Weekly Market Report 07-08-2005

Terror attack has no effect on market

By Rick Paler


Another terrible tragedy occurred this week. Radical Islamic terrorist set off multiple bombs in London, but unlike the bombings that occurred in Spain the market really had no reaction and rebounded quickly to post small gains for the week.

This week officially kicked off the second quarter earnings season. Wall Street analysts are estimating that the S&P 500 will post year-over-year earnings gains of 7.5%. While this number is not the double digit growth we have become accustom too, it is a good number and closer to the historical norm.

Up to bat first was Alcoa (AA). The aluminum manufacture reported that their second quarter revenues increased 7.5% to $6.76 billion and had earnings of $0.46 per share. The street had estimated revenues of only $6.71 billion, but had earnings at $0.47 per share. The company cited energy cost and raw material prices as factors in their results.

Retail sales reports were released this week and reports overall were good. Abercrombie & Fitch (ANF) and American Eagle Outfitters (AEOS) continued their domination of the competition. Both companies posted huge numbers. Abercrombie posted same-store sales gains of 38% and American Eagle had gains of 28%.

TJX Companies (TJX) reported that same-store sales rose 3%. The results were below their own internal forecast causing the retailer to reduce their second quarter earnings guidance.

West Marine, Inc. (WMAR) the boating retailer reported that their same-store sales decreased 3.5% from the previous period. CEO Peter Harris said “As one would expect, continuing poor weather in April and May on both coast dampened second quarter sales, especially when compared to the great spring weather we enjoyed last year.” Many boats remained in storage for most of the quarter due to the weather.

Home Depot (HD) will be market testing gas and convenience stores located in their parking lots. Similar concepts have been implemented at Costco and Safeway stores. The concept is that the convenience stores located on the property will help drive traffic into the main store and capture purchases that might have gone elsewhere.

It was reported this week that the European Commission is scrutinizing the merger of Procter & Gamble with Gillette Co. (G). This development could delay the deal.

In economic news oil prices fell after the attacks in London, after hitting new record highs earlier in the week. The thought is that the attacks may slow economic growth and discourage travel causing demand for oil to decrease. The price fell despite continued supply concerns.

The Labor Department reported that June nonfarm payrolls increased by 146,000, which was below economist estimates of a 200,000 increase in jobs. The unemployment rate fell to 5.0% from 5.1%. This is the lowest level since September 2001. As a note economist view 5.0% unemployment within an economy as full employment.

The 5 year Treasury note closed the week yielding 3.87%. The 10 year note ended at 4.09% and the 30 year bond closed the week yielding 4.34%.

Next week will be all about earnings. Traders will be eyeing several companies’ earnings reports to give them direction. Overall I believe that corporate earnings will show nice growth, but if a few major companies disappoint the disappointments will have the ability to drive the market lower.

Companies of interest reporting earnings next week are the following: Genentech, Inc. (DNA), PepsiCo (PEP), Apple Computers (AAPL), BB&T Corp (BBT), UnitedHealth Group Inc. (UNH), and General Electric (GE).