Weekly Market Report 02-18-2005

Greenspan says economy expanding

By Rick Paler


Stock and bond traders were focused this week on Federal Reserve Chairman Alan Greenspan’s testimony before the Senate Banking Committee, which occurred on Wednesday. Traders were looking for hints about were interest rates will head, inflation and the general health of the economy. Earnings releases this week continued to come in strong, with Coca-Cola, Wal-Mart, and Target all posting better than expected earnings. The much anticipated FDA advisory panel reviewed the safety of Cox-2 inhibitors. Economic data released this week was mixed. While bond rates moved higher.

During Fed Chairman Alan Greenspan’s testimony he said “All told, the economy seems to have entered 2005 expanding at a reasonably good pace, with inflation expectations well anchored.” He also commented on long term bond yields. Although the Fed Funds rate has risen 1.5% in the last year, long term bond yields have fallen. Typically long term bond rates should have also moved higher. He citied three possible reasons for the decline in long term rates, expectations that inflation will not be a problem, a surplus in foreign capital come into the bond market and mortgage investors investing into long term bonds. In his remarks he called it a “conundrum” and “aberration”.

In Earnings news Coca-Cola (KO) posted better than expected results. The company reported a 30% gain in their fourth quarter net income or $0.50 per share as revenues grew to $5.26 billion. Excluding charges the company earned $0.46 per share beating analyst estimates of only $0.40 per share.

Closely watch bellwether Wal-Mart Stores (WMT) beat earnings estimated by a penny. The world’s largest retailer announced that their fourth quarter profits rose to $3.16 billion or $0.75 per share. Revenues at the company increased to $82.2 billion. Giving guidance for the first quarter the company said it expects to earn $0.56 to $0.58 per share.

Target (TGT) also beat Wall Streets estimates by a penny. The retailer reported earnings of $0.90 per share as same-store sales increased 5.4%.Giving guidance, the company said it sees 2005 earnings growth of 20% and said that it was comfortable with the streets estimates of $2.55 per share.

Medical device company, Advanced Neuromodulation Systems Inc. (ANSI) reported that fourth quarter earnings increased 38% to $0.24 per share. Analyst had estimated that the company would only earn $0.25 per share. Revenues at the company surged 26% to $32.3 million. The company also announced a share repurchase program that would allow the company to buy up to one million shares.

HCC Insurance Holdings Inc. (HCC) reported that their earnings more than doubled in the fourth quarter. The company posted net earnings of $0.84 per share. For all off 2004 the company’s earnings grew by 45% coming in at $2.47 per share. Chairman and CEO Stephen Way said “2004 was the best year in our history and we are confident of improving on this in 2005.” oldi

Pharmaceutical giants Pfizer (PFE) and Merck (MRK) both received good news this week when a FDA panel recommended that Pfizer’s Cox-2 inhibitor Celebrex and Bextra could stay on the market and Merck who had pulled their Cox-2 inhibitor Vioxx painkiller from the market could be allowed to return. Both companies would have to disclose warnings that the drugs may increase the risk of heart attacks and strokes. Pfizer shares closed up 6.9% on the news, while Merck shares closed up 13%. The ruling might protect the companies from possible future litigation.

In economic news, the Empire Manufacturing Index missed expectations but still indicated that manufacturing in New York continues to grow. Unexpectedly the PPI jumped well above economist estimates leading to fears of inflation. The core rate for January which excludes food and energy jumped up 0.8%, economist had expected a rise of only 0.2%.

Bond rate rose across all maturities after Mr. Greenspan’s comments about long bond yields. The 5 year Treasury note closed yielding 3.85%, while the 10 year and 30 year yields increased to 4.26% and 4.65% respectively.

Traders will continue with their cautious stance next week as they try to figure out the mystery of the long term bond yields. Traders are concerned that the yields are indicating something the market is not seeing right now. Next week companies releasing earnings that are of interest are; Genuine Parts (GPC), Home Depot (HD), Hormel Foods (HRL), The TJX Companies (TJX), Toll Brothers (TOL), Gap Inc. (GPS), and Patterson Dental (PDCO).