CME Group had a bad day Tuesday despite releasing first quarter earnings that showed an 88% increase in total revenues from first quarter 2007. CME stock at one point was down $63.24, a little more than 12%, before settling $40 lower on the day. See the street expected revenue to grow by $4.81 million in the first quarter not included certain tax benefits and it turns out that it grew by only $4.67 million.
Contrast this with Citigroup. On Friday Citi reported losses of $5 billion for the first quarter with additional subprime related writedowns of $12 billion, but managed a significant rally. See they exceeded expectations.
While it is understandable that certain expectations are priced into the market and under/over performance will cause a market reaction but it still is odd to see. The CME after all is quite a bit off of its $714 high and has shown consistent growth and solid management while Citi is one of the investment banks that has been floundering about in the subprime swamp.
The Dow Jones Industrial Average rallied significantly last week and has managed to hold onto most of those gains despite some pretty rotten economic news. Key to the strength is analyst’s expectation that the worst is behind us in terms of the subprime crisis.
The problem with that analysis is that is seems based on nothing but wishful thinking. The big investment banks continue to post huge writedowns and none of them have declared that all their losses have been booked. And today exsting home sales show a year over year drop of 7.7%. Also the inventory of unsold homes has increased and it is hard to understand how anyone can say the crisi is over.
