Well, the big news of the day is Google, if you hadn’t heard, up 17% on last night’s earnings news which assured investors that weaker paid click survey statistics from the past few months were not indicative of the company’s underlying business strength. I guess we can trust the judgment of the company’s founders when, during last January’s earnings call, they specifically characterized an analyst’s comments about “the slowing economy” as belonging to her and not their own. In general, Google’s strong earnings, along with those of Caterpillar Tractor today, are dragging the markets higher as investors become more convinced that the worst of the credit crisis may be behind us.
On the flip side, Intuitive Surgical is getting hit today, down about 14% on results that were every bit as outstanding as Google’s, with the primary difference likely one of short term expectations. In contrast to Google, whose shares were down 42% from year end levels, Intuitive’s shares were up 15% on a year to date basis and flirting with their all time highs going into the quarterly report. In spite of their big moves in opposite directions today, both companies are among the market’s very best earnings growth stories and, given their winner take all competitive positions, should serve investors very well in the coming years. We like them both from here, recognizing that the greater volatility is also part of the package.
What is also interesting to note in such a strong market like today’s is what sectors aren’t working as well. Energy and materials stocks are essentially flat and down, respectively. These two very hot areas have attracted alot of capital over the last couple of months as they have been among the very few sectors of the economy likely to generate strong earnings gains given skyrocketing commodity prices. While commodity prices may not go down from current levels, we may get to see to what degree speculative behavior has contributed to their recent gains now that some alternative “growers” may be availing themselves. Whether or not they crack or consolidate their gains is yet to be determined, but no one would likely argue with the notion that a broadening of the market would be a healthy sign.
Of course, there are many more earnings reports to come in the next few weeks, but it’s pretty safe to say that we can chalk this one up for the bulls.
