Is This Stock Sell-Off Just a Blip?

Is This Stock Sell-Off Just a BlipIf there’s one thing the stock market needs, it’s a distraction from global growth worries and geopolitical events. And corporate earnings are the ticket for that as this season’s numbers are starting to pour in.

Pharmaceutical benchmark Johnson & Johnson (JNJ) once again beat Wall Street consensus, generating another good quarter of both sales and earnings growth.

The company completed a major divestiture of its ortho-clinical diagnostics division during its latest quarter; even so, it was able to generate domestic sales growth of 11.6% over the same quarter last year. Total consolidated sales grew 5.1% to $18.5 billion. Excluding the impact of the company’s recent divestiture, domestic sales would have increased 14.8% comparatively.

Excluding gains, litigation accrual, tax adjustments, and integration costs from the large acquisition of Synthes, Inc., Johnson & Johnson’s bottom-line earnings grew 9.5% to $4.5 billion, or 10.3% to $1.50 on a diluted earnings-per-share basis.


Once again, global pharmaceutical sales, including over-the-counter products, were the driver of growth, up 18.1% over the same quarter last year.

Johnson & Johnson clearly continues to have operational momentum. Positive price action in the stock may be slow near-term commensurate with the broader market, but this company is still delivering the goods.

Management increased its full-year earnings guidance and a $5.0-billion share repurchase program is still available at their discretion.

Another big-name corporation reporting solid earnings results was Wells Fargo & Company (WFC), the largest U.S. mortgage lender. The company beat Street consensus on revenues and matched the earnings estimate.

And Citigroup Inc. (C) experienced a big increase in its revenues, too, coming in at $19.6 billion, up from $17.9 billion. It was a much-improved quarterly comparison for the company on better institutional trading results.

Even Dominos Pizza, Inc. (DPZ) beat consensus on both revenues and earnings, with domestic same-store sales growing 7.7% over the same quarter last year. Total sales grew 10.5% to $447 million, while diluted earnings per share grew 19% to $0.63.

Global growth concerns are a reality, but the numbers from corporations so far reveal strength in the domestic market. (See “Another Solid Earnings Season Ahead for Existing Winners?”)

And this, of course, is the big concern in capital markets. Investors want to see more contributions from big economies other than the U.S. market.

So far, third-quarter earnings season is looking pretty good—a lot better than many investors anticipated, I think.

But as we know, the stock market is always forward-looking and the marketplace is always trying to discount a future stream of corporate financial results.

It’s pretty clear that if global economic growth is going to accelerate from the current levels, the U.S. market will be leading the move.

At the end of the day, the most important news as an equity investor (other than a change in monetary policy) is what corporations actually say about their businesses. So far, the numbers are holding up and the well-deserved sell-off in stocks should be just a blip following corporate financial growth for now.