Last week brought earnings reports from a group of companies that investors consider to be signifiers of the state of the global economy, and the equity markets did not like what they saw. Week three of earnings season brought disappointment from Caterpillar, IBM, and Apple. Caterpillar shares fell 8.49% after announcing earnings and lowering 2015 sales guidance from $50 billion to $49 billion. Shares of IBM fell 7.4% after failing to meet sales estimates, while revenues fell 13% from a year ago.
Apple, while reporting earnings that the market would have very happy with a few weeks ago, did not quite live up to more recently raised sales expectations (missing by over 2%) and shares dropped over 4% as a result. We could not help but notice that Apple surpassed $200 billion in cash on the balance sheet, but perhaps we are too easily impressed.
The biggest surprise of the week probably came from Amazon.com. The web retailer frequently does not report positive earnings and investors were expecting the company to lose $0.14 per share this quarter. Instead, Mr. Bezos’ enterprise reported shocking positive earnings of $0.19/share, and the stock advanced 9.6% for the week.
In healthcare, late Friday Cigna agreed to be acquired by Anthem. The deal values the company at over $47 billion, and represents a more than 24% premium to the share price of Cigna prior to the deal. The ongoing consolidation in the healthcare space will have significant ramifications for consumers of healthcare services in the future. Classic economic theory suggests that more competition, not less, benefits the consumer. If not buyer beware, than at least “buyer pay attention”. We will update our commentary more frequently during earnings season as time permits and unfolding events warrant. We hope you are enjoying what has been, at least for those of us in the Great Northwest, a beautiful summer.