Market flirts with moving averages
By Rick Paler
The market closed lower for the third week in a row, as the major indices flirted with their 50 day and 200 day moving averages. Traders are looking at the moving averages to determine if the markets are heading lower. If the market breaks through its moving average on the down side, some traders will interpit this as a bearish sign.
Intel (INTC) helped drive the market lower after offering a disappointing second quarter report. The company announced second quarter earnings of $0.27 per share matching Wall Streets estimates. The company warned that its gross margins peaked for the cycle and lowered its gross margin forecast for the year from 62% to 60%. The company also announced that their inventory level had risen to a 10 year high.
Qualcomm (QCOM) announced a 2-for-1 stock split and said that they would be increasing their dividend to $0.07 per share from $0.05.
PepsiCo (PEP) second quarter earnings increased 12% over last year posting $0.61 per share matching analyst estimates. But some questioned the numbers posted by the company’s Frito-Lay unit. The popularity of the high protein low carb diets had effected the unit’s growth.
Pfizer (PFE) was in the news after the Chinese government overturned its local patent for Viagra. The company’s CEO Henry McKinnell said that the decision could affect the company’s desire to invest further in China. The company also announced this week that they were trimming their 2004 full year sales forecast to $52.5 - $53.0 billion from $54.0 billion.
Johnson & Johnson (JNJ) reported earnings of $0.82 per share topping the Streets estimates of $0.79 per share. Sales jumped 11% to $11.5 billion. The company also announced that they were raising their full-year profit guidance to $3.03 per share from $3.00.
In economic news, reports indicated that inflation might be slowing and the economy continues to expand. The closely watched Producer Price Index for June unexpectedly fell and the core Consumer Price Index, which excludes food and energy rose only 0.1%. Economist had expected an increase of 0.2%. The index, which measures inflation, indicates that the Federal Reserve might not have to raise interest rates in August.
The Philadelphia Fed’s Business Activity Index came in much higher than expected. The index which measures manufacturing came in at 36.1; economist had expected a reading of only 25.0.
Not all of the reports were rosy, the June Retail Sales, Industrial Production, Capacity Utilization and Consumer Confidence all missed their estimates.
In fixed income news the 5 year Treasury note closed yielding 3.67% up from last weeks 3.62%. The 10 year note yielded 4.48% and the 30 year bond yield ended at 5.21%.
Next week companies that will be releasing earnings are Plum Creek Timber (PCL), US Bancorp (USB), Leggett & Platt (LEG), SouthTrust Corp. (SOTR), Cerner Corp. (CERN), Colgate-Palmolive (CL), Symantec (SYMC), Synovus Financial Corp. (SNV), Pfizer (PFE), Sherwin-Williams (SHW), Bright Horizons Family Solutions (BFAM), Coca-Cola (KO) and Fortune Brands (FO).
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Friday, July 16, 2004
Friday, July 09, 2004
Weekly Market Review 07-09-2004
Tech company’s warnings drive market lower
By Rick Paler
This week was shortened due to the 4th of July holiday. The shortened week did not help the market, as a flood of earnings warnings in the technology sector caused concern about the second quarter earnings season that begins next week.
The technology sector was hit hard this week when several big name technology companies reduced their earnings guidance for the second quarter and some lowered their full year guidance. Some of the companies that reduced guidance were; Veritas (VRTS), PeopleSoft (PSFT), Siebel Systems (SEBL), Storage Tech (STK) Computer Associates (CA) and BMC Software (BMC).
The market was also hurt this week by disappointing same-store sales for June and oil prices once again going above $40.00 dollars a barrel. On top of this, Homeland Security Secretary Tom Ridge announced terrorist are planning an attack to disrupt the presidential election this fall.
In corporate news Yahoo! (YHOO) shares traded lower after the company announced earnings of $0.08 per share meeting the street estimates that more than doubled last year’s results. Traders were unimpressed though with the company’s third quarter revenue guidance.
General Electric (GE) beat their second quarter earnings estimates by $0.01 reporting earnings of $0.38 per share. Sales also topped the Streets estimates as sales climbed 10.7% to $37.0 billion. The company said “this is the best economy we’ve seen in years.” GE raised their guidance for 2004 from $1.54 - $1.60 per share to $1.55 - $1.60 per share. Additionally the company said they expect 2005 profit growth of 10% - 15%.
Alcoa (AA) reported earnings $0.01 per share below analyst estimates at $0.46 per share up 86% from a year ago and sales increased 11% to $6.1 billion. The company credited stronger sales and higher prices, along with expense reduction.
In economic news Federal Reserve President Alfred Braddus said that the economy is strong and inflation is not a concern at this time. He added that the economy has moved into “sustained expansion” and that last months employment data although below what economist had expected was still “reasonably healthy”.
The June ISM non-manufacturing index came in at 59.9 lower than what economist estimated and below the May reading of 65.2. This could show signs that the economy while still growing is now moderating. This brings into question whether the Federal Reserve will take action to raise interest rates again in August.
The bond market was mixed as the 5 year Treasury notes yield increased to 3.62% from last weeks 3.60%. The 10 year notes yield was lower ending at 4.45% from 4.46% a week ago. The 30 year bonds yield was unchanged at 5.20%.
The economy is showing signs that while it is still growing; the rate of growth has slowed. This should not effect second quarter earnings season, as I still expect superb earnings growth for the S&P 500. We have entered a period of stagnation in the market as traders wait for earnings. Additionally there continues to be concern over terrorism and the outcome of the presidential election. At this point neither the market bulls nor the bears have an upper hand. Because of this the market should continue to trade within its current trading range.
Next week companies releasing earnings that are of interest are; Helen of Troy (HELE), Intel (INTC), Johnson & Johnson (JNJ), Bank of America (BAC), Fifth Third Bancorp (FITB) Citigroup (C) and PepsiCo (PEP)
By Rick Paler
This week was shortened due to the 4th of July holiday. The shortened week did not help the market, as a flood of earnings warnings in the technology sector caused concern about the second quarter earnings season that begins next week.
The technology sector was hit hard this week when several big name technology companies reduced their earnings guidance for the second quarter and some lowered their full year guidance. Some of the companies that reduced guidance were; Veritas (VRTS), PeopleSoft (PSFT), Siebel Systems (SEBL), Storage Tech (STK) Computer Associates (CA) and BMC Software (BMC).
The market was also hurt this week by disappointing same-store sales for June and oil prices once again going above $40.00 dollars a barrel. On top of this, Homeland Security Secretary Tom Ridge announced terrorist are planning an attack to disrupt the presidential election this fall.
In corporate news Yahoo! (YHOO) shares traded lower after the company announced earnings of $0.08 per share meeting the street estimates that more than doubled last year’s results. Traders were unimpressed though with the company’s third quarter revenue guidance.
General Electric (GE) beat their second quarter earnings estimates by $0.01 reporting earnings of $0.38 per share. Sales also topped the Streets estimates as sales climbed 10.7% to $37.0 billion. The company said “this is the best economy we’ve seen in years.” GE raised their guidance for 2004 from $1.54 - $1.60 per share to $1.55 - $1.60 per share. Additionally the company said they expect 2005 profit growth of 10% - 15%.
Alcoa (AA) reported earnings $0.01 per share below analyst estimates at $0.46 per share up 86% from a year ago and sales increased 11% to $6.1 billion. The company credited stronger sales and higher prices, along with expense reduction.
In economic news Federal Reserve President Alfred Braddus said that the economy is strong and inflation is not a concern at this time. He added that the economy has moved into “sustained expansion” and that last months employment data although below what economist had expected was still “reasonably healthy”.
The June ISM non-manufacturing index came in at 59.9 lower than what economist estimated and below the May reading of 65.2. This could show signs that the economy while still growing is now moderating. This brings into question whether the Federal Reserve will take action to raise interest rates again in August.
The bond market was mixed as the 5 year Treasury notes yield increased to 3.62% from last weeks 3.60%. The 10 year notes yield was lower ending at 4.45% from 4.46% a week ago. The 30 year bonds yield was unchanged at 5.20%.
The economy is showing signs that while it is still growing; the rate of growth has slowed. This should not effect second quarter earnings season, as I still expect superb earnings growth for the S&P 500. We have entered a period of stagnation in the market as traders wait for earnings. Additionally there continues to be concern over terrorism and the outcome of the presidential election. At this point neither the market bulls nor the bears have an upper hand. Because of this the market should continue to trade within its current trading range.
Next week companies releasing earnings that are of interest are; Helen of Troy (HELE), Intel (INTC), Johnson & Johnson (JNJ), Bank of America (BAC), Fifth Third Bancorp (FITB) Citigroup (C) and PepsiCo (PEP)
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