Market Listens and Watches as IBM Sings Big Blues What a week the capital markets had last week. There were trials and tribulations as well as smiles and celebrations -- and that was often just within a single hour of trading. There wont be any rest for the weary this week, which is already getting off to a whirlwind start, evidenced by a 4% gain in Japans Nikkei 225 and a 7% decline in shares of IBM (IBM) after Big Blue delivered a big disappointment with its third quarter results. The surge in Japan was a byproduct of speculation that the countrys public pension fund might soon double its exposure to domestic equities and that Prime Minister Abe might delay a second consumption tax increase. A weaker yen factored into things as well. Japans strong showing, though, didnt have a carryover effect. European bourses were on the defensive from the start of trading, unable to follow through on Fridays rebound effort. Word from German software giant SAP (SAP) that it is cutting its full-year operating profit target on a customer driven mix shift from upfront to cloud subscription revenue weighed on sentiment. All in all, wed have to say that the futures market has handled IBMs disappointment relatively well. Notwithstanding an expected 7% decline for IBM, the S&P futures are just 0.1% below fair value as of this writing; however, it would be remiss not to add that they are about 12 points off their overnight highs. The question then for many right now is this: will IBMs disappointment, which featured revenue declines across all key product segments and geographies, be looked at more as a company-specific issue or a bigger issue? IBM did say it saw a marked slowdown in client buying behavior in September. With a large swath of companies due to report their results this week, including Apple (AAPL) after todays close, there may just be a willingness to hold off on reacting too strongly to IBMs disappointment, especially since it was already known to be having difficulties generating growth. There isnt any economic data out of the U.S. today that will be offering trading cues, so the markets direction may boil down to a test of its mettle in the face of what is clearly bad earnings news out of a multinational, blue chip company. The other focal point may be the performance of the Russell 2000. After outperforming last Wednesday and Thursday, it was a conspicuous laggard on Friday, declining 0.4%. Market participants will presumably be looking at the performance of the Russell 2000 and the S&P 500 after IBMs news to get a sense of whether recent selling efforts have hit a point of exhaustion or have yet to run their full course. Source: Briefing
Posted on: Mon, 20 Oct 2014 13:11:32 +0000
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