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.
Sometimes the oddest news can move the broad-based S&P 500 (^GSPC 1.27%), and today was one such day!
With strong earnings very much in the forefront, investors instead turned to important economic indicators to push the S&P 500 more than 1% to the upside. Specifically, investors focused on the weekly initial jobless claims and the preliminary estimate for fourth-quarter GDP.
Here's the kicker: both figures were weak or weaker than expected. Weekly initial jobless claims rose 19,000 from the prior week to a seasonally adjusted 348,000, while the first fourth-quarter GDP estimate of 3.2% growth is well below the 4.1% GDP growth reported in the third quarter. Under normal circumstances you'd think the market would be lower on this news, but it presents the perfect case scenario for the Federal Reserve to scale back on easing of its economic stimulus. The Fed has cut $20 billion from its original $85 billion monthly bond purchases over a two-meeting stretch, so this could be the precursor to keep its stimulus at $65 billion per month in the interim.
A slew of positive earnings reports, as well as the above economic data, pushed the S&P 500 higher at day's end by 19.99 points (1.13%) to close at 1,794.19.
Leading the market to the upside today was optical networking equipment provider Infinera (INFN 2.72%), which gained 29% after reporting better than expected fourth-quarter earnings results. For the quarter, Infinera saw an 8.6% increase in total revenue to $139.1 million as its bottom line improved from a year-ago loss of $0.05 per share to breakeven. By comparison, Wall Street had expected Infinera to deliver a $0.02 loss per share on $136.2 million in revenue. Most importantly, gross margin improved 5% to 41%. Although Infinera is a bit pricey at 29 times forward earnings, the trickle down from telecom service providers expanding their infrastructure should give Infinera a decent chance at continuing its run higher.
Shares of Geron (GERN 7.58%) oddly rocketed higher by 23.6% after the clinical-stage biopharmaceutical company disclosed the sale of 22.5 million common shares for $4 per share. The intended $90 million raise will be used to fund the company's midstage trial of imetelstat to treat myelofibrosis, as well as for general corporate purposes. While I can understand investors' excitement with having fresh funding, the simple fact that Geron is about to dilute shareholders by 17.4% certainly doesn't make me feel comfortable about today's rally. In addition, finding out earlier this week that the Mayo Clinic had ended enrollment in its investigator-sponsored trial of imetelstat, and that 20 of 79 patients discontinued the study, is a bit worrisome.
Finally, biopharmaceutical giant Alexion Pharmaceuticals (ALXN) advanced 21.1% after it, too, reported market-topping fourth-quarter results. For the quarter, Alexion delivered a 38% increase in Soliris sales ($441.9 million) as earnings per share climbed 45% to $0.87. Comparatively speaking, the Street only expected Alexion to report $430.7 million in revenue on $0.83 in EPS. Furthermore, Alexion provided full-year guidance of $2 billion-$2.02 billion in sales and EPS of $3.70-$3.80, which was boosted by a reduced effective tax rate expectation of 10%-11%. While it's hard to deny that Soliris has turned into an impressive growth drug, it's also really difficult to support Alexion's valuation at nearly 16 times this year's sales and with only one FDA-approved drug.
