Weekly Market Review 10-29-2004

New Osama bin Laden tape released
By Rick Paler



The market ended this week with a nice rally pushing all the major indices higher for the week. This week earnings continued to roll out with a majority of the companies reporting to the up side of estimates. Economic reports continued to be strong, while oil prices saw some relief and China announced that they would raise their interest rates.

Unfortunately, late Friday after the markets closed, a new Osama bin Laden terror tape was released. The al-Qaeda terrorist leader released a tape to the Aljazeera network threatening 9-11 style terrorist strikes against the United States. This was done in an attempt to affect the outcome of the presidential election. It was the first tape of the murderer released in the past three years.

For months now, the market has been stuck in a very tight trading range, while corporate profits have been surging and the economy has been growing. One of the factors causing the stalemate between the markets bulls and bears is the uncertainty of the presidential election and the fear of a terrorist attack in the United States.

Wall Street will be on edge next week, since one of the factors affecting the markets performance has now become more front and center. Spain experienced terror attacks in that country just days before the election. The attacks affected the outcome of the Spanish election and al-Qaeda learned from that experience that they might be able to affect our election process here in the United States. Because of Osama bin Ladens’ tape, Monday’s opening will be closely watched since traders will have had the entire weekend to digest the news.

In corporate news over half of the S&P 500 companies have reported their earnings results and 62% of those companies have exceeded their earnings estimates. Wall Street now expects earnings growth for the S&P 500 to come in at 15.2%. This is well above the historical number of 7%, but below the blistering pace of 20% plus that the last several quarters produced.

Dow component DuPont (DD) reported third quarter earnings that rocketed 92% to $0.25 per share, which was a penny above analysts’ estimates. The company cited strong demand in the Asia Pacific area. Additionally the company reiterated its full year earnings guidance of $2.25 to $2.35 per share.

Northrop Grumman Corp.’s (NOC) third quarter results were boosted by strong government sales. The company’s net income increased 51% to $278 million or $0.76 per share, while sale increased 11% to $7.41 billion. The company also raised their full year earnings guidance to $2.95 to $3.00 per share.

ConocoPhillips (COP) helped by higher oil prices, posted third quarter earnings that blew away estimates. The company reported that third quarter earnings came in at $2.87 per share versus the estimate of only $2.56 per share.

Chubb Inc. (CB) posted net income that was up 40% in the third quarter. The company reported net income of $364 million or $1.88 per share up from $1.37 per share a year ago. John Finnegan who is Chairman, President and CEO of the company stated that “Chubb had a terrific third quarter despite the severe hurricane season.”

Japanese film and document solution company Fuji Photo Film (FUJIY) reported that their fist half of the year profits increased 28% due to increased sales of the company’s fax and copier machines.

In economic news, economist became concerned with the announcement that China hiked their interest rates to cool off their red hot economy. The fear is that a slowdown in China’s economy could slow the global economy.

A huge increase in the Chicago Purchasing Managers’ Index stunned the market this week, when it was announced that the index had jumped to 68.5 in October from a level of 61.9 for September. Economist had expected a decline from Septembers’ levels to 59.0. This was the highest level since 1988. Additionally, new orders hit their highest level in two decades jumping to 79.4 and production surged to its highest reading since 1950, coming in at 79.7. The Chicago PMI is a forward-looking indicator that measures manufacturing activity for the Midwest.

The advance Gross National Product number was released this week showing that the economy is still growing quite well. The advance GPD came in at 3.7%, which was above the historical trend but below what some analyst had predicted.

The National Association of Realtors announced that existing home sales for September increased 3.1% to 6.75 million unit annual rate above economist expectation of 6.51 million. While the supply of unsold homes fell to 4.4 months. It seems that the hot real estate market continues to motor on.

The interest rate yield curve continues to flatten out as short term rates have risen quicker than long term rates. Bond yields were slightly higher this week with the 5 year Treasury notes yield rising to 3.27% from 3.24% last week. The 10 year note and the 30 year Treasury bond both had higher yields when the market closed for the week. The 5 year note closed at 4.02% and the 30 year bond closed yielding 4.78%.

Next week, the presidential election and the possibility of an attack by al-Queda will dominate the markets. Both have the ability to move the markets and traders will be taking a wait and see stance until the election results are completed.

Companies of interest reporting earnings next week are the following; HCC Insurance Holdings (HCC), Priceline.com (PCLN), SAP AG (SAP), Clorox (CLX), PG&E Corp. (PCG), Qualcomm (QCOM) Estée Lauder Companies (EL), and Berkshire Hathaway (BRKA / BRKB)