December 21, 2012 at 09:37 AM EST
Earnings Picture Starts off Bright with Oracle

Earnings Picture Starts off BrightYou know the stock market is stuck in a rut when it doesn’t react to news, either good or bad. That’s the market we have now: directionless trading with no real expectation of a trend. Part of the current stock market malaise has to do with political negotiations regarding the fiscal cliff and the uncertainty this creates. Any final agreement on the issue should help the stock market; this can’t happen soon enough.

The Dow Jones Transportation Index (or average) has been surprisingly strong over the last several weeks. The bounceback was likely due to a combination of factors, including a technical rebound among many components and lower diesel prices. This index has been a real laggard in the stock market, and it really has to break 5,400 to signal any lasting bullish sentiment.

Corporate earnings from Oracle Corporation (NASDAQ/ORCL) were good, and it’s a sign that enterprises are spending on information technology to improve productivity. There’s been a lot of uneven share price action among large-cap technology stocks. Enterprise-level technology companies are outperforming more consumer-oriented businesses, and this highlights the reticence consumers have to spend. There’s also a technology migration taking place, and it’s away from the personal computer (PC) and Microsoft Corporation’s (NASDAQ/MSFT) “Windows” operating system.

Oracle’s stock market chart is below:

 ORCL Oracle Crop, Nasdaq stock market chart

Chart courtesy of www.StockCharts.com

One of the strongest indices over the last 12 months has been the NASDAQ Biotechnology Index. Many biotechnology stocks have been the market’s best performers this year. Not too long ago, we looked at Alexion Pharmaceuticals, Inc. (NASDAQ/ALXN) in this column. . (See “It’s a Traders’ Market with Only a Few Stocks Doing Great.”) This stock experienced a well-deserved price correction after going up for two years straight. It is in a tentative recovery now, and the company’s earnings estimates keep going up. Alexion is a liquid biotechnology stock that’s good for traders. The company’s stock market chart is featured below:

 ALXN Alexion Pharmaceuticals, Nasdaq stock market chart

Chart courtesy of www.StockCharts.com

I’m becoming a little more bullish on corporate earnings as the year comes to an end. If we get strong earnings growth from technology and financial stocks, then the stock market is going to materially advance. There is an economic recovery at hand, and the latest gross domestic product (GDP) numbers on the U.S. economy were surprisingly good. The key, I would say, is for this recovery not to get messed up by some outside shock. Regardless of the numbers, however, investor sentiment is taking a hit in the absence of a solid deal on the fiscal cliff.

As a group, the financials report their quarterly earnings very soon in the New Year, and as always, they will set the tone for the rest of the earnings season. Another quarter of revenue weakness is likely, with big multinationals operating in Europe and China. The best prospects for earnings growth should be from companies with large domestic operations. Earnings from railroad stocks will also be an important indicator.

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