Market post first gain of the year
By Rick Paler
The stock market posted its first weekly gain this year on positive earnings news. Overall sentiment remains cautious ahead of the Iraq elections taking place this Sunday. Merger activity continued this week with announcements from both Procter & Gamble and SBC Communications. Economic reports for the week were generally positive with no big surprises.
After watching the market slide downwards the first three weeks of 2005 the market managed to squeeze out a small gain this week. Positive earnings news was the main impetus for the gain. As I have mentioned in previous articles, I believe that fourth quarter earnings for the S&P 500 would come in at 16% earnings growth or better. Now that we are in the middle of the reporting season Wall Street analyst as a whole are estimating a 17% gain in earnings over last years same period. This is very impressive considering that earnings for the fourth quarter 2003 grew by 28.3%. This earnings growth continues to be fueled by productivity increases, the weaker dollar, and strong consumer spending. Although corporate earnings remain at record levels the sentiment remains cautious with many traders waiting for this weekend’s election in Iraq. Many fear major terrorist attacks and a disruption in Iraq’s oil production. This was evident when Microsoft posted excellent results and Procter & Gamble announce their merger plans with Gillette and the market as a whole barely moved upwards.
In corporate news as I anticipated merger mania continued this week with rumors that SBC Communications (SBC) was looking to merger with AT&T (T) and Procter & Gamble (PG) announce their plans to purchase Gillette (G). Again I will state that I expect this kind of merger activity to continue throughout this year. This is due to the fact that U.S corporations are sitting on record amounts of cash.
SBC Communications (SBC) is rumored to be in current talks with AT&T (T) to purchase the once dominate telecommunications company known as Ma Bell for an estimated $15 billion. The deal would have to pass antitrust regulatory review.
Procter & Gamble (PG) announce plans to acquire Gillette (G) for a massive $57 billion. The merger would create the world’s largest consumer product company exceeding the size of European rival Unileaver (UN). The company said that shareholders of Gillette would receive 0.975 shares of P&G for each share they hold. P&G also said that they would purchase $18 billion to $22 billion of its own stock over the next 12 months.
Microsoft (MSFT) earnings for their fiscal second quarter excluding items came in at $0.35 per share topping the streets estimates of only $0.33 per share. The company cited strong personal computer sales and the release of Halo 2 game for their Xbox gaming system. The company also raised their full-year revenue guidance to $39.8 billion to $40.0 billion.
Newell Rubbermaid Inc. (NWL) exceeded analyst earnings estimates by two cents when they announced earnings excluding items of 127 million or $0.46 per share. This compares favorably from last years loss of -$211.6 million or -$0.77 per share for the same period.
Estée Lauder Companies (EL) reported profits rose by 44.5% to $138.3 million or $0.60 per share exceeding Wall Streets estimates of $0.57 per share. The company said that the saw strong sales growth across all product lines.
Rayonier’s (RYN) fourth quarter income rose to $13.5 million or $0.26 per share and reported that their full-year 2004 net income came in at $3.08 per share compared to last years $1.16 per share. This was the company’s first year of operation as a REIT which gave the company a tax benefit of $49.7 million or $0.98 per share in the first quarter 2003.
In economic new, reports this week were mixed yet still indicated that the economy continues to grow. An unexpected raise in consumer confidence was reported by the Conference Board this week. Economist anticipated a reading of 101.0 for January yet the report indicated that consumer confidence rose to 103.4 indicating that consumer spending should remain strong.
The advanced Gross Domestic Product figures indicated that the economy continues to grow at a rate above the historical average, but the number missed economist estimates. The advanced GDP reported that the economy grew in fourth quarter 3.1%, economist had anticipated a reading of 3.5%.
Bond rates continue to rise on the short end of the yield curve as traders anticipate the FOMC to raise the Fed Funds rate again at their next meeting in February. The 5 year Treasury note closed yielding 3.68% this week, while the 10 year closed yielding 4.13% and the 30 year bond closed yielding 4.60%.
Next week could be another positive week for the market. If the elections in Iraq on Sunday proceed without major disruptions, it would remove some of the cautious sentiment in the market. This will allow traders to focus on the positive earnings the S&P 500 companies are posting. Companies that will release earnings next week that will be of interest are AFLAC (AFL), Exxon Mobile (XOM), Fuji Photo (FUJIY), Walt Disney Co. (DIS), Chubb Corp. (CB), Google (GOOG), Anheuser-Bush (BUD), Boeing (BA), and PepsiCo (PEP).
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Friday, January 28, 2005
Friday, January 21, 2005
Weekly Market Report 01-21-2005
Markets decline three weeks in a row
By Rick Paler
The recent decline in the market has many scratching their heads trying to analyze the cause. Nothing has fundamentally changed in the last three week. Any negative news should have already been priced into the market, such as the decline in the value of the dollar, the Federal Reserves continuation of their policy of raising interest rates, Iraq, terrorism, the rise in commodity cost and the slowing earnings growth estimated for 2005.
Overall the markets tend to be nervous at the beginning of each earnings season causing many traders to sit on the sidelines and take a wait and see attitude. This combined with last years late rally is causing some to book their profits ahead of earnings announcements. My expectation is that this downward trend has the potential to reverse itself as some to the market leaders post respectable earnings growth.
In earnings news Yahoo (YHOO) posted great numbers. The internet search company increased their earnings 62% in the fourth quarter posting earnings of $0.13 per share exceeding Wall Street estimates of only $0.11 per share.
Drug maker Pfizer (PFE) announced that their fourth quarter net income quadrupled to $0.38 per share. The company cited strong sales growth both in their cholesterol-fighting drug Lipitor and their arthritis drug Celebrex.
Bellwether giant General Electric (GE) beat Wall Street estimates by a penny reporting earnings of $0.51 per share as revenues came in at $43.7 billion jumping 18%. The company cited an excellent global economy for their results. For 2005 the company also said that it was confident that it could post earnings growth of 10% to 15%.
II-VI Inc. (IIVI) reported their fiscal second quarter results this week. Net earnings were $0.39 per share or $5.7 million dollars up from only $0.23 per share or $3.4 million dollars a year ago. The company said “record revenues and bookings for the second quarter attest to the continued strong worldwide demand for II-VI products.”
Fortune Brands (FO) net income rose 59% to $249.5 million or $1.68 per share. Wall Street estimates had been for the company to earn only $1.21 per share. The consumer brands company and maker of such brands as Moen, Titleist, and Jim Beam said that sales increased 15% to $1.91 billion for the period. The company also said that they expect earnings growth in the double-digits for both the first quarter and 2005.
Johnson & Johnson (JNJ) announced that they would take advantage of the American Jobs Creation Act of 2004 by repatriating $11 billion of overseas earnings back into the United States. The Act allows corporations to repatriate earnings from overseas at the reduced tax rate of 5.25% versus the maximum 35%. It is expected that over $300 billion in corporate profits will flow back into the United States before the tax break expires at the end of 2005.
Shares of online auction company eBay (EBAY) were hit hard this week when the company reported disappointing fourth quarter earnings and first quarter guidance. The company reported earnings of $0.33 per share, which was a penny below analyst estimates. First quarter guidance also missed their mark. The street was expecting earnings estimates of $0.37 per share and the company gave guidance of only $0.34 to $0.35 per share.
In economic news the New York Empire State index which measures manufacturing activity missed economist estimates but continued to show strong economic growth for the region. Real estate continues to surprise on the upside. Housing Starts jumped 11% to 2.0 million and building permits rose to 2.0 million, both exceeding estimates. The Consumer Price Index for December fell 0.1% indicating that inflation at the consumer level remains under control. Economist had expected the CPI to come in unchanged.
The current yield curve for bonds remains flat as interest rates on the short end of the yield curve are expected to rise throughout 2005. Bond rates were lower across the board this week. The 5 year Treasury note closed yielding 3.63% and the 10 year and 30 year closed yielding 4.14% and 4.64% respectively.
Next week traders will continue to focus on earnings. Company missing earnings will be greatly punished by the market and those meeting or exceeding estimates will for the most part be greeted with cautious enthusiasm. I am currently still expecting earnings for the S&P 500 to post growth of 16% then return to more normal levels of growth for the first quarter. Companies in the earnings spotlight next week are Rayonier Inc. (RYN), Johnson & Johnson (JNJ), Merck (MRK), DuPont (DD), Electronic Arts (ERTS), Black & Decker (BDK), Amgen (AMGN), Getty Images (GYI), Microsoft (MSFT), Estée Lauder (EL), and Procter & Gamble (PG),
By Rick Paler
The recent decline in the market has many scratching their heads trying to analyze the cause. Nothing has fundamentally changed in the last three week. Any negative news should have already been priced into the market, such as the decline in the value of the dollar, the Federal Reserves continuation of their policy of raising interest rates, Iraq, terrorism, the rise in commodity cost and the slowing earnings growth estimated for 2005.
Overall the markets tend to be nervous at the beginning of each earnings season causing many traders to sit on the sidelines and take a wait and see attitude. This combined with last years late rally is causing some to book their profits ahead of earnings announcements. My expectation is that this downward trend has the potential to reverse itself as some to the market leaders post respectable earnings growth.
In earnings news Yahoo (YHOO) posted great numbers. The internet search company increased their earnings 62% in the fourth quarter posting earnings of $0.13 per share exceeding Wall Street estimates of only $0.11 per share.
Drug maker Pfizer (PFE) announced that their fourth quarter net income quadrupled to $0.38 per share. The company cited strong sales growth both in their cholesterol-fighting drug Lipitor and their arthritis drug Celebrex.
Bellwether giant General Electric (GE) beat Wall Street estimates by a penny reporting earnings of $0.51 per share as revenues came in at $43.7 billion jumping 18%. The company cited an excellent global economy for their results. For 2005 the company also said that it was confident that it could post earnings growth of 10% to 15%.
II-VI Inc. (IIVI) reported their fiscal second quarter results this week. Net earnings were $0.39 per share or $5.7 million dollars up from only $0.23 per share or $3.4 million dollars a year ago. The company said “record revenues and bookings for the second quarter attest to the continued strong worldwide demand for II-VI products.”
Fortune Brands (FO) net income rose 59% to $249.5 million or $1.68 per share. Wall Street estimates had been for the company to earn only $1.21 per share. The consumer brands company and maker of such brands as Moen, Titleist, and Jim Beam said that sales increased 15% to $1.91 billion for the period. The company also said that they expect earnings growth in the double-digits for both the first quarter and 2005.
Johnson & Johnson (JNJ) announced that they would take advantage of the American Jobs Creation Act of 2004 by repatriating $11 billion of overseas earnings back into the United States. The Act allows corporations to repatriate earnings from overseas at the reduced tax rate of 5.25% versus the maximum 35%. It is expected that over $300 billion in corporate profits will flow back into the United States before the tax break expires at the end of 2005.
Shares of online auction company eBay (EBAY) were hit hard this week when the company reported disappointing fourth quarter earnings and first quarter guidance. The company reported earnings of $0.33 per share, which was a penny below analyst estimates. First quarter guidance also missed their mark. The street was expecting earnings estimates of $0.37 per share and the company gave guidance of only $0.34 to $0.35 per share.
In economic news the New York Empire State index which measures manufacturing activity missed economist estimates but continued to show strong economic growth for the region. Real estate continues to surprise on the upside. Housing Starts jumped 11% to 2.0 million and building permits rose to 2.0 million, both exceeding estimates. The Consumer Price Index for December fell 0.1% indicating that inflation at the consumer level remains under control. Economist had expected the CPI to come in unchanged.
The current yield curve for bonds remains flat as interest rates on the short end of the yield curve are expected to rise throughout 2005. Bond rates were lower across the board this week. The 5 year Treasury note closed yielding 3.63% and the 10 year and 30 year closed yielding 4.14% and 4.64% respectively.
Next week traders will continue to focus on earnings. Company missing earnings will be greatly punished by the market and those meeting or exceeding estimates will for the most part be greeted with cautious enthusiasm. I am currently still expecting earnings for the S&P 500 to post growth of 16% then return to more normal levels of growth for the first quarter. Companies in the earnings spotlight next week are Rayonier Inc. (RYN), Johnson & Johnson (JNJ), Merck (MRK), DuPont (DD), Electronic Arts (ERTS), Black & Decker (BDK), Amgen (AMGN), Getty Images (GYI), Microsoft (MSFT), Estée Lauder (EL), and Procter & Gamble (PG),
Friday, January 14, 2005
Weekly Market Report 01-14-2005
Merger mania continues
By Rick Paler
This week additional corporate mergers were announced and the final fourth quarter earnings season officially started. Economic reports released this week were mixed causing the long end of the bond yield curve to fall. Overall, market sediment for the week was negative causing the market to close lower again this week.
On the heels of several notable mergers occurring last year, including the headline making Oracle merger with PeopleSoft, Cingular and AT&T Wireless, and Sprint (FON) merging with Nextel Communications (NXTL) more merger activity was announced this week.
Consolidation within the wireless phone industry continued when early in the week Alltel (AT) reported they will purchase Western Wireless (WWCA) in a deal worth about $6 billion dollars. The deal will make the company the fifth largest in the country. Shareholders of Western Wireless will receive 0.535 shares of Alltel and $9.25 in cash.
Additionally in merger news, Movie Gallery (MOVI) agreed to purchase Hollywood Entertainment (HLYW) for $1.2 billion in cash and debt. Meanwhile News Corp. (NWS) offered Fox Entertainment Group (FOX) to purchase the remaining 18% of their outstanding shares for $6 billion. News Corp. will offer 1.6 shares of common stock for each share of Fox.
The final fourth quarter earnings season started off rocky when Alcoa (AA) and Genentech (DNA) both led off by missing their expected earnings numbers. While Alcoa also missed their revenue target citing higher energy cost and the weaker dollar.
This gave the bears a reason to sell while the rest of the market held their breath. The poor start of the week was then followed up by very positive earnings news in the technology sector. Chip maker Intel (INTC) reported fourth quarter earnings of $2.1 billion or $0.33 per share easily exceeding Wall Streets estimates of only $0.31 per share. The company also reported that revenues rose 13% to $9.6 billion also exceeding analysts’ estimates. The company reported that they had strong growth in every product area.
Intel’s performance was followed up by a spectacular report from Apple Computer (AAPL). The maker of the red hot iPod mp3 player and computers said that their fiscal first quarter net income surged by more than four times to $0.70 per share or $295 million. Revenues at the company rocketed upward 74% to $3.5 billion. The company cited their iPod sales the rose almost five times previous levels to $1.2 billion. The company also noted that sales of their Macintosh computers rose 33%.
In other corporate news Home Depot (HD) gave guidance for their fiscal 2005. The company said that they expect earnings to grow by 10% to 14% and sales to increase by 9% to 12% with same-store sales increasing 4% to 7%. The home improvement leader also announced that they would begin carrying LG Electronics new line of home appliances. For 2004 the company expects to report earnings of $2.26 per share up 20.2% from 2003.
Specialty retail Williams-Sonoma (WSM) announced that their revenues for the eight week holiday sales period jumped 7.3% to $775.9 million from year ago numbers, but that numbers had been impacted by weaker than expected sales from their Pottery Barn stores. Additionally the company reaffirmed their fourth quarter and fiscal 2005 guidance.
Newhall Rubbermaid (NWL) continued to streamline their business by selling Curver their European division. The sale allows the company to focus on its most profitable core businesses. The sale of the division to Jardin International Holding BV is not expected to impact the company’s 2004 results, but is expected to negatively impact their first quarter results due to charges affected by the sale.
Paychex Inc. (PAYX) and the American Bar Association announced this week that the company will be providing members of the ABA access to free mandatory continuing legal education. The continuing legal education classes will be held via live teleconferences and serves to strengthen the relationship and benefits Paychex provides to ABA members and the businesses they serve.
Pharmaceutical company Celgene (CELG) reported that they expect fourth quarter earnings to be inline with analysts estimated of $0.9 per share and 2004 yearly revenues to come in at $375 million up 38% from a year earlier. For 2005 the company gave guidance of earnings of $0.55 per share and revenues to jump 35% to 40% to $525 million.
Economic news reports released this week were mixed. The November trade deficit hit record levels as consumer demand and oil drove imports. The report indicated that the trade deficit had risen to $60.3 billion. Despite the weak dollar that should spur exports that U.S economy and demand is exceeding both the European and Asian economies.
The Producer Price Index which measures inflation came in better than expected. The December PPI fell more than expected showing a decline of 0.7%. This was the first decline in wholesale prices in six months. The core rate which excludes food and energy also came in better than expected rising only 0.1%. This subdued fears of inflation and the Federal Reserve taking a more aggressive stance on interest rates. Industrial production for December was better than expected rising the 2004 results of 4.1% to the best level in four years.
Bond rates fell on the positive economic news released this week indicating that the Federal Reserve would not have to take drastic action to stem inflation. The 5 year Treasury note closed unchanged from last weeks 3.7%. While the 10 year note and 30 year bond yields fell from the prior week to 4.21% and 4.72% respectively. Although this weeks economic news drove interest rates down it is still my belief that the Federal Reserve will continue with its policy of raising interest rates this year beginning with a 25 basis point hike in the Fed Funds rate at the February FOMC meeting.
Next week as a reminder the market will be closed on Monday in celebration of Martin Luther King’s day. Earnings will be the main focus of the week with many traders taking a wait and see attitude. Although we got off to a rocky start it is still my expectation that the S&P 500 will post earnings growth of 15% or better. Companies releasing earnings next week that are worth noting are 3M Company (MMM), Kinder Morgan (KMI), Motorola Inc. (MOT), US Bancorp (USB), Wells Fargo (WFC), Yahoo (YHOO), General Motors (GM), Pfizer (PFE), Qualcomm (QCOM), Wachovia Corp. (WB), Citigroup (C), Fortune Brands (FO), and General Electric (GE).
By Rick Paler
This week additional corporate mergers were announced and the final fourth quarter earnings season officially started. Economic reports released this week were mixed causing the long end of the bond yield curve to fall. Overall, market sediment for the week was negative causing the market to close lower again this week.
On the heels of several notable mergers occurring last year, including the headline making Oracle merger with PeopleSoft, Cingular and AT&T Wireless, and Sprint (FON) merging with Nextel Communications (NXTL) more merger activity was announced this week.
Consolidation within the wireless phone industry continued when early in the week Alltel (AT) reported they will purchase Western Wireless (WWCA) in a deal worth about $6 billion dollars. The deal will make the company the fifth largest in the country. Shareholders of Western Wireless will receive 0.535 shares of Alltel and $9.25 in cash.
Additionally in merger news, Movie Gallery (MOVI) agreed to purchase Hollywood Entertainment (HLYW) for $1.2 billion in cash and debt. Meanwhile News Corp. (NWS) offered Fox Entertainment Group (FOX) to purchase the remaining 18% of their outstanding shares for $6 billion. News Corp. will offer 1.6 shares of common stock for each share of Fox.
The final fourth quarter earnings season started off rocky when Alcoa (AA) and Genentech (DNA) both led off by missing their expected earnings numbers. While Alcoa also missed their revenue target citing higher energy cost and the weaker dollar.
This gave the bears a reason to sell while the rest of the market held their breath. The poor start of the week was then followed up by very positive earnings news in the technology sector. Chip maker Intel (INTC) reported fourth quarter earnings of $2.1 billion or $0.33 per share easily exceeding Wall Streets estimates of only $0.31 per share. The company also reported that revenues rose 13% to $9.6 billion also exceeding analysts’ estimates. The company reported that they had strong growth in every product area.
Intel’s performance was followed up by a spectacular report from Apple Computer (AAPL). The maker of the red hot iPod mp3 player and computers said that their fiscal first quarter net income surged by more than four times to $0.70 per share or $295 million. Revenues at the company rocketed upward 74% to $3.5 billion. The company cited their iPod sales the rose almost five times previous levels to $1.2 billion. The company also noted that sales of their Macintosh computers rose 33%.
In other corporate news Home Depot (HD) gave guidance for their fiscal 2005. The company said that they expect earnings to grow by 10% to 14% and sales to increase by 9% to 12% with same-store sales increasing 4% to 7%. The home improvement leader also announced that they would begin carrying LG Electronics new line of home appliances. For 2004 the company expects to report earnings of $2.26 per share up 20.2% from 2003.
Specialty retail Williams-Sonoma (WSM) announced that their revenues for the eight week holiday sales period jumped 7.3% to $775.9 million from year ago numbers, but that numbers had been impacted by weaker than expected sales from their Pottery Barn stores. Additionally the company reaffirmed their fourth quarter and fiscal 2005 guidance.
Newhall Rubbermaid (NWL) continued to streamline their business by selling Curver their European division. The sale allows the company to focus on its most profitable core businesses. The sale of the division to Jardin International Holding BV is not expected to impact the company’s 2004 results, but is expected to negatively impact their first quarter results due to charges affected by the sale.
Paychex Inc. (PAYX) and the American Bar Association announced this week that the company will be providing members of the ABA access to free mandatory continuing legal education. The continuing legal education classes will be held via live teleconferences and serves to strengthen the relationship and benefits Paychex provides to ABA members and the businesses they serve.
Pharmaceutical company Celgene (CELG) reported that they expect fourth quarter earnings to be inline with analysts estimated of $0.9 per share and 2004 yearly revenues to come in at $375 million up 38% from a year earlier. For 2005 the company gave guidance of earnings of $0.55 per share and revenues to jump 35% to 40% to $525 million.
Economic news reports released this week were mixed. The November trade deficit hit record levels as consumer demand and oil drove imports. The report indicated that the trade deficit had risen to $60.3 billion. Despite the weak dollar that should spur exports that U.S economy and demand is exceeding both the European and Asian economies.
The Producer Price Index which measures inflation came in better than expected. The December PPI fell more than expected showing a decline of 0.7%. This was the first decline in wholesale prices in six months. The core rate which excludes food and energy also came in better than expected rising only 0.1%. This subdued fears of inflation and the Federal Reserve taking a more aggressive stance on interest rates. Industrial production for December was better than expected rising the 2004 results of 4.1% to the best level in four years.
Bond rates fell on the positive economic news released this week indicating that the Federal Reserve would not have to take drastic action to stem inflation. The 5 year Treasury note closed unchanged from last weeks 3.7%. While the 10 year note and 30 year bond yields fell from the prior week to 4.21% and 4.72% respectively. Although this weeks economic news drove interest rates down it is still my belief that the Federal Reserve will continue with its policy of raising interest rates this year beginning with a 25 basis point hike in the Fed Funds rate at the February FOMC meeting.
Next week as a reminder the market will be closed on Monday in celebration of Martin Luther King’s day. Earnings will be the main focus of the week with many traders taking a wait and see attitude. Although we got off to a rocky start it is still my expectation that the S&P 500 will post earnings growth of 15% or better. Companies releasing earnings next week that are worth noting are 3M Company (MMM), Kinder Morgan (KMI), Motorola Inc. (MOT), US Bancorp (USB), Wells Fargo (WFC), Yahoo (YHOO), General Motors (GM), Pfizer (PFE), Qualcomm (QCOM), Wachovia Corp. (WB), Citigroup (C), Fortune Brands (FO), and General Electric (GE).
Friday, January 07, 2005
Weekly Market Review 01-07-2005
Superstitious say 2005 will be a negative year
By Rick Paler
Despite Wall Streets high expectation for 2005, the market closed the first trading week of the year lower, posting loses across all major indices. The markets down turn this week was due to valuation concerns. The market bears were able to push the markets lower on fears that the market had gone too far too fast. In an industry filled with superstitions, this is an ominous sign of things to come for the 2005 trading year.
There are fortune tellers out there that believe that a negative first week of trading foretells the direction of the market for the year. I am not one of those individuals. I believe that predictions such as these fall into the same category as moon phases, woman’s skirt lengths, super bowl winners and others crazy theories. If you look hard enough, I bet you could also find next years best stock pick in a bowl of alphabet soup.
Going into 2005 the economy looks like it will continue to grow at a reasonable rate posting a GDP of around 3.5%. Inflation should also remain under control as the Federal Reserve continues to raise interest rates to a more neutral stance. If the Federal Reserve continues to raise rates slowly it should not upset the market. Corporate earning should continue to grow, but not at the blistering pace set in 2004. Overall, given the current indicators, I believe that the market should post signal digit gains for the year. With that being said, I believe like last year it will be a stock pickers market were active professional money management has the potential to outpace the returns posted by the indices.
This week in corporate news Merck (MRK), Taser International (TASR) and Krispy Kreme (KKD) all announced additional bad news. Economic data was not earth shattering and bond yields were pushed higher.
The ghost of Merck’s (MRK) Vioxx continues to haunt the company. It was reported this week by the Financial Times that a report will be released that indicates that Vioxx may have had more serious side effects than first reported. In the report due to be released, it suggests that up to 139,000 people in the U.S. have been injured or died from the drug. If the report hold true it could open the company up to substantial litigation. Merck shares are off close to 40% from their 52 week high.
Shares of stun gun manufacture Taser International (TASR) were lower on news that the SEC is looking into the safety of the guns after reports of several deaths and a distribution deal.
The once red hot Krispy Kreme (KKD) shares continued their downward slide this week. The company announced that they would restate their fiscal 2004 earnings due to accounting irregularities and confirmed that they might default on a $150 million dollar line of credit. The company also announced that it might not file its annual 10-k report in a timely manner.
Walgreen (WAG) reported that December same-store sales rose 4.2% and that its first quarter net income rose 31% to $332.7 million or $0.32 per share topping analyst estimates. Rival drug store chain Rite-Aid (RAD) reported December same-store sale declined -2.7%.
American Eagle Outfitters (AEOS) reported that their December same-store sales surged 32.8% well ahead of Wall Streets estimates of an 18.8% increase. The company also raised their fourth quarter profit guidance to $1.30 to $1.31 from $1.08 to $1.10 per share.
TJX Companies (TJX) also reported a good December sales report. The company announced that same-store sales increased 6% at its Marshalls and T.J. Maxx stores and for the five weeks ending January 3 sales rose 15% from a year ago. Analysts had expected same-store sales to increase only 2.8%.
The big economic news this week was the jobs report. The nonfarm payroll report for December indicated that 157,000 new jobs were created, while both the November and October reports were revised higher. This number was viewed positively by the market, since a higher number could lead the Fed to raise interest rates quicker than anticipated and a lower number would have caused concern about future economic growth. For the year 2.2 million new jobs were created and averaged 185,000 new jobs per month. This should put away fears of a continued jobless economic recovery.
Bond yields were slightly higher for the week. Traders are still anticipating that at the next FOMC meeting the Federal Reserve will raise interest rates another 25 basis points.
The 5 year Treasury note closed yielding 3.70% and the 10 year note closed at 4.26%. The 30 year bond closed with its yield up to 4.83%.
Next week should provide some market moving news. Traders have for several weeks been waiting for the fourth quarter earnings season. The season begins with Alcoa (AA) announcing their earnings after the market close on Monday, January 10th. The technology sector and NASDAQ markets could be moved next week by earnings reports from Intel (INTC), Apple Computer (AAPL), Sun Microsystems (SUNW) and Samsung Electronics LTD (SSNLF). Overall the fourth quarter is expected to post 15% earnings growth for the S&P 500.
By Rick Paler
Despite Wall Streets high expectation for 2005, the market closed the first trading week of the year lower, posting loses across all major indices. The markets down turn this week was due to valuation concerns. The market bears were able to push the markets lower on fears that the market had gone too far too fast. In an industry filled with superstitions, this is an ominous sign of things to come for the 2005 trading year.
There are fortune tellers out there that believe that a negative first week of trading foretells the direction of the market for the year. I am not one of those individuals. I believe that predictions such as these fall into the same category as moon phases, woman’s skirt lengths, super bowl winners and others crazy theories. If you look hard enough, I bet you could also find next years best stock pick in a bowl of alphabet soup.
Going into 2005 the economy looks like it will continue to grow at a reasonable rate posting a GDP of around 3.5%. Inflation should also remain under control as the Federal Reserve continues to raise interest rates to a more neutral stance. If the Federal Reserve continues to raise rates slowly it should not upset the market. Corporate earning should continue to grow, but not at the blistering pace set in 2004. Overall, given the current indicators, I believe that the market should post signal digit gains for the year. With that being said, I believe like last year it will be a stock pickers market were active professional money management has the potential to outpace the returns posted by the indices.
This week in corporate news Merck (MRK), Taser International (TASR) and Krispy Kreme (KKD) all announced additional bad news. Economic data was not earth shattering and bond yields were pushed higher.
The ghost of Merck’s (MRK) Vioxx continues to haunt the company. It was reported this week by the Financial Times that a report will be released that indicates that Vioxx may have had more serious side effects than first reported. In the report due to be released, it suggests that up to 139,000 people in the U.S. have been injured or died from the drug. If the report hold true it could open the company up to substantial litigation. Merck shares are off close to 40% from their 52 week high.
Shares of stun gun manufacture Taser International (TASR) were lower on news that the SEC is looking into the safety of the guns after reports of several deaths and a distribution deal.
The once red hot Krispy Kreme (KKD) shares continued their downward slide this week. The company announced that they would restate their fiscal 2004 earnings due to accounting irregularities and confirmed that they might default on a $150 million dollar line of credit. The company also announced that it might not file its annual 10-k report in a timely manner.
Walgreen (WAG) reported that December same-store sales rose 4.2% and that its first quarter net income rose 31% to $332.7 million or $0.32 per share topping analyst estimates. Rival drug store chain Rite-Aid (RAD) reported December same-store sale declined -2.7%.
American Eagle Outfitters (AEOS) reported that their December same-store sales surged 32.8% well ahead of Wall Streets estimates of an 18.8% increase. The company also raised their fourth quarter profit guidance to $1.30 to $1.31 from $1.08 to $1.10 per share.
TJX Companies (TJX) also reported a good December sales report. The company announced that same-store sales increased 6% at its Marshalls and T.J. Maxx stores and for the five weeks ending January 3 sales rose 15% from a year ago. Analysts had expected same-store sales to increase only 2.8%.
The big economic news this week was the jobs report. The nonfarm payroll report for December indicated that 157,000 new jobs were created, while both the November and October reports were revised higher. This number was viewed positively by the market, since a higher number could lead the Fed to raise interest rates quicker than anticipated and a lower number would have caused concern about future economic growth. For the year 2.2 million new jobs were created and averaged 185,000 new jobs per month. This should put away fears of a continued jobless economic recovery.
Bond yields were slightly higher for the week. Traders are still anticipating that at the next FOMC meeting the Federal Reserve will raise interest rates another 25 basis points.
The 5 year Treasury note closed yielding 3.70% and the 10 year note closed at 4.26%. The 30 year bond closed with its yield up to 4.83%.
Next week should provide some market moving news. Traders have for several weeks been waiting for the fourth quarter earnings season. The season begins with Alcoa (AA) announcing their earnings after the market close on Monday, January 10th. The technology sector and NASDAQ markets could be moved next week by earnings reports from Intel (INTC), Apple Computer (AAPL), Sun Microsystems (SUNW) and Samsung Electronics LTD (SSNLF). Overall the fourth quarter is expected to post 15% earnings growth for the S&P 500.
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