Market Wrap Up 8-13-2004

Oil Prices Hit Record Highs
By Rick Paler


Oil prices hit record highs this week of $46.65 per barrel. Traders continue to focus on supply concerns and some analysts are now predicting oil prices to reach $50.00 per barrel. Continued problems at Yukos (YUKOY) Russia’s largest oil exporter hurt oil prices, when the company announced that they are running out of money and may be forced to cut production. The company also announced that they received default notice on a $1.6 billion bank loan. The company is currently in a tax dispute with the Russian government. Also contributing to higher oil prices is the threat of terrorism and the recall vote in Venezuela. On the positive side Saudi Arabia said that they have 1.3 million barrels in spare capacity that could be used immediately to increase world wide supplies. Continued high oil prices have the ability to increase inflation and slow the world wide economy.

This week we also had a flood of economic data that was mixed and disappointing earnings announcements in the technology sector. This caused mixed results in the market for the week.

In corporate new a majority of companies continue to post strong earnings result. Cisco Systems (CSCO) announced earnings of $0.21 per share ahead of Wall Streets estimates of $0.20 per share. Sales climbed 26% to $5.9 billion. The company did disappoint, when they also announced that they saw rising inventories and said that future sales might not meet analyst estimates.

Hewlett-Packard (HPQ) disappointed when they released their earnings ahead of schedule and posted earnings of only $0.24 per share, the street had expected earnings of $0.31 per share. The company also lowered guidance to $0.35 - $0.39 per share for their fiscal fourth quarter from the prior $0.43 per share.

ITT Industries Inc. (ITT) announced that they completed their purchase of Eastman Kodak’s (EK) remote sensing systems business for $275 million in cash. The company expects the purchase to improve its space payload and service product offerings to its commercial, scientific and U.S. Military customers.

Church & Dwight (CHD) reported net income of $0.45 per share and sales jumped 33% to $340.8 million. The company said they had taken a charge for the purchase of the remaining stake in Armel LLC. The company also announced a 3-for1 stock split effective September 1.

Walt Disney Company (DIS) reported a 21% increase in net income per share when they announced earnings of $0.29 per share, topping the Streets estimates of $0.27 per share. Sales growth came in up 17% compared with a year ago. The company cited strong attendance at its theme parks and sales of DVD’s.

Marsh & McLennan (MMC) was in the news when it was announced that the nation’s largest insurance broker was being sued by United Policyholders, a not-for-profit organization. The suit claims that the company poorly disclosed commissions from insures.

Wal-Mart Stores (WMT) reported strong earnings of $0.62 per share, a penny above analyst estimates. Sales increased 11% to $69.7 billion but missed estimates of $70.7 billion. The company also raised their guidance for third quarter sales to 3% - 5% from the previous estimate of 2% - 4%.

In economic news, The Federal Reserve increased interest rates, the PPI and trade deficit surprised economist, while the weekly jobless claims and Consumer Sentiment came in below expectations.

As expected the Federal Reserve raised interest rates this week to 1.5%. In their statement they said that higher oil prices had slowed economic growth and hindered the improving job market. They also said that “the Committee believes that policy accommodation can be removed at a pace that is likely to be measured”.

The core Producer Price Index rose only 0.1% for July versus 0.2% for the fist half of they year and estimates of a 0.3% rise. Many Street analysts say that this indicates that higher oil prices have not reached consumers yet.

The biggest surprise to economist was the trade deficit. Economist had expected the deficit to rise to $47 billion, but the deficit rocketed to a record high of $55.8 billion. Treasury Secretary Snow said that the deficit indicates that the world wide economy is slowing.

Weekly Jobless claim came in below estimates at falling 4,000 to 333,000 versus the estimate of 340,000 new claims. A number below 400,000 indicates an improving job market.

The preliminary University of Michigan Consumer Sentiment report fell to 94.0 in August from 96.7 in July, which was below estimates of a rise to 97.2. This suggests that consumers are aware of the slow down in the economy and fear higher oil prices.

In bond trading the 5 year Treasury note closed the week higher yielding 3.41%, while the 10 year note and 30 year bond also closed the week yielding 4.22% and 5.01% respectively.

Next week the Summer Olympics and the possibility of terrorism will be on everyone’s minds. Companies of interest announcing earnings next week are the following; Kmart (KMRT), Home Depot (HD), Estee Lauder Companies (EL), TJX Companies (TJX), Nestle S.A (NSRGY) Gap Inc (GPS), and PETsMart (PETM)