Positive Earnings

If your television was tuned to CNBC today, you were treated to the sight of Fed Chairman Ben Bernanke speaking to the Senate Banking Committee. These events take several hours to unfold but are somehow always distilled into one or two sound bites that supposedly capture the essence of the day. Today's takeaway is that the Fed isn't convinced inflation is under control. In other words, don't expect an interest rate cut in the near future. Bernanke also talked about the housing correction, suggesting it could be bigger than initially expected and may cut into consumer spending.

Investors in a pair of hedge funds sponsored by Bear Stearns (BSC) received the unwelcome news this week that their money has gone up in smoke, demolished by leveraged bets on mortgage derivatives. BSC itself appears likely to survive the blow, but financial sector shares still lagged as people wonder if more such disasters will come to light.

Meanwhile, earnings season continued to unfold with generally good news. As of this morning, 112 of the S&P 500 companies had reported, and 62% beat the consensus analyst estimates. Only 21% of the companies have announced negative surprises. On average, year-over-year profits are up 6.3% for these companies, but there is substantial variation between sectors. Energy company earnings rose 67.4%, while consumer discretionary stocks saw a -19.8% drop. Google (GOOG) reported a 28% jump in profits after the close today, a little less than the Street was looking for. GOOG shares fell in after-hours trading.

The Dow and S&P 500 both posted new all-time closing highs today, with the Dow finally closing at 14,000 after several brief trips past that mark. The breakout from the June highs has remained intact except for a few hours of mid-day weakness on Wednesday. Large-cap stocks are clearly in the lead right now; small-caps are also near new highs but are having a harder time breaking out. We have no portfolio changes today.