Best Buy beat expectations while Goldman missed today. Both opened higher, which indicates one of three things:
Expectations have fallen further than reported,
The market is continuing to ignore bad news, or
Other market news is trumping all.
In short, I think the answer is a variation of 2. But first, let’s look at the news. Bloomberg reports Best Buy Will Offer Workers Voluntary Severance, Slash Spending:
Best Buy Co., the largest U.S. electronics retailer, said it will offer voluntary severance packages to almost all its corporate employees and slash capital spending as part of a plan to reduce costs.
The shares gained as much as 16 percent in New York trading. The workers will be eligible for a program with increased benefits, Best Buy said today. If not enough employees participate, some may be fired, it said.
Best Buy reaffirmed its annual profit forecast and said it would cut capital spending by 50 percent next year by opening fewer stores in the U.S., Canada and China. Consumers facing rising job losses and shrinking home values have curtailed purchases, helping push the U.S. into a recession and causing retailers to slash prices to attract holiday-gift buyers.
…
Third-quarter net income dropped 77 percent to $52 million, or 13 cents a share, from $228 million, or 53 cents, the Richfield, Minnesota-based company said. Sales advanced 16 percent to $11.5 billion from $9.93 billion.
Excluding impairment expenses, Best Buy earned 35 cents a share. Twenty-one analysts surveyed by Bloomberg estimated average profit of 24 cents a share. Fifteen projected sales of $11 billion.
Beating expectations is good. Their market share actually increased, which was largely attributed to the demise of Circuit City. The market is obviously shrinking, though. Best Buy’s decision to offer severance packages to “almost all its corporate employees” is an interesting take on the mass corporate layoff, and shows that management understands the need to trim staff and has concern for corporate employee well-being. Slashing capital spending is also a wise move in this economy. Overall, I think this news makes it clear that management at Best Buy understands the situation they are in. I’ve never had a good experience in a Best Buy retail store, so I was a little surprised that the company appears to be well run. Though the layoffs and the spending cuts aren’t bullish, I think they qualify as good news.
The Goldman news wasn’t as positive. Bloomberg reports Goldman Sachs Reports First Loss as a Public Company:
Goldman Sachs Group Inc. reported a fourth-quarter loss of $2.12 billion, the first since the company went public in 1999, as asset values and investment-banking fees declined.
The loss of $4.97 a share in the three months ended Nov. 28 compared with net income of $3.22 billion, or $7.01, in the same period a year earlier, the New York-based company said today in a statement. The average estimate of 18 analysts surveyed by Bloomberg was for a loss of $3.73 per share.
Expectations were bad, but still too high. There’s more to that article, but I liked this headline better: also from Bloomberg, Goldman Sachs Cuts Jobs, Slashes Average Pay 45% to $363,654. That’s the average income? Crazy.
So, the market opened higher, as did both of these stocks. Best Buy makes sense, but Goldman seems wrong. Was it that expectations had fallen further on Goldman than reported? Well, given the gap, I think it’s possible that expectations fell, but not likely that they fell far enough. The market has been doing a great job of ignoring bad news lately, and I think that accounts for quite a bit of the market move today. Basically, sentiment is shifting, and the scale of what qualifies as good and bad has shifted lower.
The last possible explanation is worth exploring. Is other news trumping the day? There are two huge things that should move the market (though I’m not sure if either can be considered worse than Goldman reporting such a loss). The first is the Fed announcement, which hasn’t yet happened. A rate cut is expected (and largely baked in at this point). What might be driving markets up is that people are expecting something very creative in the Fed announcement with respect to a liquidity initiative. The second big news item is the CPI report. Seasonally adjusted CPI was -1.7%. Expectations were reported to be -1.3%. It’s possible that this is viewed as positive. To me, it means that demand is dropping off everywhere. As someone with savings and a job, this is great for me. For someone with debt and no job, this news isn’t good enough.
So, maybe it’s the market shrugging off bad news, and maybe it’s the CPI and anticipation of the Fed. Either way, the market is up (though off its highs right now). We still have time for a rally into the end of the year (and a bit into the Obama inauguration process). I’d really like to see S&P 1000.
