The market declined modestly in the final session of the week. However, it managed to gain about 1% for the week. Earnings news continued to be a driving force for market activities. Although the majority of the S&P 500 companies won’t start to report their earnings until next week, we can already see some patterns from what have reported so far. For companies that miss top-line estimations, the stocks are usually facing selling pressure regardless how they do to their bottom-line. Examples in this category include J&J, GE and Citi. In other words, merely beating earnings expectations is not enough for this earnings season. For companies that beat both top-line and bottom-line, a sell-off may also happen. Examples in this category include Intel, IBM. We should also remember that both companies raised their guidance as well. In other words, investor expectations for the current quarter are much higher compared to the previous quarter, which will be a challenge for companies that are going to report during the next two weeks.

We had some mixed economic data today. Industrial production for September rose a stronger-than-expected 0.7%, which brought the capacity utilization to 70.5% form 69.9%. The University of Michigan Consumer Sentiment Survey, on the other hand, came in at 69.4 vs. 73.3 expected.

Most major sectors finished the session lower led by financial and industrial. The CRB commodity index rose 0.9%. The US dollar was higher against most major currencies. Treasury rose with the yields falling. The three-month US LIBOR was unchanged at 28 bps. The VIX index dropped slightly. The market breath was negative on both NYSE and Nasdaq. The volume was neutral compared to the previous session.

The market advanced modestly after yesterday’s strong gain. Earnings continued to dominate the market actions and most companies managed to post better-than-expected earnings and revenues. It is always fascinating to see how investors care about the earnings for one quarter. Of course, stock prices should reflect corporations’ earnings power over the long run. But in the short run, many other factors will be of more importance. For example, one such factor is earnings multiple or PE ratio. Most investors use a simple number say 15 to judge whether a single company or a major index is over priced or not. In reality, things are not that simple. It is true that historically the median PE ratio is around 15 for US companies. But if you take a closer look, you will see the PE ratio can really be anyway from 5 times to 40 times. Even more frustrating for those looking for simple answers, it rarely sticks to 15. What does it mean? When things are good or investors expect better things to come, they are willing to bid stock prices to rich level, like what happened during the Dot Com Bubble. When things are bad or investors deem the end of the world is imminent, they are going to sell at whatever price they can get. One recent example would be last March, when investors worried about insolvency of the whole financial system and drove the PE ratio to a multi-decade low of 11 times of earnings. So where are we now? The answer is somewhere in between. Based on this year’s S&P 500 earnings of close to 60 dollars, the current market is traded at around 18 times earnings. But based on next year’s earnings estimation of 75 dollars, the current market is traded at 14.6 times earnings. I don’t know where the market will be ended this year or next year. But I think one thing is almost certain, that is, earnings multiple won’t go beyond 20 for next year’s earnings and won’t go below 12 either. In other words, if we believe in the analysts’ estimation, the S&P 5000 should be traded in a range of 900 to 1500 next year.

We had some mixed economic data today. Initial claims came in at 514K, slightly better than 520K expected. Continuing claims dipped to 5.99 million. The headline CPI rose 0.2% while core CPI also increased 0.2%. The core number is a little hotter than what economists were looking for. The Empire State Manufacturing Index for October came in at 34.57, much better than the 17.25 that was expected. The Philadelphia Fed index, on the other hand, came in at 11.5 or slightly below expectations.

Most major sectors finished the session higher led by energy and healthcare. The CRB commodity index rose 1.4%. The US dollar was mixed against all major currencies. Treasury declined with the yields rising. The three-month US LIBOR was unchanged at 28 bps. The VIX index dropped 1.2 points. The market breath was positive on both NYSE and Nasdaq. The volume was lower compared to the previous session.

The market advanced strongly on this Wednesday with all three major indexes finishing the session higher by around 1.5%. The Dow, for the first time in more than a year, closed back above the 10,000 mark. Interestingly enough, the Dow has crossed the magic number 50 times on a closing basis since it first broke it more than a decade ago. Ten years later, the US GDP is more than 40% larger while the stock market is being traded on the same level. It reminds me of several decades ago, when the Dow first crossed the 1,000 mark in 1972, it was not until 1982 that the Dow was finally coming back above that level. We all know what happened following that – the market rose 900% in less than 18 years. Will history repeat? It is always something interesting to keep in mind. Earnings continued to play an important role in today’s trading. JP Morgan, the first major financial firm scheduled to report earnings, handily beat both top-line and bottom-line expectations. The stock, which has risen over 200% from its bottom earlier in the year, still has room to go if the economy is doing well. If we simply apply a return-of-asset ratio of 1.25% and the company currently has $2 trillion assets, we will get a net income of $25 billion somewhere down the road. And if we apply a conservative 10 times earnings ratio, the market cap will be $250 billion, which is more than 25% more than the current market cap. However, that’s really a big “if” and it really assumes a V-shaped recovery in the economy. In other words, the margin of safety has diminished a lot since earlier this year.

All 10 major sectors finished the session higher led by industrial and transportation. The CRB commodity index rose 0.8%. The US dollar was lower against all major currencies. Treasury declined with the yields rising. The three-month US LIBOR was unchanged at 28 bps. The VIX index was little changed. The market breath was positive on both NYSE and Nasdaq. The volume was higher compared to the previous session. Almost 1000 issues hit new highs.

The market once again closed the session in a mixed fashion. Earnings dominated headline news. As expected, most companies reported better-than-expected earnings results. But in cases like J&J that missed revenue expectations, stocks were sold off. The pattern is likely to continue for the remaining of the earnings season. After the bell, tech giant Intel handily beat both top-line and bottom-line expectations and should give tech stocks a boost during tomorrow’s trading.

The market closed the first session of the new week in a mixed fashion. The Dow hit a new intra-day high for the year while the S&P 500 extended its winning streak to six consecutive sessions. The volume, however, is on the light side due partly to the Columbus Day holiday. Earnings will be the key to watch as we enter the busy earnings season. Although the majority of the S&P 500 companies won’t report their earnings until next week, several important names are going to report this week. And the list includes Goldman Sachs(Thu), JP Morgan(Wed), BankOfAmerica(Fri), Intel(Tue), Google(Thu) and IBM(Thu). Last quarter most companies did well as they managed to boost their productivity. Since then, the market has risen more than 10% so the companies are expected to deliver not only better-than-expected earnings results but also top-line revenue growth. I expect most companies reporting this week will beat both top-line and bottom-line expectations.

For the week ending on Oct 9th, most major indexes continued to show bullish stances. We are clearly in a bull market. The market bounced well after touching 50-day MAs for several major indexes. The only troubling sign is that while the Dow closed at a new high on a weekly basis, the Transportation index failed to do so. We would like to see a confirmation from the transportation index. Sectorwide, commodity groups including copper, coal, gold and aluminium were among the best performers for the week while biotech, utilities and restaurants were lagging.

Most major sectors finished the session modestly higher led by energy and industrials. The CRB commodity index rose 1.8%. The US dollar was lower against all major currencies. Treasury market is closed due to holiday. The three-month US LIBOR was unchanged at 28 bps. The VIX index was little changed. The market breath was mixed on both NYSE and Nasdaq. The volume was lighter compared to the previous session.