What's more powerful than a speeding locomotive? The answer is the stock market -- when the Federal Reserve promises to keep pumping free money into the economy!
On top of calming commentary by Fed chairman Ben Bernanke, better-than-expected earnings reports continued to fuel the broad-based S&P 500 (^GSPC 1.11%) higher. Financials have been the big driving force thus far in earnings season, with Bank of America crushing estimates yesterday, and Morgan Stanley (MS 0.41%) following suit today. The No. 2 investment bank in the U.S., Morgan Stanley, delivered a 42% increase in total profits fueled by a ridiculous 83% surge in wealth management income. As long as the backbone of our economy (i.e., the financial sector) remains strong, this rally could have legs.
When the day was over the S&P 500 had, yet again, eclipsed another all-time high, rising 8.46 points (0.50%), to close at 1,689.37.
Sticking with the theme of earnings season, a better-than-expected earnings report from building and automotive efficiency company Johnson Controls (JCI 1.05%) is what propelled it to the top of the day's gainers, up 8.3%. For the third quarter, Johnson Controls increased revenue by 2%, to $10.83 billion, a bit lower than the Street had expected, but produced $0.78 in adjusted EPS, $0.03 better than analysts expected. Furthermore, Johnson Controls narrowed its full-year EPS range to a range of $2.64-$2.66, from $2.60-$2.70, which is higher than the current $2.61 consensus. It was definitely a good day overall for Johnson Controls, but I'd keep a cautious eye on its U.S. business, as a government spending slowdown could adversely impact its future results.
The nation's largest health insurer, UnitedHealth Group (UNH 0.42%), also spiked 6.5% higher after reporting its second-quarter results. Fairly consistent with what we saw last quarter, UnitedHealth came in a tad light on the revenue side of its business than Wall Street had expected -- $30.4 billion versus $30.5 billion -- but tight cost controls helped push its $1.40 in EPS well past the $1.25 that the Street had forecast. UnitedHealth can attribute the majority of its earnings strength to strong commercial health-insurance enrollment. Looking forward, I like UnitedHealth's chances of heading higher, presuming the implementation of Obamacare goes off without too many hitches.
Finally -- and to keep with today's theme -- grocery store Safeway (NYSE: SWY) advanced 6.8% after reporting its second-quarter results. Although the grocer's profits fell from the previous year, adjusted EPS of $0.51 topped expectations by $0.01. Revenue also fell 2%, hurt by lower fuel sales. The big boost appears to have come from the company's forward guidance, which calls for same-store sales growth of 1.5% to 2%, and full-year EPS to come in at the lower-end of its previous forecast of $2.25-$2.45. With the Street only expecting $2.27 in EPS for the year, Safeway's in-line estimates appear to suggest its store remodeling and focus on organic products is working.
