Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
You could almost say we had too much economic data for the broad-based S&P 500 (^GSPC -0.22%) to digest today because the iconic index was held within a very tight trading range.
On one hand we had mixed economic data that pushed and pulled optimists and pessimists in every direction. Durable goods orders, for instance, rose an impressive 3.7% in September -- well above economists' expectations -- and were aided most notably by a big jump in aircraft orders. On the flip side, the Thomson Reuters/University of Michigan final reading of consumer sentiment for October came in at 73.2, which is lower than September and weaker than what economists had forecast. A lower reading would signify that consumers are viewing the economy with more skepticism which, if this figure continues to fall, could adversely affect consumer spending.
In addition to mixed economic data, a mound of earnings reports (both positive and negative) caused investors to be somewhat indecisive in their trading. You could certainly argue that beats and misses aside, no report stood taller than Microsoft (MSFT -1.84%) which trounced Wall Street's expectations in its first-quarter report. Microsoft delivered an impressive 16% increase in revenue to $18.5 billion, helped primarily by improved Windows operating system sales, as profits jumped 17% to $0.62 per share. Wall Street had been forecasting just $17.8 billion in sales and a profit of $0.54 per share, so this was a gigantic earnings beat. With tablet sales improving, Microsoft provided the kick the S&P 500 needed to move higher.
By day's end, the S&P 500 had risen by 7.70 points (0.44%) to close at 1,759.77, yet another all-time closing high.
Leading the charge among the S&P 500, and getting some rare top-performance recognition, was industrial flow management equipment maker Flowserve (FLS -0.09%) which gained 12.2% after reporting better-than-expected third-quarter results. For the quarter, Flowserve delivered a 5.4% increase in sales to $1.23 billion (including negative current effects) as net income rose 19% to an adjusted earnings per share of $0.90, $0.05 higher than the Street had forecast. With original equipment bookings hitting their highest levels in more than a year and operating margins improving 150 basis points to 15.7%, the run higher in Flowserve may not be over even following today's large pop.
Online retailing behemoth Amazon.com (AMZN -1.14%) rose a clean 9.4% on the day and did what it does best around earnings time: impress analysts. For years, profitability has meant little to Amazon's bottom line, with analysts instead honing in on Amazon's cash flow generation and revenue growth. For the quarter, operating cash flow increased 48% to $4.98 billion while net sales jumped 24% to $17.09 billion. Looking ahead, Amazon forecast fourth-quarter sales growth of 10%-25% ($23.5 billion-$26.5 billion) and an operating income/loss of minus $500 million to positive $500 million. Given Amazon's incredible growth rate and operating income generation for a company its size, I see no reason why it may not head even higher and defy its already lofty valuation.
Finally, in keeping with our theme of earnings-driven stories, pressure-sensitive materials supplier Avery Dennison (AVY 0.21%) jumped 8.4% after reporting market-topping results in its third quarter. Avery Dennison reported that revenue increased 4% for the quarter to $1.5 billion as its leading pressure-sensitive materials segment saw a corresponding revenue rise of 4%. Adjusting for the higher costs associated with the sale of its consumer and engineered products division to CCL Industries earlier this year, Avery Dennison earned $0.69 in EPS which was $0.05 better than the Street was looking for. In addition, it also upped the low end of its full-year EPS guidance to a range of $2.60-$2.70 from a prior forecast of $2.50-$2.70. While great news for current investors, Avery Dennison's middling growth rate doesn't inspire confidence in me that its share price can head much higher.
