Weekly Market Report 03-11-2005

Market erases 2005 gains

By Rick Paler


This week the market gave up the slight gains that had been posted for 2005. Overall it was a slow week with few companies reporting earnings and only a limited number of economic reports being released. More mergers were announced this week, as companies look for a place to put their cash. Boeing fired their CEO after having a relationship with a co-worker and bond yields rose on inflation worries.

There were no market moving earnings reports this week, but the technology sector had both Intel (INTC) and Texas Instruments (TXN) give their mid-quarter guidance reports.
Technology bellwether Intel (INTC) reported that they were raising their prior guidance due to lower than expected manufacturing cost. The chip maker now expects revenues of $9.2 billion to $9.4 billion up from their prior guidance of $8.8 billion to $9.4 billion range. They also now expect gross margins of 57% up from the prior forecast of 55%.

Texas Instruments (TXN) gave disappointing guidance, when the announced they were lowering the upper end of their earnings guidance to $0.22 per share to $0.24 per share. Prior expectations from the company were $0.22 per share to $0.26 per share. The company also lowered their revenue guidance for the quarter to $2.91 billion to $3.03 billion. Share of the company were down 5% on the news.

Hamburger joints reported same store-sales this week. McDonalds (MCD) reported that U.S. same-store sales increased 4.6% in February, but the strong U.S. sales growth was offset by weaker than expected overseas sales. Sale in Europe decrease of 3.4%. Overall worldwide sales increased only 1.6%.

Competitor Wendy’s (WEN) had worst results. The company reported that their corporate same-store sales fell 2.4% in February.

Eastman Chemical (EMN) announced that it expects to beat Wall Street’s earnings estimates. The chemical company cited higher selling prices and strong demands when it said that it now forecast earnings in excess of analyst high estimate of $1.19 per share. The streets average estimate for the company was only $0.89 per share.

Boeing (BA) announced this week that the board of directors had fired CEO Harry Stonecipher for having a relationship with a female co-worker. Citing Mr. Stonecipher’s poor judgment and the impairment of his ability to run the company, the board announced that CFO James Bell had been appointed president and CEO of the company.

Capital One Financial (COF) reported that they would purchase Hibernia (HIB) in a cash and stock deal worth $5.3 billion. The acquisition will give the company branch locations in both Texas and Louisiana.

The only real economic news this week was the release of trade deficit numbers. The January trade deficit rose to $58.3 billion, above economist forecast of -$56.8 billion. This was the second highest reading ever. The highest trade deficit was back in November of 2004.

The report combined with higher oil prices caused renewed fears of inflation and a more aggressive Federal Reserve stance on raising interest rates. This led traders to sell of their stock positions and bond yields to spike higher. The 10 year Treasury notes yield rose to 4.54%. This is due to the fact that higher interest rates would slow the economy down and be a drag on the stock market, since corporate earnings and valuations would be effected.

Next week should be a replay of this past week. Traders will be watching for any sign of increased inflation, including higher oil prices. If there are signs of inflation or higher oil prices look for the market to trade lower and bond yields to rise. In the coming weeks mid-quarter earnings warnings could also have an effect on the market.

Companies reporting earnings next week are; OfficeMax (OMX), Bayer (BAY), King Pharmaceuticals (KG), Ross Stores (ROST) and FedEx (FDX).