Thanksgiving Day causing slow trading week
By Rick Paler
It was a very slow week due to the Thanksgiving Day holiday. Many traders took extended vacations and both economic and corporate news was light. The Bond market was also slow, with it closing early on Wednesday and Friday and being closed along with the stock market on Thursday. The market ended higher for the week on expectations that Black Friday, the day after Thanksgiving, which kicks off the holiday sales season would be stronger than last year.
In corporate news, this week Deere & Co. (DE) earnings surged, exceeding analyst estimates by $0.44 per share. The company cited favorable market conditions when they reported earnings of $1.41 per share or $356.7 million. Analysts had expected earnings of only $0.97 per share. Sales and revenues grew 32% to 5.207 billion for the quarter. The company expects continuing sales and profit growth in 2005.
H.J. Heinz (HNZ) reported earnings of $0.56 per share below the streets estimates of $0.59 per share. Sales at the company rose 5.2% to $2.2 billion. The company said that for the next quarter it expects to earn $0.46 per share, above last years $0.37 per share for the same period. The company also released their 2005 guidance stating that it expected to earn $1.65 to $1.75 per share.
Mylan Laboratories (MYL) said that it was rejecting Carl Icahn’s bid to buy the company and called his bid a “self-serving publicity device.” Mr. Icahn, Mylans largest share holder has been against the company acquiring King Pharmaceuticals (KG), which is under SEC investigation.
Campbell Soup (CPB) exceeded Wall Street estimated, when they reported that the company had earning $230 million or $0.56 per share for their third quarter. The company cited strong U.S. sales and reconfirmed their 2005 earnings guidance of 5% to 7% growth.
In economic news, the dollar continues its slide against the Euro and Yen. The dollar now is near an all time low against the Euro and is at a four year low against the Yen. The low dollar will help U.S exports making U.S. goods cheaper overseas, but hurt European and Japanese imports to the U.S., making foreign goods more expensive.
The final University of Michigan consumer sentiment for November came in at 92.8 down from the preliminary reading of 95.5 and below economist estimates of 96.0. The lower number reflects consumers’ reactions to higher energy prices and job growth.
The Five and Ten year Treasury notes both had higher yields at the close of the week, while the Thirty year Bond remained unchanged. The 5 year Note closed yielding 3.62% and the 10 year Notes yield was up to 4.23%. The 30 year Bond closed the week yielding 4.88%.
Next week the market will continue to watch the U.S dollar and will anxiously await the sales results from Black Friday. Company’s reporting poor weekend sales will be punished by traders. Companies releasing earnings next week are; Chico’s FAS (CHS), Dollar General (DG), Neiman Marcus Group, Inc. (NMGA), and Pall Corp. (PLL).
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Friday, November 26, 2004
Friday, November 19, 2004
Weekly Market Report 11-19-2004
Greenspan warns and markets fall
By Rick Paler
This week started off well but ended lower for the week, on comments made by Federal Reserve Chairman Alan Greenspan. Earnings continue to come in strong as the third quarter earnings season comes to a close. This week three Dow components exceeded their earnings targets Wal-Mart, Home Depot and Disney. Economic news was good but provided a reason for the bears to sell.
Alan Greenspan during a meeting in Frankfurt Germany warned that the current trade and budget deficits could cause foreign investors to seek higher interest rates elsewhere and continued weakening of the dollar as investors diversify into other currencies. His comments that investors need to hedge against higher interest rates cause a large sell off in the market and pushed bond yields higher for the week. Many traders now think it is certain that the Federal Reserve will raise interest rates again in December.
Retailer made most of the corporate headlines this week, as many of the heavy hitters released their earnings results giving a window into what Wall Street expects to be a good holiday sales season.
Home Depot (HD) reported terrific results for the quarter when the company reported this week that they have achieved record earnings and sales. The company reported that earnings for the quarter ending October 31 was up 20% to $0.60 per share and that sales were up 13% to $18.86 billion. "The strength of our core retail business, coupled with our growing services and professional supply businesses, is delivering solid returns," Chairman, President and Chief Executive Robert L. Nardelli said on Tuesday. The company also announced that it expects earning per share growth of 19% to 20% for the fiscal year or $2.24 to $2.26 per share. Wall Street had estimated earnings of $2.22 per share for 2005.
Wal-Mart Store (WMT) notched up another record quarter for earnings and sales, as their third quarter net rose 13% and sales increased 9.7%. The world’s largest retailer reported net earnings of $2.29 billion or $0.54 per share. This was up from $0.46 per share a year earlier. Sales rose to $68.52 billion, but fell short of the streets estimates of $69.22 billion. The company also announced that it expects to earn $0.73 to $0.75 per share for the fourth quarter.
Kmart (KMRT) which recently emerged from bankruptcy, surprised analysts when it was announced that the company will acquire Sears (S) for $11 billion. The new company will be called Sears Holdings Corporation and will become the third largest retailer behind Wal-Mart and Target. Shareholders of Sears have the option of receiving $50.00 per share or 0.5 shares of the new company. Kmart shareholders will receive one share of the new company. The acquisition is expected to be completed by March 2005.
PETsMART (PETM) reaffirmed their full year guidance of $1.19 to $1.20 per share after releasing their third quarter results. The company reported earnings in line with estimates of $0.24 per share or $35.9 million, which was a 21% increase over the previous period. Sales rose 13% to $826.8 million.
TJX Companies (TJX) reported net income of $0.41 per share or $201 million, which was a 14% increase over the prior year. Sales for the retailer increased 13% for the third quarter to $3.8 billion. Edmond English President and CEO said “We are pleased with our third quarter performance.”
Walt Disney Co. (DIS) citing strength from its troubled television networks announced earnings that beat analysts’ estimates by a penny. Earnings for the entertainment company came in at $0.19 per share. Revenues missed estimates coming in at $7.54 billion. The company reaffirmed its previous guidance of double digit earnings growth through 2007.
Google (GOOG) the high flying internet search company announced this week that its current revenue growth rate can not be maintained due to increased competition. This announcement was made, as million of shares held by insiders will become available to sell in the open market.
In economic news, economists were surprised when the October PPI numbers were released showing that wholesale prices increased more than expected. The PPI come in at 1.7%, when economist had estimated an increase of only 0.6%. This led to fears of inflation that were quickly blamed on the 6.8% increase in energy prices.
After the surge in the PPI numbers, economists were nervous when the CPI numbers were released. The CPI for October came in higher than expected at 0.6%, but the core rate which excludes food and energy was up a modest 0.2% putting fears of run away inflation to bed.
Bonds sold off after the release of both the PPI and CPI numbers, combined with Mr. Greenspan’s comments. Traders now anticipate the Federal Reserve will raise interest rates another 25 basis points in December to bring the Fed Funds Rate up to 2.25%. The Federal Reserve has already indicated that they will raise interest rate to a more neutral stance, since the economy seems to be self sustaining at this point. Bond yields were higher across the yield curve for the most part. The 5 year Treasury note closed higher yielding 3.56%. The 10 year note closed the week yielding 4.20% and the 30 year bond yield was slightly lower from the previous week closing at 4.88%.Next week the bears will continue to look for reasons to take profits in view of the markets recent run up. Corporate earnings will be released by Campbell Soup (CPB), Toys R Us (TOY), H.J. Heinz (HNZ), Deere & Co. (DE), Hormel Foods (HRL) and Patterson Dental (PDCO).
By Rick Paler
This week started off well but ended lower for the week, on comments made by Federal Reserve Chairman Alan Greenspan. Earnings continue to come in strong as the third quarter earnings season comes to a close. This week three Dow components exceeded their earnings targets Wal-Mart, Home Depot and Disney. Economic news was good but provided a reason for the bears to sell.
Alan Greenspan during a meeting in Frankfurt Germany warned that the current trade and budget deficits could cause foreign investors to seek higher interest rates elsewhere and continued weakening of the dollar as investors diversify into other currencies. His comments that investors need to hedge against higher interest rates cause a large sell off in the market and pushed bond yields higher for the week. Many traders now think it is certain that the Federal Reserve will raise interest rates again in December.
Retailer made most of the corporate headlines this week, as many of the heavy hitters released their earnings results giving a window into what Wall Street expects to be a good holiday sales season.
Home Depot (HD) reported terrific results for the quarter when the company reported this week that they have achieved record earnings and sales. The company reported that earnings for the quarter ending October 31 was up 20% to $0.60 per share and that sales were up 13% to $18.86 billion. "The strength of our core retail business, coupled with our growing services and professional supply businesses, is delivering solid returns," Chairman, President and Chief Executive Robert L. Nardelli said on Tuesday. The company also announced that it expects earning per share growth of 19% to 20% for the fiscal year or $2.24 to $2.26 per share. Wall Street had estimated earnings of $2.22 per share for 2005.
Wal-Mart Store (WMT) notched up another record quarter for earnings and sales, as their third quarter net rose 13% and sales increased 9.7%. The world’s largest retailer reported net earnings of $2.29 billion or $0.54 per share. This was up from $0.46 per share a year earlier. Sales rose to $68.52 billion, but fell short of the streets estimates of $69.22 billion. The company also announced that it expects to earn $0.73 to $0.75 per share for the fourth quarter.
Kmart (KMRT) which recently emerged from bankruptcy, surprised analysts when it was announced that the company will acquire Sears (S) for $11 billion. The new company will be called Sears Holdings Corporation and will become the third largest retailer behind Wal-Mart and Target. Shareholders of Sears have the option of receiving $50.00 per share or 0.5 shares of the new company. Kmart shareholders will receive one share of the new company. The acquisition is expected to be completed by March 2005.
PETsMART (PETM) reaffirmed their full year guidance of $1.19 to $1.20 per share after releasing their third quarter results. The company reported earnings in line with estimates of $0.24 per share or $35.9 million, which was a 21% increase over the previous period. Sales rose 13% to $826.8 million.
TJX Companies (TJX) reported net income of $0.41 per share or $201 million, which was a 14% increase over the prior year. Sales for the retailer increased 13% for the third quarter to $3.8 billion. Edmond English President and CEO said “We are pleased with our third quarter performance.”
Walt Disney Co. (DIS) citing strength from its troubled television networks announced earnings that beat analysts’ estimates by a penny. Earnings for the entertainment company came in at $0.19 per share. Revenues missed estimates coming in at $7.54 billion. The company reaffirmed its previous guidance of double digit earnings growth through 2007.
Google (GOOG) the high flying internet search company announced this week that its current revenue growth rate can not be maintained due to increased competition. This announcement was made, as million of shares held by insiders will become available to sell in the open market.
In economic news, economists were surprised when the October PPI numbers were released showing that wholesale prices increased more than expected. The PPI come in at 1.7%, when economist had estimated an increase of only 0.6%. This led to fears of inflation that were quickly blamed on the 6.8% increase in energy prices.
After the surge in the PPI numbers, economists were nervous when the CPI numbers were released. The CPI for October came in higher than expected at 0.6%, but the core rate which excludes food and energy was up a modest 0.2% putting fears of run away inflation to bed.
Bonds sold off after the release of both the PPI and CPI numbers, combined with Mr. Greenspan’s comments. Traders now anticipate the Federal Reserve will raise interest rates another 25 basis points in December to bring the Fed Funds Rate up to 2.25%. The Federal Reserve has already indicated that they will raise interest rate to a more neutral stance, since the economy seems to be self sustaining at this point. Bond yields were higher across the yield curve for the most part. The 5 year Treasury note closed higher yielding 3.56%. The 10 year note closed the week yielding 4.20% and the 30 year bond yield was slightly lower from the previous week closing at 4.88%.Next week the bears will continue to look for reasons to take profits in view of the markets recent run up. Corporate earnings will be released by Campbell Soup (CPB), Toys R Us (TOY), H.J. Heinz (HNZ), Deere & Co. (DE), Hormel Foods (HRL) and Patterson Dental (PDCO).
Friday, November 12, 2004
Weekly Market Report 11-12-2004
Bulls stampede into the market
By Rick Paler
This week the bulls were out in force again pushing the market to a new three year high. Since the election the market has been on a tear the Dow Jones Industrial has risen over 5% and the S&P 500 has risen 4.7%. Historically the market does perform well during the period of November through January. Wall Street calls this the Santa Clause Rally and this year it looks like it might have come a little early. This was due to the pent up demand as investors sat on the sidelines fearing another 2000 election debacle or a terrorist attack similar to the one Spain experience prior to their election. There are some on Wall Street that say are now in what looks like the beginning of a secular bull market rally.
Overall corporate earnings have been growing at a blistering pace. Economic conditions have been positive and the economy has been growing. So it did not come as a surprise when the Federal Reserve announced that they were going to raise the target Fed Funds rate by ¼ of one percent. This brought the Fed Funds rate from 1.75% to 2.0%. The market had anticipated the rate hike and therefore did not react when the announcement was made. This weeks Fed action marked the fourth time this year that the Federal Reserve raised interest rate in an attempt to keep inflation at bay. Since that market anticipated the rate hike the all important policy statement was closely watched to provide incite into the health of the economy and possible future actions by the Fed. The Federal Open Market Committee statement indicated that output is expanding while inflation continues to remain tame. It looks as if the soft patch in the economy has ended, since the FOMC said that the economy “regained some vigor.”
As the third quarter earnings season come to a close, the street will be focusing on corporate guidance for the forth quarter. Currently the negative-to-positive ratio is 2.2, which is in line with the historical ratio, but above last quarters 1.8. Analysts are expecting another strong quarter for earnings growth. Earnings for the S&P 500 for the forth quarter are expected to grow by 15.3%.
Merck (MRK) continues to be in the news unfortunately it has all been unpleasant. This week the company disclosed that it had been subpoenaed by the Justice Department regarding its handling of Vioxx. The company pulled the drug several weeks ago, after it was linked to possible deaths. The SEC has also launched an informal investigation into the company.
Pfizer (PFE) announced this week the company was under investigation by New York and Connecticut attorney generals office. This investigation is focusing on whether the company marketed drugs for uses not approved by the FDA.
Cisco Systems (CSCO) reported earning that matched the streets estimates of $0.21 per share. But the maker of switched and routers disappointed the street, when their revenues came in at $5.97 billion. The street had expected revenues of $6.20 billion. The company also disappointed with future sales guidance, which was well below what analyst had expected. The company also reveled that they were increasing their stock repurchase program by $10 billion.
PeopleSoft (PSFT) was in the news when the company’s board of directors rejected Oracle’s (ORCL) bid to purchase the company. Oracle had previously said that their current bid of $24.00 per share was their last and final offer.
Dell’s (DELL) earnings grew by 27%, as the company’s earnings came in at $0.33 per share matching estimates. The company said that it sees strong world wide demand and expects to hit its sales goal of $60 billion by 2006 a full year ahead of schedule.
The big economic news for the week was the FOMC raising interest rate for the fourth time since June of this year. In the committees policy statement it appears that the Federal Reserve is willing to continue to raise interest rates “keyed to incoming data.” Currently, Fed Funds futures now give an 80% chance that the Federal Reserve will raise interest rates again in December. At this point the economy appears to be self sustaining and the FOMC can begin to remove its extremely accommodative stance.
The preliminary University of Michigan consumer sentiment for November rose to 95.5 from the prior months 91.7 topping economist estimates of 93.1. The positive result might be from the stronger than expected October payrolls report.
Oil continues to decline in price losing another $2.00 per barrel. Some analysts are now thinking oil prices could continue to decline into the $40.00 per barrel rage. This would have a positive effect on the economy. This is because higher energy prices can lead to inflation, low consumer sentiment, hurt corporate earnings and slow down economic growth.
In bond news Treasury yields were lower across the yield curve. The 5 year note closed yielding 3.50%. The 10 year notes yield was 4.17% and the 30 year bonds yield closed at 4.89%.
Companies releasing earnings this week are; Lowe’s Companies (LOW), Ross Stores (ROST), Home Depot (HD), The TJX Companies (TJX), Wal-Mart Stores (WMT), PetsMart (PETM), Gap Inc. (GPS), and Walt Disney (DIS).
By Rick Paler
This week the bulls were out in force again pushing the market to a new three year high. Since the election the market has been on a tear the Dow Jones Industrial has risen over 5% and the S&P 500 has risen 4.7%. Historically the market does perform well during the period of November through January. Wall Street calls this the Santa Clause Rally and this year it looks like it might have come a little early. This was due to the pent up demand as investors sat on the sidelines fearing another 2000 election debacle or a terrorist attack similar to the one Spain experience prior to their election. There are some on Wall Street that say are now in what looks like the beginning of a secular bull market rally.
Overall corporate earnings have been growing at a blistering pace. Economic conditions have been positive and the economy has been growing. So it did not come as a surprise when the Federal Reserve announced that they were going to raise the target Fed Funds rate by ¼ of one percent. This brought the Fed Funds rate from 1.75% to 2.0%. The market had anticipated the rate hike and therefore did not react when the announcement was made. This weeks Fed action marked the fourth time this year that the Federal Reserve raised interest rate in an attempt to keep inflation at bay. Since that market anticipated the rate hike the all important policy statement was closely watched to provide incite into the health of the economy and possible future actions by the Fed. The Federal Open Market Committee statement indicated that output is expanding while inflation continues to remain tame. It looks as if the soft patch in the economy has ended, since the FOMC said that the economy “regained some vigor.”
As the third quarter earnings season come to a close, the street will be focusing on corporate guidance for the forth quarter. Currently the negative-to-positive ratio is 2.2, which is in line with the historical ratio, but above last quarters 1.8. Analysts are expecting another strong quarter for earnings growth. Earnings for the S&P 500 for the forth quarter are expected to grow by 15.3%.
Merck (MRK) continues to be in the news unfortunately it has all been unpleasant. This week the company disclosed that it had been subpoenaed by the Justice Department regarding its handling of Vioxx. The company pulled the drug several weeks ago, after it was linked to possible deaths. The SEC has also launched an informal investigation into the company.
Pfizer (PFE) announced this week the company was under investigation by New York and Connecticut attorney generals office. This investigation is focusing on whether the company marketed drugs for uses not approved by the FDA.
Cisco Systems (CSCO) reported earning that matched the streets estimates of $0.21 per share. But the maker of switched and routers disappointed the street, when their revenues came in at $5.97 billion. The street had expected revenues of $6.20 billion. The company also disappointed with future sales guidance, which was well below what analyst had expected. The company also reveled that they were increasing their stock repurchase program by $10 billion.
PeopleSoft (PSFT) was in the news when the company’s board of directors rejected Oracle’s (ORCL) bid to purchase the company. Oracle had previously said that their current bid of $24.00 per share was their last and final offer.
Dell’s (DELL) earnings grew by 27%, as the company’s earnings came in at $0.33 per share matching estimates. The company said that it sees strong world wide demand and expects to hit its sales goal of $60 billion by 2006 a full year ahead of schedule.
The big economic news for the week was the FOMC raising interest rate for the fourth time since June of this year. In the committees policy statement it appears that the Federal Reserve is willing to continue to raise interest rates “keyed to incoming data.” Currently, Fed Funds futures now give an 80% chance that the Federal Reserve will raise interest rates again in December. At this point the economy appears to be self sustaining and the FOMC can begin to remove its extremely accommodative stance.
The preliminary University of Michigan consumer sentiment for November rose to 95.5 from the prior months 91.7 topping economist estimates of 93.1. The positive result might be from the stronger than expected October payrolls report.
Oil continues to decline in price losing another $2.00 per barrel. Some analysts are now thinking oil prices could continue to decline into the $40.00 per barrel rage. This would have a positive effect on the economy. This is because higher energy prices can lead to inflation, low consumer sentiment, hurt corporate earnings and slow down economic growth.
In bond news Treasury yields were lower across the yield curve. The 5 year note closed yielding 3.50%. The 10 year notes yield was 4.17% and the 30 year bonds yield closed at 4.89%.
Companies releasing earnings this week are; Lowe’s Companies (LOW), Ross Stores (ROST), Home Depot (HD), The TJX Companies (TJX), Wal-Mart Stores (WMT), PetsMart (PETM), Gap Inc. (GPS), and Walt Disney (DIS).
Friday, November 05, 2004
Weekly Market Review 11-05-2004
Stocks rally on Bush win
By Rick Paler
The market posted excellent results this week due to a flood of positive news. Companies continued to report expanding earnings for the third quarter, oil prices eased, economic reports were positive and the election was over. The largest factor for the rally though was that President Bush had won and no terrorist event occurred.
On Election Day, early reports from exit polls indicated that Senator Kerry would win the election. This caused the market to begin a steep sell off. Within minutes the Dow Jones Industrial index had fallen over 100 points and the S&P 500 index fell 10 points. The next morning the results proved otherwise. Traders realized that President Bush had won the election and the market opened up 160 points and the S&P 500 opened 16 points higher.
The reason behind this rally is Wall Streets prospective that a Republican administration would be more pro-business. Multiplying this was that fact that the Republicans would control both the Senate and House of Representatives and that the Presidents tax cuts and specifically the dividend tax cut would stay in effect were seen as pluses. For the week just about all industry groups joined the rally with the energy, defense and health care sectors leading the way.
In corporate news, the third quarter is coming to a close and earnings for the quarter are expanding nicely. Currently it appears that the S&P 500 will post earnings growth of 16% for the quarter. Additionally corporate earnings guidance for the fourth quarter also appears to be strong.
Merck’s (MRK) bad news just seems to be getting worse. Questions now have surfaced as to when the company knew of the risks associated with Vioxx. Vioxx was pulled from the market due to cardiac risks associated with taking the drug. The Wall Street Journal reported that management might have known about potential issues with the drug as early as March of 2000. This could give the company even greater exposure to lawsuits.
Pfizer (PFE) shares also have come under pressure when it was announced that its arthritis drug Celebrex, which is similar to Merck’s Vioxx, might have contributed to 14 deaths in Canada. Dr. Maria Valois, director of marketed pharmaceuticals at Health Canada said that they were awaiting more information from the company and that they had set November 18th as the deadline for receiving the information. At this point Dr. Valois said “It’s still premature to conclude what intervention is required in this case.”
Retail stocks had a good week when Wal-Mart (WMT) indicated that its same-store sales for October rose 2.8% and that it saw its third quarter earnings coming in at the high end of the company’s guidance of $0.52 - $0.54 per share.
Discount retailer TJX Companies (TJX) reported that their same-store sales for October rose 7% exceeding the company’s own guidance of 4% - 5% and blowing away analyst estimates of only 4.2% sales growth. The company also sees its third quarter earnings to be inline with its prior guidance of $0.39 - $0.42 per share.
Qualcomm (QCOM) shares were under pressure when the company announced that their earnings for the quarter were $0.29 per share, matching street estimates. The company then warned about its future. The company lowered its first quarter 2005 outlook citing higher operating cost. They now expect to earnings of $0.24 - $0.26 per share. Analyst had expected earning of $0.31 per share for the first quarter.
Wachovia Corporation (WB) finalized its deal to acquire SouthTrust (SOTR). The merger took place effective November 1st and shareholders of SouthTrust received 0.89 shares of Wachovia common stock.
Estée Lauder Companies (EL) posted strong results as they saw profits rise 23% and raised their dividend 10 cents. The company posted earnings of $0.41 per share exceeding Wall Streets estimates of only $0.37 per share.
Economic new this week was very positive, showing that the economy continues to be strong despite higher energy cost. This biggest new for the week was the release of the much anticipated employment numbers. On Friday the report was released showing that a very impressive 337,000 jobs were created in October. Additionally the prior two months data was revised upwards by 113,000 new jobs. Economist had expected a rise of only 175,000 new jobs for October. Unemployment rose less than expected coming up only 0.03% to 5.46%. Economist had estimated that unemployment for October would rise to 5.5%.
The bond market sold off pushing yields higher for the week. This was due to the very strong economic data combined with traders moving from the pre-election flight to the safety of bonds back into the stock market. The economy at this point seems self secificiant and can maintain its growth without the Federal Reserves policy of accodimations. By the close of the week bond traders anticipated a 100% chance that the Federal Reserve would raise interest rates at their meeting next week by ¼ of a percent. The bond market is now also giving it an 80% chance that the Federal Reserve will also take action to raise rates in December. The 5 year Treasury closed yielding 3.46% and the 10 year notes yield was up to 4.17%. The 30 year Treasury bond closed yielding 4.89%.
Next week all of Wall Street will be watching the Federal Reserve when they meet on Tuesday to see if they in fact raise interest rates for the forth time this year. Companies releasing earnings next week are as follows; Abercrombie & Fitch (ANF), Cisco (CSCO), Starbucks (SBUX), Pixar Animation Studios (PIXR), Kohl’s (KSS), Tiffany & Co. (TIF) and Dell Inc. (DELL).
By Rick Paler
The market posted excellent results this week due to a flood of positive news. Companies continued to report expanding earnings for the third quarter, oil prices eased, economic reports were positive and the election was over. The largest factor for the rally though was that President Bush had won and no terrorist event occurred.
On Election Day, early reports from exit polls indicated that Senator Kerry would win the election. This caused the market to begin a steep sell off. Within minutes the Dow Jones Industrial index had fallen over 100 points and the S&P 500 index fell 10 points. The next morning the results proved otherwise. Traders realized that President Bush had won the election and the market opened up 160 points and the S&P 500 opened 16 points higher.
The reason behind this rally is Wall Streets prospective that a Republican administration would be more pro-business. Multiplying this was that fact that the Republicans would control both the Senate and House of Representatives and that the Presidents tax cuts and specifically the dividend tax cut would stay in effect were seen as pluses. For the week just about all industry groups joined the rally with the energy, defense and health care sectors leading the way.
In corporate news, the third quarter is coming to a close and earnings for the quarter are expanding nicely. Currently it appears that the S&P 500 will post earnings growth of 16% for the quarter. Additionally corporate earnings guidance for the fourth quarter also appears to be strong.
Merck’s (MRK) bad news just seems to be getting worse. Questions now have surfaced as to when the company knew of the risks associated with Vioxx. Vioxx was pulled from the market due to cardiac risks associated with taking the drug. The Wall Street Journal reported that management might have known about potential issues with the drug as early as March of 2000. This could give the company even greater exposure to lawsuits.
Pfizer (PFE) shares also have come under pressure when it was announced that its arthritis drug Celebrex, which is similar to Merck’s Vioxx, might have contributed to 14 deaths in Canada. Dr. Maria Valois, director of marketed pharmaceuticals at Health Canada said that they were awaiting more information from the company and that they had set November 18th as the deadline for receiving the information. At this point Dr. Valois said “It’s still premature to conclude what intervention is required in this case.”
Retail stocks had a good week when Wal-Mart (WMT) indicated that its same-store sales for October rose 2.8% and that it saw its third quarter earnings coming in at the high end of the company’s guidance of $0.52 - $0.54 per share.
Discount retailer TJX Companies (TJX) reported that their same-store sales for October rose 7% exceeding the company’s own guidance of 4% - 5% and blowing away analyst estimates of only 4.2% sales growth. The company also sees its third quarter earnings to be inline with its prior guidance of $0.39 - $0.42 per share.
Qualcomm (QCOM) shares were under pressure when the company announced that their earnings for the quarter were $0.29 per share, matching street estimates. The company then warned about its future. The company lowered its first quarter 2005 outlook citing higher operating cost. They now expect to earnings of $0.24 - $0.26 per share. Analyst had expected earning of $0.31 per share for the first quarter.
Wachovia Corporation (WB) finalized its deal to acquire SouthTrust (SOTR). The merger took place effective November 1st and shareholders of SouthTrust received 0.89 shares of Wachovia common stock.
Estée Lauder Companies (EL) posted strong results as they saw profits rise 23% and raised their dividend 10 cents. The company posted earnings of $0.41 per share exceeding Wall Streets estimates of only $0.37 per share.
Economic new this week was very positive, showing that the economy continues to be strong despite higher energy cost. This biggest new for the week was the release of the much anticipated employment numbers. On Friday the report was released showing that a very impressive 337,000 jobs were created in October. Additionally the prior two months data was revised upwards by 113,000 new jobs. Economist had expected a rise of only 175,000 new jobs for October. Unemployment rose less than expected coming up only 0.03% to 5.46%. Economist had estimated that unemployment for October would rise to 5.5%.
The bond market sold off pushing yields higher for the week. This was due to the very strong economic data combined with traders moving from the pre-election flight to the safety of bonds back into the stock market. The economy at this point seems self secificiant and can maintain its growth without the Federal Reserves policy of accodimations. By the close of the week bond traders anticipated a 100% chance that the Federal Reserve would raise interest rates at their meeting next week by ¼ of a percent. The bond market is now also giving it an 80% chance that the Federal Reserve will also take action to raise rates in December. The 5 year Treasury closed yielding 3.46% and the 10 year notes yield was up to 4.17%. The 30 year Treasury bond closed yielding 4.89%.
Next week all of Wall Street will be watching the Federal Reserve when they meet on Tuesday to see if they in fact raise interest rates for the forth time this year. Companies releasing earnings next week are as follows; Abercrombie & Fitch (ANF), Cisco (CSCO), Starbucks (SBUX), Pixar Animation Studios (PIXR), Kohl’s (KSS), Tiffany & Co. (TIF) and Dell Inc. (DELL).
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