Weekly Market Report 06-24-2005

Record energy prices weigh on market

By Rick Paler


Oil prices hit record levels this week causing traders to take profits after a four week run-up in stock prices. Additional fears of a world wide economic slowdown did not help. Earnings reports were on the light side and mergers mania continued.

Oil prices continued their climb this week hitting a record high, closing on Friday at $59.84 per barrel. Concerns about refining capacity for the summer driving season, reports of Nigerian oil workers being held hostage and a possible strike in Norway drove prices higher.

Wall Street also is concerned that a world-wide economic slowdown might be starting. Since recent data both in the United States and other countries indicates some weakness. Analysts are keeping a watchful eye on second quarter earnings reports. The street now expects the second quarter to show a 7% growth year-over-year for the S&P 500 compared with 21% earnings growth in the fourth quarter and 13% growth in the first quarter this year.

Bed Bath & Beyond (BBBY) had a nice earnings report. The retailer reported that their first quarter profit rose 21% and same store sales jumped 4.4%. Earnings came in at $98.9 million or $0.33 per share, a penny ahead of estimates. Sales rose 13% to $1.24 billion.

FedEx (FDX) disappointed the street when they posted earnings of $1.46 per share when analyst had been looking for $1.48 per share. Revenues also missed estimates. The company reported revenues of $7.72 billion. The company also gave future guidance below that the street was looking for citing higher energy cost as the cause.

General Electric (GE) reaffirmed their second quarter guidance of $0.43 to $0.45 per share and a full year outlook of $1.78 to $1.83 per share. The company also announced that they would reduce the number of operating units from eleven to six in an effort to reduce cost.

Guidant (GDT) shares fell on news that the company informed physicians to stop using certain cardiac defibrillators that it manufactures. This announcement might affect the company’s purchase by Johnson & Johnson (JNJ).

Housing continues to be hot. Lennar (LEN) posted earnings of $1.55 surpassing Wall Streets estimates of $1.31 per share. Revenues also exceeded estimates coming in at $2.93 billion. The homebuilder now sees full year earnings of $7.15 to $7.80 per share, citing their $7.3 billion order backlog.

China’s state-run energy company CNOOC (CEO) put in a bid for Unocal (UCL) offing $18.5 billion or $67 per share. The offer surpassed Chevron’s (CVX) bid of $16.4 billion for the company.

In economic news May durable good orders were up 5.5%. Additionally existing and new home sales data came in strong.

In bond news, the 5 year Treasury note closed at 3.68%. The 10 year note ended yielding 3.91 and the 30 year bond closed with a 4.21% yield.

Next week traders will be watching oil prices and second quarter earnings warnings to give the market direction. Companies releasing earning are the following companies; Nike (NKE), Paychex (PAYX), Walgreen (WAG), and Oracle (ORCL).