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 (SNPINDEX:^GSPC) higher. Financials have been the big driving force thus far in earnings season, with Bank of America crushing estimates yesterday, and Morgan Stanley (NYSE:MS) 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 (NYSE:JCI) 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 (NYSE:UNH), 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 (UNKNOWN:SWY.DL) 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.
Fool contributor Sean Williams owns shares of Bank of America, but has no material interest in any other companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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