Market ends lower for the week
By Rick Paler
Last week the markets decided to a breather and ended lower as traders took profits amidst a string of earnings warnings. Crude oil prices not help matters, but compounded fears that higher prices would affect the economy. Economic news for the week was mixed and bond traders flattened out the yield curve.
The string of recent earnings warnings continued last week with several companies lowering their earnings guidance for the upcoming quarter. This week it was CarMax (KMX), Colgate-Palmolive (CL), Ethan Allen (ETH), The New York Times (NYT), PMC Sierra (PMCS), RF Micro Devices (RFMD), UT Starcom (UTSI) and Wendy’s (WEN), Colgate-Palmolive (CL) said that their earnings for the second half of the year would be far below analyst estimates. The company cited marketing expenses and higher material cost. The company now expects third and fourth quarter earnings to be $0.57 - $0.59 per share. Wendy’s (WEN) shares fell when the company slashed their full year earnings guidance. The company announced that their full year earnings expectations would be $2.25 - $2.30 per share. Analyst had expected the company to earn $2.32 - $2.37 per share.
Although over the last two weeks we have had a string of earnings warnings, earnings for the quarter are expected to come in at a growth rate of 14.3% for the S&P 500. Additionally the negative –to-positive ratio is currently at 1.9. Both of these are better than their historical averages of 7% and 2.0 respectively.
Crude oil prices continue to climb and last Thursday hit a new high at $49.00 per barrel. Supply concerns continue as world wide demand increases due to the global economic recovery. Also pressuring prices higher are the string of hurricanes in the Gulf Coast. The hurricanes have caused many refineries to close down. Not helping prices are continuing problems at Yukos (YUKOY), Russia’s largest oil exporter continues to battle the Russian government over taxes. The company announced this week that they had suspended exports of oil to China and Lithuania. The company also continues to warn of bankruptcy.
In corporate new last week AutoZone (AZO) announced net income of only $2.83 per share. This included a $0.12 per share gain from warranty negotiations, missing Wall Streets estimates of $2.56. Sales for the period only grew by 0.3% and same store sales declines 3%.
American International Group, Inc. (AIG) announced that AIG and its subsidiary company AIG Financial Products Corp. (AIGFP) were informed that the SEC is considering bringing action against the companies for alleged violations of federal securities laws.
General Electric (GE) issued a statement following the SEC Order that found that proxy statements and Form 10-k “failed to fully describe the substantial benefits that Welch would receive as part of the agreement”. The company statement said that GE cooperated fully with the SEC’s informal investigation into former COE Jack Welch’s Employment and Post-Retirement Consulting Agreement. The agreement allowed Mr. Welch to use GE aircraft, offices, apartments and financial services for life.
ConocoPhillips (COP) approved a 16% increase in the company’s dividend rate. The new quarterly dividend rate will be $0.50 per share. In separate news, Vagit Alekperov CEO of OAO Lukoil Holdings (LKOH.RS) said that company has not discussed the possibility of selling a stake to Conoco. Reports had been circulating that Conoco plans to win the privatization auction with a 7.6% stake in Lukoil and plans to increase the stake to 20%.
Walt Disney Co.’s (DIS) board of directors reaffirmed their support for embattled CEO Michael Eisner. A shareholders group led by Roy Disney wants Mr. Eisner to resign before next years annual shareholders meeting. Mr. Eisner recently announced that he would resign at the end of his current contract that expires in 2006.
General Mills (GIS) posted earnings of $0.55 per share, which was below analyst estimates of $0.60 per share. The company cited higher commodity prices but reaffirmed their full year earnings guidance.
In economic news, the highlight for the week was the FOMC meeting. As expected the Federal Reserve moved interest rates higher. It was the third time the Federal Reserve raised interest rates this year as they attempt to head off inflation as the economy continues to recover. The closely watch minutes on the meeting stated that the slowdown in the economy was temporary and that their long term view was that the economy would continue to expand. In their statement they said “The Committee believes that policy accommodation can be removed at a pace that is likely to be measured.” The Federal Funds rate now stands at 1.75% up from 1.50%.
Housing starts for August were up 0.6% to an annual rate of 2.0 million units versus the estimate by economist of 1.93 million units. Building permits missed expectations in August coming in at 1.952 million units. The expectation was for 1.985 million units.
The Leading Index, an index that measures economic activity in the future fell 0.3% in August below economist estimates of a 0.2% drop. This was the third consecutive drop, which suggests economic growth is slowing.
Bond traders have flattened out the yield curve as short term interest rates rise quicker than long term rates. It may also be an indication that traders feel the economy is slowing down. The 5 year note closed at 3.31%. The 10 year Treasury note closed lower on the week yielding 4.02%, while the 30 year bond also closed lower for the week yielding 4.79%.
Next week, I would expect the markets to continue to trade within the narrow rage that has established over the last few months. This is due to traders waiting for the third quarter earnings season, the uncertainty of the presidential election and the threat of a terrorist attack in the United States before the election.
Companies releasing earnings next week include the following: Walgreen (WAG), PepsiCo (PEP), Constellation Brands, Inc. (STZ).
Subscribe To Morning Coffee
Posts
All Comments
Friday, September 24, 2004
Friday, September 17, 2004
Weekly Market Review 09-17-2004
The S&P500 post gains for the sixth straight week
By Rick Paler
This week the S&P 500 posted a modest gain for the week. It was the sixth consecutive weekly gain. Trading volume remained low, which indicates the gains might not be long lasted. Typically a market gain with heavy volume indicates that the rally can be sustained.
During the week oil prices continued to rise and economic data was mixed. Several companies warned about their earning this week. While bond traders wait for next weeks Federal Open Market Committee meeting next week.
This week oil prices rose as hurricane Ivan hit the Gulf Coast, causing oil facilities in the area shut down. Yukos Oil (YUKOY) the largest exporter of oil in Russia revealed that it was close to bankruptcy and would stop exporting oil to China. Oil ended up 6.5% to $45.59 a barrel for the week.
In economic news several reports were released this week showing that the economy, which had began to slow down is still growing strongly. The weakest report of the week was the Philadelphia Fed Business Activity Index for September came in at 13.4, below economist expectations of 25.0. The index measures economic activity and any number above zero reflects economic growth.
This came on the back of a very strong Empire Manufacturing Index. The index surged in September to 28.3 from 13.2 the prior month. The reading blew away economists expectations of 20.0 for the New York area.
A favorable CPI report for August showed that both the total and core-CPI numbers came in low at 0.1%. Since inflation is under control, the Federal Reserve should be able to raise interest rates at a measured pace. What is not being spoken about is the Federal Reserves deceleration in the money supply. This indicates that the Federal Reserve’s monetary policy is tighter than at first glance. Next week the Federal Open Market Committee meets on Tuesday. It is my expectation that they will raise interest rates another 25 basis points bringing the Fed Funds Rate to 1.75%. I expect the Federal Reserve to raise rates slowly until interest rates are at a more neutral stance at 3.75%.
In cooperate news this week several companies warned that their third quarter earnings would not meet analyst expectations. Companies issuing warnings this week were Coca-Cola (KO), Cardinal Health (CAH) Office Depot (ODP) and Nortel Networks (NT).
Coca-Cola (KO) issued earnings guidance for the third quarter that disappointed the Street. The company issued guidance of $0.46 - $0.48 per share, below previous estimates of $0.54 per share. The company cited rain and cooler weather in Europe and volume trends in the United States. CEO Neville Isdell said “They are symptoms of problems that demand strong corrective actions and initiatives that will put this company firmly on its proper growth course. That is my unmistakable and immediate objective”.
Cardinal Health (CAH) said that they made a request to the SEC for an extension in filing its Form 10-k for 2004. The company said they would have to restate earnings for 2001 – 2003 and the first quarter of 2004. The company also announced that their net income for the first quarter 2005 would fall 25% and 10% - 15% for the first half of 2005.
Walt Disney Company’s (DIS) Michael Eisner, the embattled CEO, last week said that he would be stepping down from his position in 2006 when his current contract expires. Shareholders led by Roy Disney and Stanley Gold were able to get Mr. Eisner to step down as Chairman earlier this year. They are now demanding the Mr. Eisner be removed as CEO by the company’s 2005 annual meeting.
Patterson Companies (PDCO) the dental, pet veterinarian and rehabilitation supply company announced a 2-for-1 stock split and authorized the repurchase of 3 million shares or 6 million shares post split.
Delta Airlines (DAL) may be going the way of US Airways (UAIRQ). US Airways recently declared bankruptcy and now Delta Airlines auditor Deloitte & Touche LLP expressed doubt about the company’s ability to continue as a going concern.
Qualcomm (QCOM) was under pressure, when the company announced that they are reviewing how the company accounts for royalty payments. They also announced that they see earnings coming in at $0.28 - $0.30 per share. Wall Street analyst had expected earnings of $0.29 per share.
Bond trading was light this week in front of next weeks FOMC meeting. The 5 year Treasury note closed at 3.32%. The 10 year note and the 30 year bond closed at 4.11% and 4.90% respectively.
The market should continue its slight rally into the election as long as the polls show that President George W. Bush has a sizable lead over Senator John Kerry. This is because the market does not like uncertainty, not because the market likes one over the other. With President Bush, the market knows his policies, whereas with Senator Kerry it is an unknown.
The third quarter earnings season is right around the corner. I expect the strong earnings trend to continue. Earnings growth for the S&P 500 will not be in the mid 20% range like the last few quarters. I expect earnings growth for the S&P 500 to be close to 15%. The long term average earnings growth is 7%. Currently, the negative-to-positive preannouncement ratio is running at 1.7, which is below the historical level of 2.0.
Next week all eyes will be on the FOMC which will meet Tuesday to discuss raising interest rates. Companies releasing earnings are the following: Nike (NKE), General Mills (GIS), AutoZone (AZO), Goldman Sachs (GS), Bed Bath & Beyond (BBY) and FedEx (FDX).
By Rick Paler
This week the S&P 500 posted a modest gain for the week. It was the sixth consecutive weekly gain. Trading volume remained low, which indicates the gains might not be long lasted. Typically a market gain with heavy volume indicates that the rally can be sustained.
During the week oil prices continued to rise and economic data was mixed. Several companies warned about their earning this week. While bond traders wait for next weeks Federal Open Market Committee meeting next week.
This week oil prices rose as hurricane Ivan hit the Gulf Coast, causing oil facilities in the area shut down. Yukos Oil (YUKOY) the largest exporter of oil in Russia revealed that it was close to bankruptcy and would stop exporting oil to China. Oil ended up 6.5% to $45.59 a barrel for the week.
In economic news several reports were released this week showing that the economy, which had began to slow down is still growing strongly. The weakest report of the week was the Philadelphia Fed Business Activity Index for September came in at 13.4, below economist expectations of 25.0. The index measures economic activity and any number above zero reflects economic growth.
This came on the back of a very strong Empire Manufacturing Index. The index surged in September to 28.3 from 13.2 the prior month. The reading blew away economists expectations of 20.0 for the New York area.
A favorable CPI report for August showed that both the total and core-CPI numbers came in low at 0.1%. Since inflation is under control, the Federal Reserve should be able to raise interest rates at a measured pace. What is not being spoken about is the Federal Reserves deceleration in the money supply. This indicates that the Federal Reserve’s monetary policy is tighter than at first glance. Next week the Federal Open Market Committee meets on Tuesday. It is my expectation that they will raise interest rates another 25 basis points bringing the Fed Funds Rate to 1.75%. I expect the Federal Reserve to raise rates slowly until interest rates are at a more neutral stance at 3.75%.
In cooperate news this week several companies warned that their third quarter earnings would not meet analyst expectations. Companies issuing warnings this week were Coca-Cola (KO), Cardinal Health (CAH) Office Depot (ODP) and Nortel Networks (NT).
Coca-Cola (KO) issued earnings guidance for the third quarter that disappointed the Street. The company issued guidance of $0.46 - $0.48 per share, below previous estimates of $0.54 per share. The company cited rain and cooler weather in Europe and volume trends in the United States. CEO Neville Isdell said “They are symptoms of problems that demand strong corrective actions and initiatives that will put this company firmly on its proper growth course. That is my unmistakable and immediate objective”.
Cardinal Health (CAH) said that they made a request to the SEC for an extension in filing its Form 10-k for 2004. The company said they would have to restate earnings for 2001 – 2003 and the first quarter of 2004. The company also announced that their net income for the first quarter 2005 would fall 25% and 10% - 15% for the first half of 2005.
Walt Disney Company’s (DIS) Michael Eisner, the embattled CEO, last week said that he would be stepping down from his position in 2006 when his current contract expires. Shareholders led by Roy Disney and Stanley Gold were able to get Mr. Eisner to step down as Chairman earlier this year. They are now demanding the Mr. Eisner be removed as CEO by the company’s 2005 annual meeting.
Patterson Companies (PDCO) the dental, pet veterinarian and rehabilitation supply company announced a 2-for-1 stock split and authorized the repurchase of 3 million shares or 6 million shares post split.
Delta Airlines (DAL) may be going the way of US Airways (UAIRQ). US Airways recently declared bankruptcy and now Delta Airlines auditor Deloitte & Touche LLP expressed doubt about the company’s ability to continue as a going concern.
Qualcomm (QCOM) was under pressure, when the company announced that they are reviewing how the company accounts for royalty payments. They also announced that they see earnings coming in at $0.28 - $0.30 per share. Wall Street analyst had expected earnings of $0.29 per share.
Bond trading was light this week in front of next weeks FOMC meeting. The 5 year Treasury note closed at 3.32%. The 10 year note and the 30 year bond closed at 4.11% and 4.90% respectively.
The market should continue its slight rally into the election as long as the polls show that President George W. Bush has a sizable lead over Senator John Kerry. This is because the market does not like uncertainty, not because the market likes one over the other. With President Bush, the market knows his policies, whereas with Senator Kerry it is an unknown.
The third quarter earnings season is right around the corner. I expect the strong earnings trend to continue. Earnings growth for the S&P 500 will not be in the mid 20% range like the last few quarters. I expect earnings growth for the S&P 500 to be close to 15%. The long term average earnings growth is 7%. Currently, the negative-to-positive preannouncement ratio is running at 1.7, which is below the historical level of 2.0.
Next week all eyes will be on the FOMC which will meet Tuesday to discuss raising interest rates. Companies releasing earnings are the following: Nike (NKE), General Mills (GIS), AutoZone (AZO), Goldman Sachs (GS), Bed Bath & Beyond (BBY) and FedEx (FDX).
Subscribe to:
Posts (Atom)