The Dow cracked the 9,000 level last week for the first time since January, propelled by better-than-expected earnings and positive trending economic data. The rally was broad for the second straight week as the three major indices managed stunning gains. The Nasdaq finally snapped an impressive 12-day winning streak on Friday. The tech-heavy index remains up 55% since the March 9 low. For the week ended July 24:
Dow: Up 4% to 9,093.24
S&P: Up 4% to 979.26
Nasdaq: Up 4.2% to 1,965.96
It was another extraordinarily busy week as companies continued to report second-quarter earnings. Though earnings have been stronger than expected, profits have been based on cost-cutting, not revenue growth, and companies are cautioning that the economy remains in a weak state. Compared with a year ago, most earnings were bleak. According to Standard and Poor's, operating income for companies in the S&P that have reported so far was nearly 29% less than last year, and 80% less than in 2007. How much further can companies polish earnings through cost cuts?
There was not much top-line growth to be found amongst the companies that reported this week, with the exception of Apple
Ford posted a surprise profit in the second quarter, though only on a gain from debt restructuring.
Food and beverage
Financials aren't out of the woods yet
American Express posted a 48% drop in net income as chargeoffs mounted and customers pulled in spending. On the plus side, the company saw slowing growth in the level of delinquencies.
Wells Fargo posted a nice profit that includes its acquisition of Wachovia; however, signs are beginning to surface that Wachovia's bad loans could weigh on Wells. Uncollectable loans rose 45% from the first quarter.
Separately, real estate losses continue to roil the banking sector. Regional banks SunTrust and Key Corp are proof, as both posted losses in the second quarter.
This week brings round three for second-quarter earnings as we receive reports from Time Warner to MasterCard and Dow Chemical.
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