American Express Spoils the Finance Party, Apple Nosedives After the Close

American Express proved to be the finance party pooper after posting a 38% drop in quarterly profit following the close on Monday.  The company reported earnings of $653 million or 56 cents a share, compared to $1.057 billion, or 88 cents a share.  Analysts were expecting earnings of 83 cents a share and boy were they angry to find out how wrong they were.  They must've promptly called every investor on their speed dials and urged them to dump the stock as the shares fell over 10% after the earnings report.  Although investors have been greeting profit declines from all the banks with a cheer since the middle of last week, for some reason, American Express' disappointment was deemed atrocious.  Perhaps investors were angry that the company did not warn analysts of the coming miss so that they could have slashed their earnings estimates the week before the report to appear as if they served some sort of useful purpose in society?   Finding out in the earnings report is down right embarrassing.  Having to use forecasting skills to determine that the high end consumer is being affected by the slump in the economy, depressed stock market, and credit squeeze, well, that's just too much to ask of anybody.      

Speaking of the high-end consumer, Apple said on Monday that its current-quarter earnings would be well below Wall Street targets.   While Apple's earnings were respectable, with net income totaling $1.07 billion or $1.19 a share, forecasts of $1 earnings per share for the September quarter were below Wall Street's target range of $1.13 to $1.41.  The company shipped nearly 2.5 million Macs, up 41% from a year ago and 11 million iPods, up 12% from a year ago.  Apple sold 717,000 iPhones, more than double the amount a year ago when the product was introduced.  Although the company is clearly experiencing strong growth in all of its products, so much is baked into the stock price that it is difficult to keep pace with investors' expectations.  Apple's shareholders are facing a fate similar to what Google and Rimm's shareholders experienced before: a very strong performance in a difficult economic environment with a stock price that is priced for perfection.

Fear not for tomorrow brings a host of earnings news both before and after the close.  Sandwiched in between the news will be a full day of trading where investors will digest the earnings data and decide whether financials are a screaming buy, techs are a sell, neither or both.  Of course, if they decide that financials are a sell, they can't actually short the stocks or risk angering the SEC.  If only there were some other way to express a short position.  Maybe I'll give Black or Scholes a call, see if they can think of something creative that the SEC has never heard of.  In any event, with Wachovia earnings due before the bell and Washington Mutual after, something tells me the volatility is far from over.