The Dow Continues Its Earnings Ramp-Up

Investors cast their eyes in two different directions today as Federal Reserve Chairman Ben Bernanke continues to give congressional testimony while the peak of earnings season is upon us. The stock market chose to accentuate the positives of today's news, as good quarterly results from the higher-share-price components of the Dow Jones Industrials overwhelmed less enthusiastic reports from some of the lower-priced Dow components. As of 10:50 a.m. EDT the Dow is trading at record-high levels once more, gaining 113 points. The S&P 500 also hit new highs, up 0.7% for the day.

One thing investors should keep in mind about earnings season is that it often follows a similar pattern. Going into the season, overall expectations usually hit bottom right before companies start to report, as the companies that are most concerned about their prospects tend to issue preannounced earnings warnings that pull down the overall earnings-growth projections of the market. With the bar thus set low, companies are often able to beat lowered expectations, boosting earnings back upward and inspiring the stock market to post bigger gains. Even though we're only a week and a half into earnings season, that seems to be the pattern we're following this quarter as well.

The big earnings winner is UnitedHealth , which has soared 5% after posting a 12% gain in revenue and about a 10% jump in earnings per share, along with boosting the lower end of its earnings guidance for the full year. UnitedHealth increased its count of policyholders by 3.2 million during the quarter, but the real test for the company will come when Obamacare's individual mandate takes effect at the beginning of 2014. If UnitedHealth can outpace its rivals in securing higher-margin customers, then the remaining question will be whether Obamacare reverses the recent trend toward reduced numbers of patients using medical services, which have helped insurers.

IBM has posted a weaker climb of 2.7%, but given its dominance of the Dow, it actually had a greater positive impact on the average than UnitedHealth. Ahead of IBM's quarterly report, many investors had feared that a slowdown in IT consulting activity reported by IBM competitors would hurt Big Blue's results, and that trend played a role in the company's 17% drop in earnings on about 3% lower revenue. But the company managed to improve its margins by more than a full percentage point, making the most of its waning revenue. Moreover, raising its guidance for full-year operating earnings by $0.20 per share helped make IBM investors more enthusiastic about the prospects for the company's big-data efforts and other growth initiatives.

Finally, grocery store operator SUPERVALU has soared 17% following its own favorable earnings report. The company sold off many of its most popular chains to private-equity firm Cerberus Capital earlier this year, but SUPERVALU's efforts to cut its costs and capitalize on its remaining chains have borne fruit as the company reported adjusted profits that more than doubled estimates. Going forward, the grocery industry remains challenging, as same-store sales declines reflect. But in the midst of its reorganization, SUPERVALU appears to be moving in the right direction.

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Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends UnitedHealth Group. The Motley Fool owns shares of IBM and Supervalu. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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