Weekly Market Report 06-03-2005

Economic data highlights week

By Rick Paler


This week was shortened by the Memorial Day Holiday on Monday and the rest of the week was non-eventful. The highlights of the week were retail same-store sales reports, interest rates, and economic data.

May same-store sales were released this week and Wal-Mart (WMT) missed their target once again. The behemoth retailer reported that their same-store May sales grew by 2.5% which was below the streets estimate of 2.7%. Looking ahead the company said that they see June sales coming in at 2% to 4% growth.

Competitor Target (TGT) continued to outpace its rival Wal-Mart by posting a 5.1% increase in same-store sales for May. Wall Street analyst had expected growth of only 4.8%.

In the hot teen clothing market both Abercrombie & Fitch Co. (ANF) and American Eagle Outfitters Inc. (ASEOS) posted excellent numbers. Abercrombie’s May same-store sales rocketed 29% blowing away analyst estimates of 13.9% growth. Total sales at the company grew 43% to $159 million from $111.5 million. At American Eagle, May same-store sales jumped 17.1% and total sales increased 25.8% to $140.9 million. American Eagle also reiterated their guidance, stating that they expect to earn $0.32 to $0.33 per share compared to $0.22 a year ago.

In general corporate news merger mania continues. This week Ameritrade Holding Corp. (AMTD) and Toronto Dominion Bank Financial Group (TD) confirmed that they are in discussions about the sale of discount broker TD Waterhouse to Ameritrade. Share of both firms were higher on the news.

Sun Microsystems (SUNW) announced that the company will purchase Storage Technology (STK) for $4.1 billion in cash or $37.00 per share.

L-3 Communications Holdings (LLL) reported that they will buy Titan Corp (TTN) for $2.7 billion or $23.10 per share. The deal included the assumption of $680 million in debt and is contingent on the settlement of class-action suits.

Biogen Idec (BIIB) shares were lower after a fourth case of a deadly rare brain disease was reported in a patient taking the multiple sclerosis drug Tysabri.

In economic news real estate continues to be red hot. Existing home sales in April increased more than expected to 7.18 million units. Economists were looking for 6.89 million units.

Reports continue to show that manufacturing continues to slow. The May Chicago PMI dropped to 54.1 its lowest level since June 2003. Economist had estimated a number of 62.0. This was the second month indicating declines in manufacturing in the Chicago region.

The May ISM index also missed economist estimates of 52.1, coming in at 51.4. Both reports do show that the economy is still growing but not as quickly as before. Any number greater than 50 indicates a growing economy, while a number below 50 indicates the opposite.

The biggest news of the week was comments made by Dallas Federal Reserve President Richard Fisher. In a television interview he said that the Federal Reserve is in the “8th inning” of its cycle of interest rate hikes. The next FOMC meeting is scheduled on June 30 and the street expects the Fed to raise interest rates another .25 basis points. This would bring the Fed Funds rate to 3.25%. Wall Street interrupted the his comments to mean the Federal Reserve might hold off on continuing is policy of “measured” interest rate hikes after the meeting.

The bond market rallied on the news causing rates to drop across the yield curve for the week. The 5 year Treasury yield ended at 3.72%. The 10 year note closed at 3.97% and the 30 year Treasury bond closed the week yielding 4.27%.

Companies reporting earnings next week that are of interest are the following. CMGI (CMGI), Sears Holdings Co (SHLD), and H&R Block (HRB).