wide Market Lens. The European Central Bank’s (ECB) long-awaited bond-buying plan will total 1.1 trillion euros when all is said and done, slightly larger than what financial markets were banking on; the announcement sent the euro to an 11-year low against the dollar and raises continued concerns for export-sensitive U.S. companies. Oil prices stabilized overnight after a Thursday drop below $46 a barrel on word U.S. supplies are at their highest in, yes, 80 years. And, gold continues to churn just below a formidable resistance at $1300 an ounce. These global issues are never far from our thoughts, but it does seem that investors are interested in earnings once again. Markets may alter their focus toward the domestic economy with home resale data due mid-morning. Recent housing numbers, including mortgage apps, have been solid. Can today’s report follow along?

GE Sheds Light on Global Picture. General Electric (GE) is one of a handful of blue-chips reporting earnings. There are few businesses that GE’s long reach does NOT touch. GE is an interesting story beyond its latest quarterly results. The company continues a multi-year migration away from leaning on financial-business earnings to return to its industrial roots. In fact, its industrial segment helped drive better-than-expected Q4 operating earnings of $0.56 a share, a penny better than Street expectations. Revenue rose 4% to $42 billion. GE had already warned investors that sinking oil prices would nip profit in its oil and gas unit. But true to its roots, GE said growth in its industrial segment again helped drive better-than-expected earnings. With a large portion of its sales overseas, GE is also exposed to forex fluctuations, especially the euro, which as we said is currently sitting at an 11-year low to the buck. This stock is not just an economic litmus paper it’s a potential snapshot of all that’s going on across global markets. As for another Dow component with global reach: McDonald's (MCD) posted a worse-than-expected 21% plunge in December-quarter earnings, a not-great wrap to a not-great year for the fast-food chain that prompted core changes to its business.

Coming Next Week. Next week will likely bring a notable market test after the huge momentum swing from this week. Greek voters elect a new parliament on Sunday, with the anti-austerity opposition party Syriza favored to win, but without an overall majority. There’s no doubt that Greece instability can influence the broader market. The earnings calendar heats up with Microsoft (MSFT) out with results late Monday, followed by rival Apple (AAPL) on Tuesday. Plenty of industrials report early in the week, including: Caterpillar (CAT), 3M (MMM), DuPont (DD) and more.

Good trading,

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