Beginning of a summer rally?
By Rick Paler
What a great week we had. All the major indices were up as traders flocked into the market not wanting to be left behind. Wall Street was highlighted by lower oil prices, lowered expectations for inflation, M&A activity, and strong earnings. This allowed the bulls to stampede into an oversold market looking for bargains.
In corporate news this week H.J. Heinz Company (HNZ) announced that its Board of Directors approved a 5.3% increase in the company’s dividend. William Johnson Chairman, President and CEO at Heinz said “This increase reflects the health of our core business, both U.S. and abroad and our strong cash performance. It also represents our commitment to return 45% to 50% of our earnings to shareholders in the form of a dividend.” The new dividend yield puts Heinz in the top 20% of S&P 500 companies paying dividends.
Home Depot’s (HD) earnings blew past Wall Streets estimates when the retailer announced that they had earned $0.60 for the quarter. Analysts had expected earnings to come in at only $0.55 per share. Sales grew a healthy 8.1% to $19.29 billion, which also exceeded estimates. These results include the poor weather experienced in March, which competitor Lowe’s Cos (LOW) citied when it missed their earnings target.
Abercrombie & Fitch (ANF) reported better than expected earnings. The apparel retailer posted earnings of $0.45 per share or $40.4 million. Analysts on average had expected $0.42 per share. Same store sales increased 19%, while their trendy Hollister stores that cater to a younger hip crowd saw their sales jump 71%.
M&A news continues to spring up almost daily. I have mentioned on several occasions that corporations are flooded with cash and are looking for places to put the cash to use. This week United Parcels Services (UPS) announced that they would acquire Overnight Corp. (OVNT) at a 45% premium over the previous day’s closing price. The all cash deal is valued at $1.25 billion. Wall Street applauded the deal by pushing UPS shares higher.
Appliance manufacture Maytag Corp. (MYG) is being acquired by a private equity group led by Ripplewood Holdings LLC. The group offered $14.00 per share or $2 billion with the assumption of debt for the company.
Continental AG (CON.XE) a German tire manufacture and parts supplier denied rumors that it was interested in purchasing Autoliv (ALV). Traders had speculated that the company had been interested after an analyst report stated that the company would make a bid for Autoliv.
Economic news this week helped to easy fears of uncontrolled inflation. Both the Producers Price Index and the Consumers Price Index were released this week and neither indicated that inflation was a problem. The PPI came in fractionally higher than anticipated. The April reading was 0.6% versus an estimate of 0.4%. The core rate which excludes food and energy came in at 0.3%. The April CPI number was 0.5% with the core rate at 0.2%. Just a few weeks ago many on Wall Street thought that inflation was picking up and these reports dispelled those thoughts.
The economy does appear to be cooling off in the manufacturing sector. The May Empire Manufacturing Index fell into negative territory. The index which measures manufacturing in the New York region dropped into negative territory with a reading of -11.1. Economist had estimated manufacturing in the region to grow to 11.7. This was the first negative reading since April 2003.
This was followed up by a worse than expected Philly Fed’s Business Activity Index. The index fell from 25.3 in April to 7.3 in May. Economist had anticipated a decline in the region but only to 17.3.
It is my belief that the economy is in fact cooling off. The Federal Reserves interest rate hikes appear to have slowed the economy and hedge inflation. The question is has the Federal Reserve raised rates to much? The bond market thinks so and it is indicated by the flat yield curve. As a general rule it takes six to nine months before an interest rate hike is felt in the economy. I do believe that at the next FOMC meeting the Federal Reserve will raise rates again another 25 basis points. Although after the June meeting I believe that the Federal Reserve will take a breather and wait before taking additional action.
The 5 year Treasury note closed yielding 3.86%. The 10 year Treasury note was yielding 4.12% at the close this week and the 30 year bond ended with a yield of 4.43%.
Next week the street will be watching to see if the market can continue this rally. Traders will also be waiting for the release of the Fed’s minutes from the last FOMC meeting. Companies releasing earnings are as follows; Campbell Soup (CPB), Toro (TTC), PETCO (PETC), Costco Wholesale (COST), H.J. Heinz Company (HZN), Hormel Foods Corp. (HRL), Patterson Dental (PDCO) and Toll Brothers (TOL).
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Friday, May 20, 2005
Monday, May 09, 2005
Bears drive markets lower
By Rick Paler
Despite continued positive earnings reports and good economic news the market ended the week lower. Oil prices also should have helped the market, since the price per barrel continued its decline but the market was unfazed by the decline. The NASDQ was helped by Cisco and Dell who both reported good earnings reports. Economic reports released were better than what economist had expected. Yet three of the four major indices posted losses for the week.
In general news, mergers continue to be announced. This week Ameritrade Holdings Corp. (AMTD) shares soared when it was reported that E*Trade Financial Corp. (ET) had expressed interest in buying the company. CEO and founder Joseph Moglia stated that the company was not for sale and that “we are confident in our management team and its strategy.” Wall Street analysts believe that the merger would be a good thing for both companies.
Duke Energy (DUK) announced that they were going to acquire Cinergy Corp (CIN) in an all stock deal for $9 billion. Additionally Duke raised its dividend 12.7% to $1.24 per share.
Quest Communications (Q) will not just go away. It was reported this week that Quest was taking its bid for MCI Inc. (MCIP) directly to the MCI shareholders. Their attempt is to block rival Verizon Communications (VZ) bid for the company.
All eyes were on Cisco Systems (CSCO) this week, since a good earnings report would give support to the technology sector. Cisco did not disappoint traders when they reported better than expected fiscal third quarter earnings. The tech bellwether reported earnings of $0.32 per share which was a penny better than expectations. Revenues grew 10% at the company to $6.19 billion. Additionally the company said that orders topped shipments for the first time in two years.
Dell (DELL) gave an upbeat outlook this week when it posted earnings inline with analyst estimates. The company earned $0.37per share on revenues of $13.42 billion. The company also said that it sees revenue growth of between 16% and 18% for 2005.
Tiffany & Co. (TIF) posted better than expected results. The company reported first quarter earnings of $0.26 per share on revenues of $510 million. The company cited strong U.S. sales. They also reaffirmed their 2005 guidance of $1.45 to $1.55 per share.
Target (TGT) announced that their first quarter income rose 26% to $494 million or $0.55 per share a penny ahead of the streets estimates. Revenues at the retailer grew 12.7% to $11.5 billion and same store sales grew a healthy 6.2%.
In economic news, the March trade deficit unexpectedly narrowed. Economist had expected the deficit to rise to $61.9 billion instead it came in at a low $55 billion. Imports declined to $157.2 billion or 2.5% while exports rose to $102.2 billion or 1.5%. It seems as if the weaker dollar is finally spurring exports while higher oil prices have slowed U.S. consumer demand. This is based on this week’s preliminary University of Michigan consumer sentiment for May. Economist had expected to rise in sentiment to 88.2 from last months 87.7 instead it fell to surprising 85.3.
April retail sales were much stronger then economist had expected. The Commerce Department reported that April sales rose 1.4% the largest gain in over seven months. Wall Street economist had estimated a gain of only 0.7%.
Bond yields slipped this week across the yield curve. The 5 year Treasury note fell to 3.81%. While the 10 year note fell to 4.11% and the 30 year bond closed at 4.46%.
The stock market continues to be volatile despite good fundamentals. The economy continues to grow nicely and the first quarter GDP will likely be revised upward from the original 3.1%. Oil prices have caused some of the volatility along with the fear of inflation and the possibility that the Federal Reserve will raise rates to quickly thereby causing the economy to stall. The positive I see in the recent volatility has been the strong corporate earnings. The strong earning combined with a sideways market has caused the overall P/E ratio for the S&P 500 to fall from a lofty 20.2 to a more reasonable 16.8. Given the current conditions it is still my expectation the market will post positive numbers by years end.
Next week traders will be watch for the release of two economic reports. Both the PPI and CPI will be released and any signs of unchecked inflation will cause a sell off in the market. While a lower than expected number could spark a rally.
Companies releasing earning next week that are of interest are the following. Lowe’s Companies (LOW), Abercrombie & Fitch Co. (ANF), Deere & Co. (DE), Hewlett-Packard (HPQ), Home Depot (HD), and The TJX Companies (TJX).
By Rick Paler
Despite continued positive earnings reports and good economic news the market ended the week lower. Oil prices also should have helped the market, since the price per barrel continued its decline but the market was unfazed by the decline. The NASDQ was helped by Cisco and Dell who both reported good earnings reports. Economic reports released were better than what economist had expected. Yet three of the four major indices posted losses for the week.
In general news, mergers continue to be announced. This week Ameritrade Holdings Corp. (AMTD) shares soared when it was reported that E*Trade Financial Corp. (ET) had expressed interest in buying the company. CEO and founder Joseph Moglia stated that the company was not for sale and that “we are confident in our management team and its strategy.” Wall Street analysts believe that the merger would be a good thing for both companies.
Duke Energy (DUK) announced that they were going to acquire Cinergy Corp (CIN) in an all stock deal for $9 billion. Additionally Duke raised its dividend 12.7% to $1.24 per share.
Quest Communications (Q) will not just go away. It was reported this week that Quest was taking its bid for MCI Inc. (MCIP) directly to the MCI shareholders. Their attempt is to block rival Verizon Communications (VZ) bid for the company.
All eyes were on Cisco Systems (CSCO) this week, since a good earnings report would give support to the technology sector. Cisco did not disappoint traders when they reported better than expected fiscal third quarter earnings. The tech bellwether reported earnings of $0.32 per share which was a penny better than expectations. Revenues grew 10% at the company to $6.19 billion. Additionally the company said that orders topped shipments for the first time in two years.
Dell (DELL) gave an upbeat outlook this week when it posted earnings inline with analyst estimates. The company earned $0.37per share on revenues of $13.42 billion. The company also said that it sees revenue growth of between 16% and 18% for 2005.
Tiffany & Co. (TIF) posted better than expected results. The company reported first quarter earnings of $0.26 per share on revenues of $510 million. The company cited strong U.S. sales. They also reaffirmed their 2005 guidance of $1.45 to $1.55 per share.
Target (TGT) announced that their first quarter income rose 26% to $494 million or $0.55 per share a penny ahead of the streets estimates. Revenues at the retailer grew 12.7% to $11.5 billion and same store sales grew a healthy 6.2%.
In economic news, the March trade deficit unexpectedly narrowed. Economist had expected the deficit to rise to $61.9 billion instead it came in at a low $55 billion. Imports declined to $157.2 billion or 2.5% while exports rose to $102.2 billion or 1.5%. It seems as if the weaker dollar is finally spurring exports while higher oil prices have slowed U.S. consumer demand. This is based on this week’s preliminary University of Michigan consumer sentiment for May. Economist had expected to rise in sentiment to 88.2 from last months 87.7 instead it fell to surprising 85.3.
April retail sales were much stronger then economist had expected. The Commerce Department reported that April sales rose 1.4% the largest gain in over seven months. Wall Street economist had estimated a gain of only 0.7%.
Bond yields slipped this week across the yield curve. The 5 year Treasury note fell to 3.81%. While the 10 year note fell to 4.11% and the 30 year bond closed at 4.46%.
The stock market continues to be volatile despite good fundamentals. The economy continues to grow nicely and the first quarter GDP will likely be revised upward from the original 3.1%. Oil prices have caused some of the volatility along with the fear of inflation and the possibility that the Federal Reserve will raise rates to quickly thereby causing the economy to stall. The positive I see in the recent volatility has been the strong corporate earnings. The strong earning combined with a sideways market has caused the overall P/E ratio for the S&P 500 to fall from a lofty 20.2 to a more reasonable 16.8. Given the current conditions it is still my expectation the market will post positive numbers by years end.
Next week traders will be watch for the release of two economic reports. Both the PPI and CPI will be released and any signs of unchecked inflation will cause a sell off in the market. While a lower than expected number could spark a rally.
Companies releasing earning next week that are of interest are the following. Lowe’s Companies (LOW), Abercrombie & Fitch Co. (ANF), Deere & Co. (DE), Hewlett-Packard (HPQ), Home Depot (HD), and The TJX Companies (TJX).
Friday, May 06, 2005
Weekly Market Report 05-06-2005
GM’s bonds at junk status
By Rick Paler
Overall it was a decent week for the markets. Corporate earnings continue to come in very strong and economic reports indicate that the economy is still growing, while inflation seems to be under control. In corporate news both General Motors and Ford had their debt downgraded by Standard & Poor’s. The big news economically this week was the Federal Reserve’s meeting and the Non-farm payroll numbers.
General Motors (GM) hit the headlines twice this week, first when it was announced that Kirk Kerkorian’s Tracinda Corp. offered to purchase 28 million shares of GM at $31.00 per share. Shares of the company moved higher on the news. Upon completion of the deal Tracinda Corp will double its holdings of GM to 8.8%. Then GM hit the news again when Standard & Poor’s downgraded the company’s debt to junk bond status. The rating agency also announced that Ford Motor Company’s (F) debt was also lowered to junk status. Both companies are being hurt by out of control pension and healthcare cost.
Tyco International (TYC) shares fell sharply after the company reduced their full year guidance at the high end from $1.98 to $1.93 per share. The company also reported that their fiscal second quarter earnings came in at $0.48 per share on revenues of $10.5 billion.
Abercrombie & Fitch Co. (ANF) reported that their April same store sales grew 16% well ahead of the streets estimate of 12.2% growth. Total sales at the company grew an impressive 31% to $159.4 million.
American Eagle Outfitters Inc. (AEOS) also reported very good April same store sales. The hot retailer saw same store sales rise 20% for April and total sales rose 30.3% to $142.5 million. The retailer also increased their first quarter earnings guidance to $0.34 per share.
Berkshire Hathaway Inc (BRKA) (BRKB) saw a decline in earnings for the first quarter. Warren Buffet’s company reported earnings of $886,000 per share of class A common. Revenues at the company rose to $17.63 billion. The company also announced that its General Re unit had received a Wells Notice from the SEC. The SEC is looking into transactions between General Re and American International Group Inc. (AIG).
In economic news this week all eyes were on the FOMC meeting to see if the Federal Reserve would raise interest rates for the eighth straight time. The Federal Reserve did raise interest rates a ¼ percent increasing the Fed Funds rate to 3.0%. Also of importance was the Feds wording. Traders had feared that the Fed would remove the policy statement of “accommodation”. Removal of the statement would indicate that the Federal Reserve would act more quickly in raising interest rates to head off inflation. Some economists now believe that the Federal Reserve will continue to raise interest rates until the Fed Funds rate is at 3 3/4% to 4% by year end.
Non-farm payrolls surprised economist on the upside this week. Expectations for the April employment report were for 175,000 new jobs. The actual figure came in at 274,000 new jobs, signaling continued economic growth.
On a side note the Treasury Department announced that an advisory committee was reviewing the return of the 30 year Treasury bond. The bond had been discontinued back in 2001.
Treasury yields rose across the yield curve with the 5 year notes yield closing at 3.94%. The 10 year note closed at 4.26% and the 30 year bond closed at 4.62%.
Earnings for the quarter have been very strong and now stand at 14% growth for the S&P 500 as a whole. Expectations are also good for the second quarter with analyst estimating earnings growth of 8% for the S&P 500.
This week the following companies will be releasing earnings reports. Bayer (BAY), Cisco Systems (CSCO), Walt Disney (DIS), Dell Inc. (DELL), Kohl’s (KSS), Wal-Mart Stores (WMT), and Tiffany & Co. (TIF).
By Rick Paler
Overall it was a decent week for the markets. Corporate earnings continue to come in very strong and economic reports indicate that the economy is still growing, while inflation seems to be under control. In corporate news both General Motors and Ford had their debt downgraded by Standard & Poor’s. The big news economically this week was the Federal Reserve’s meeting and the Non-farm payroll numbers.
General Motors (GM) hit the headlines twice this week, first when it was announced that Kirk Kerkorian’s Tracinda Corp. offered to purchase 28 million shares of GM at $31.00 per share. Shares of the company moved higher on the news. Upon completion of the deal Tracinda Corp will double its holdings of GM to 8.8%. Then GM hit the news again when Standard & Poor’s downgraded the company’s debt to junk bond status. The rating agency also announced that Ford Motor Company’s (F) debt was also lowered to junk status. Both companies are being hurt by out of control pension and healthcare cost.
Tyco International (TYC) shares fell sharply after the company reduced their full year guidance at the high end from $1.98 to $1.93 per share. The company also reported that their fiscal second quarter earnings came in at $0.48 per share on revenues of $10.5 billion.
Abercrombie & Fitch Co. (ANF) reported that their April same store sales grew 16% well ahead of the streets estimate of 12.2% growth. Total sales at the company grew an impressive 31% to $159.4 million.
American Eagle Outfitters Inc. (AEOS) also reported very good April same store sales. The hot retailer saw same store sales rise 20% for April and total sales rose 30.3% to $142.5 million. The retailer also increased their first quarter earnings guidance to $0.34 per share.
Berkshire Hathaway Inc (BRKA) (BRKB) saw a decline in earnings for the first quarter. Warren Buffet’s company reported earnings of $886,000 per share of class A common. Revenues at the company rose to $17.63 billion. The company also announced that its General Re unit had received a Wells Notice from the SEC. The SEC is looking into transactions between General Re and American International Group Inc. (AIG).
In economic news this week all eyes were on the FOMC meeting to see if the Federal Reserve would raise interest rates for the eighth straight time. The Federal Reserve did raise interest rates a ¼ percent increasing the Fed Funds rate to 3.0%. Also of importance was the Feds wording. Traders had feared that the Fed would remove the policy statement of “accommodation”. Removal of the statement would indicate that the Federal Reserve would act more quickly in raising interest rates to head off inflation. Some economists now believe that the Federal Reserve will continue to raise interest rates until the Fed Funds rate is at 3 3/4% to 4% by year end.
Non-farm payrolls surprised economist on the upside this week. Expectations for the April employment report were for 175,000 new jobs. The actual figure came in at 274,000 new jobs, signaling continued economic growth.
On a side note the Treasury Department announced that an advisory committee was reviewing the return of the 30 year Treasury bond. The bond had been discontinued back in 2001.
Treasury yields rose across the yield curve with the 5 year notes yield closing at 3.94%. The 10 year note closed at 4.26% and the 30 year bond closed at 4.62%.
Earnings for the quarter have been very strong and now stand at 14% growth for the S&P 500 as a whole. Expectations are also good for the second quarter with analyst estimating earnings growth of 8% for the S&P 500.
This week the following companies will be releasing earnings reports. Bayer (BAY), Cisco Systems (CSCO), Walt Disney (DIS), Dell Inc. (DELL), Kohl’s (KSS), Wal-Mart Stores (WMT), and Tiffany & Co. (TIF).
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