Federal Reserve raises interest rates
By Rick Paler
There was not much news this week to hold up the market. Traders anxiously awaited the Federal Reserves announcement on interest rates to provide direction. Earnings news again was light and the economic news for the week was the PPI and CPI numbers.
As expected on Tuesday, the Federal Reserve raised interest rates another 25 basis points to 2.75%. Wall Street had already priced the move into the market, but anxious traders waited to see if the policy statement would be changed. Since the Federal Reserve began raising interest rates the policy statement has included wording indicating that they would raise rates at a “measured” pace to hedge against inflation. Some traders anticipated that with the expanding economy and higher energy prices the Federal Reserve would remove the wording “measured.” The policy statement this time retained the wording “measured,” but also included wording about increasing inflationary pressures. Added to the policy statement was the following wording “pressures on inflation have picked up in recent months and pricing power is more evident.” The addition of this wording caused many to fear increased inflation in coming months and the market sold off in response.
Another merger deal was announced this week, this time in the internet sector. IAC Interactive (IACI) announced that they were buying Ask Jeeves (ASKJ) for $28.24 per share, a 15% premium over the prior days close. The company that already owns Expedia.com, Ticketmaster and Match.com will have additional presence on the web with the acquisition of the fifth largest internet search engine. The total value of the deal is estimated at $1.85 billion.
The only major earnings release this week was Oracle (ORCL). The company disappointed the market when they released their fiscal third quarter results. Revenues at the company increased 18% to $2.95 billion, but their net income declined 15% to $540 million. Earnings came in at $0.16 per share a penny ahead of estimates. Oracle also raised their full year guidance to $0.62 to $0.64 per share.
Home builders continue to rack up the profits. This week, KB Home (KHB) posted a 65% gain in their first quarter earnings when they announced that they had earned $2.82 per share or $122.7 million. This was well ahead of Wall Streets estimates of $2.58 per share. Revenues at the company also rose 21% from a year ago to $1.6 billion. The builder of moderately priced homes also raised their guidance for 2005 to $15.75 up $1.25 from their prior guidance.
Home builder Lennar (LEN) announced their first quarter net income also easily beat analysis estimates of $1.01 when they posted results of $1.17 pre share. Sales also increased 29% to $2.4 billion. Full year 2005 guidance was also raised at the company.
Williams-Sonoma (WSM) announced earnings excluding items of $0.95 per share matching estimates from analyst. Revenues at the company came in at $1.08 billion up 7.9%. For the first quarter 2005 the company gave guidance of between $0.18 per share and $0.20 per share, which is in line with estimates from Wall Street. Full year guidance from the company stands at $1.83 to $1.87 per share.
FactSet Research Systems Inc. (FDS) announced that their fiscal second quarter revenues increased 24.6% to $76.5 million from a year ago. Net income increased to $0.34 per share or $17.2 million meeting estimates. The supplier of financial and economic data cited strong demand in Europe and the Pacific Rim for their results.
Electronic Arts (ERTS) surprised the street, when the videogame maker announced earnings warnings. Citing slow sales of their top games and game consoles shortages the company announced that they now forecast earnings of $1.70 to $1.72 per share. Down from the prior $1.90 to $1.95 per share. The company also lowered their full year 2005 guidance.
In economic news the only reports of interest this week besides the increase in the Fed Funds rates was the release of the PPI and CPI numbers. February PPI came in at 0.4% exceeding economist estimates of a 0.3% increase. The core rate which excludes food and energy met estimates of a 0.1% increase. Year over year the core rate is up 2.8% which is the highest increase in ten years. CPI also topped estimates showing a 0.4% increase versus estimates of a 0.3% increase. The core rate also increased more than expected coming in at 0.3%. On the consumer level prices have increased 3.0 % and the core rate is up 2.4% year over year. In coming month economist will be watching closely to see if higher energy cost will cause a spike in these numbers.
Bond interest rates rose across the yield curve this week on the Federal Reserves hike in interest rates and that addition to their policy statement. The 5 year Treasury notes yield increased to 4.29%. The 10 year note increased its yield to 4.59% and the 30 year bond yield closed at 4.84%.
Next week the street again will be watching for any signs of inflation and will sell off on any signs of it. No major companies will be releasing earnings next week to give the market direction. Because of this the market bears once again will have the upper hand.
Companies releasing earnings are Walgreen (WAG), Veritas (VTS), Freddie Mac (FRE) and Best Buy Co. Inc. (BBY).
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Friday, March 25, 2005
Friday, March 18, 2005
Weekly Market Report 03-18-2005
Energy prices concern market
By Rick Paler
This week was another down week for the market as oil prices continued to climb higher. Another blow to the market this week was General Motors (GM) earnings warning for the quarter and full year. Merger activity continued with its robust pace with several new announcements being made. Economic news was light this week with no earth shattering reports being released. On the earnings front earnings overall continue to impress overall.
Oil was the focus of the market this week with not many news making stocks reporting earnings and no major economic reports released. OPEC announced that it would increase their production by 500,000 barrels a day. This did nothing to curb oil prices, since some traders say that demand will continue to increase faster that supply. Some analysts are suggesting that there is no extra capacity available and that prices will continue to rocket higher. This is a huge drag on the market, since higher energy prices will at some point in the future cause a spike in inflation. Higher inflation will hurt corporate profits and companies will need to pass on cost to consumers. During this current economic recovery it has been consumer spending that has driven the economy from recession. If higher prices are passed on to consumers, this might lead to a slowdown in consumer spending and therefore cause a slowdown in the economy and economic growth. Oil closed the week at $56.72 per barrel up from $54.43 a week earlier.
General Motors (GM) dealt another blow to the market this week when the company announced that they expected a first quarter loss. The company slashed their first quarter target to a $1.50 loss and cut their full year earnings projection to $1.00 to $2.00 per share. The company had given prior full year guidance of a profit of $4.00 to $5.00 per share. The news also hit the bond market, since the company’s bonds are currently rated one level above junk bond status. Several rating agencies have put GM’s debt on credit review and this could lead to a downgrade to junk bond status.
Several mergers were in the news this week. Troubled toy retailer Toy’s “R” Us (TOY) is being purchased by three partners Bain Capital, Kohlberg Kravis Roberts & Co., and Vornado Realty Trust (VNO) for $5.6 billion. International Business Machines (IBM) announced that they would be purchasing Ascential Software (ASCL). Quest Communications (Q) will not take no for an answer. The company confirmed that they had made another bid for MCI (MCIP). The company is now willing to pay $26.00 per share or $8.45 billion up from $24.60. The new offer is well ahead of competitors Verizon Communications (VZ) offer of $6.7 billion.
In earnings news software maker Adobe Systems Inc. (ADBE) posted a 23% gain in their first quarter earnings. The company reported that their first quarter net came in at $151.9 million or $0.60 per share. Excluding items the company made $0.53 per share. Wall Street analyst had only expected the company to make $0.50 per share. The company also said that they planed a major product launch during the second quarter.
FedEx (FDX) posted fiscal third quarter net earnings of $1.03 per share up 51% from a year ago and well above the streets estimates of $0.98 per share. Revenues at the company rose 21% to $7.3 billion. Giving guidance for their fiscal fourth quarter the company expects to earn $1.40 to $1.50 per share.
In economic news, Net Foreign Security Purchases came in well above economist estimates. Purchases came in at $91.5 billion well above the $58.5 to $59.0 billion expected. A lot of worry has surrounded foreign purchases of U.S. debt due to the weakened dollar and deficit. If foreign investors stopped financing our debt interest rates would have to rise to attract investment. Looking closer at the numbers a majority of the investment came from private investors and off shore hedge funds and not foreign countries. Therefore I feel not much can be interrupted by these big numbers.
Oil, GM, and general fear of higher interest rates moved bond rates higher across the yield curve. The 5 year Treasuary note closed yielding 4.15%. Additionally the 10 year Treasury note and 30 year bond both closed at higher yields. The 10 year note yield closed at 4.50% and the 30 year at 4.80%.
Next week again will be light on earnings news. The main focus of the market will be again oil and interest rates. On Tuesday the Federal Reserve will meet and it it’s generally expected that they will raise interest rates for the seventh straight time. Expectations are for a ¼ point hike in rates. Major focus will also be on the policy statement and the possible removal of “measured” rate increases from the statement. Additionally PPI numbers will be released on Tuesday and CPI numbers on Wednesday. Poor reports have the potential to move the market lower.
Earnings reports that will be released next week are Paychex (PAYX), FactSet Research Systems (FDS), Oracle (ORCL) and Williams-Sonoma (WSM).
By Rick Paler
This week was another down week for the market as oil prices continued to climb higher. Another blow to the market this week was General Motors (GM) earnings warning for the quarter and full year. Merger activity continued with its robust pace with several new announcements being made. Economic news was light this week with no earth shattering reports being released. On the earnings front earnings overall continue to impress overall.
Oil was the focus of the market this week with not many news making stocks reporting earnings and no major economic reports released. OPEC announced that it would increase their production by 500,000 barrels a day. This did nothing to curb oil prices, since some traders say that demand will continue to increase faster that supply. Some analysts are suggesting that there is no extra capacity available and that prices will continue to rocket higher. This is a huge drag on the market, since higher energy prices will at some point in the future cause a spike in inflation. Higher inflation will hurt corporate profits and companies will need to pass on cost to consumers. During this current economic recovery it has been consumer spending that has driven the economy from recession. If higher prices are passed on to consumers, this might lead to a slowdown in consumer spending and therefore cause a slowdown in the economy and economic growth. Oil closed the week at $56.72 per barrel up from $54.43 a week earlier.
General Motors (GM) dealt another blow to the market this week when the company announced that they expected a first quarter loss. The company slashed their first quarter target to a $1.50 loss and cut their full year earnings projection to $1.00 to $2.00 per share. The company had given prior full year guidance of a profit of $4.00 to $5.00 per share. The news also hit the bond market, since the company’s bonds are currently rated one level above junk bond status. Several rating agencies have put GM’s debt on credit review and this could lead to a downgrade to junk bond status.
Several mergers were in the news this week. Troubled toy retailer Toy’s “R” Us (TOY) is being purchased by three partners Bain Capital, Kohlberg Kravis Roberts & Co., and Vornado Realty Trust (VNO) for $5.6 billion. International Business Machines (IBM) announced that they would be purchasing Ascential Software (ASCL). Quest Communications (Q) will not take no for an answer. The company confirmed that they had made another bid for MCI (MCIP). The company is now willing to pay $26.00 per share or $8.45 billion up from $24.60. The new offer is well ahead of competitors Verizon Communications (VZ) offer of $6.7 billion.
In earnings news software maker Adobe Systems Inc. (ADBE) posted a 23% gain in their first quarter earnings. The company reported that their first quarter net came in at $151.9 million or $0.60 per share. Excluding items the company made $0.53 per share. Wall Street analyst had only expected the company to make $0.50 per share. The company also said that they planed a major product launch during the second quarter.
FedEx (FDX) posted fiscal third quarter net earnings of $1.03 per share up 51% from a year ago and well above the streets estimates of $0.98 per share. Revenues at the company rose 21% to $7.3 billion. Giving guidance for their fiscal fourth quarter the company expects to earn $1.40 to $1.50 per share.
In economic news, Net Foreign Security Purchases came in well above economist estimates. Purchases came in at $91.5 billion well above the $58.5 to $59.0 billion expected. A lot of worry has surrounded foreign purchases of U.S. debt due to the weakened dollar and deficit. If foreign investors stopped financing our debt interest rates would have to rise to attract investment. Looking closer at the numbers a majority of the investment came from private investors and off shore hedge funds and not foreign countries. Therefore I feel not much can be interrupted by these big numbers.
Oil, GM, and general fear of higher interest rates moved bond rates higher across the yield curve. The 5 year Treasuary note closed yielding 4.15%. Additionally the 10 year Treasury note and 30 year bond both closed at higher yields. The 10 year note yield closed at 4.50% and the 30 year at 4.80%.
Next week again will be light on earnings news. The main focus of the market will be again oil and interest rates. On Tuesday the Federal Reserve will meet and it it’s generally expected that they will raise interest rates for the seventh straight time. Expectations are for a ¼ point hike in rates. Major focus will also be on the policy statement and the possible removal of “measured” rate increases from the statement. Additionally PPI numbers will be released on Tuesday and CPI numbers on Wednesday. Poor reports have the potential to move the market lower.
Earnings reports that will be released next week are Paychex (PAYX), FactSet Research Systems (FDS), Oracle (ORCL) and Williams-Sonoma (WSM).
Friday, March 11, 2005
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).
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).
Friday, March 04, 2005
Weekly Market Report 03-04-2005
Dow Jones Industrial surpasses 2001 levels
By Rick Paler
Despite a surge in oil prices this week, the Dow Jones Industrial index passed the 10,900 level for the first time since 2001. All the major indices were positive for the week yet the volatile NASDAQ continues to trade in the red for the year. Economic data for the week was fairly positive along with Greenspan’s comments before the House Banking Committee. Earnings came in strong for the week, but several companies gave earnings warnings. Biogen Idec along with Elan Plc got hammered by investors when it was announced that they would pull a drug from the market.
Oil prices continue to be a major concern on Wall Street, since higher oil prices act as a tax on the economy. This tax has the potential to slow the economy to the point of another potential recession. Even worse it could not only slow the economy, but cause a rapid spike in inflation. Do you remember the nightmare of the 1970’s and stagflation, when the economy did nothing while inflation was out of control? World demand is continuing to rise and the weaker dollar is not helping matters. This is because oil is traded in U.S. dollars and a weaker dollar makes foreign goods more expensive. To maintain purchasing power in Europe, oil producing countries have to raise the price of oil. OPEC’s Secretary General said he believes that oil will be trading at $80 dollars a barrel within the next two years and some analyst are projecting $100 dollars per barrel.
There was more bad news in the pharmaceutical sector when Biogen Idec (BIIB) and Elan Plc (ELN) announced that they would be pulling Tysabri from the market. This was announced after two patients taking the drug in combination with Avonex developed sever neurological problems and one patient died. Both companies stock got hammered on news.
Retail companies giant Wal-Mart (WMT) reported their February same-store sales numbers increased 4.1% and indicated that they expected the same or better numbers for March. The company also increased their dividend 15.4%.
TJX Companies also reported strong same-store sales increases. Same-store sales at the company increased 6% in February exceeding Wall Streets estimates of only a 5.1% increase. Total sales at the retailer also increased 12%. Giving guidance the company said that it expected to earn $0.32 to $0.34 per share for the first quarter.
Costco Wholesale Corp. (COST) reported same-store sales increased 7% and that earnings excluding items missed analyst’s estimates by a penny. The company reported earnings of $0.54 per share. Wall Street was also disappointed with the company’s future guidance.
American Eagle Outfitters (AEOS) reported that their February same-store sales surged upwards 32.4%. The company also had a very good earnings report for the fourth quarter. The clothing retailer reported earnings of $1.40 per share exceeding the streets estimates. The retailer also upped their guidance for the first quarter to $0.52 to $0.54 per share from the prior $0.43 to $0.45 per share.
H.J. Heinz (HNZ) reported earnings excluding items of $0.60 per share coming in above estimates of $0.59 per share as strong U.S. sales helped raise overall sales up 7.8%. Giving guidance for the next quarter the company said that it expected to earn $2.32 to $2.42 per share.
Merger mania continued this week with Johnson & Johnson agreeing to acquire Closure Medical Corp. (CLSR) for $27 in cash for each outstanding share. Federated Department Stores (FD) announced they are purchasing May Department Stores (MAY) for $17 billion including debt. Yellow Roadway (YELL) will purchase USF Corp (USFC) the transportation company will pay $1.37 billion in cash. Finally Quest (Q) has not given up on their effort to purchase MCI (MCIP). MCI has already agreed to be acquired by Verizon (VZ) yet Quest stated this week that they are willing to continue further negotiations.
In economic news this week, Alan Greenspan testified before the House Budget Committee and focused his comments on the budget deficit and Social Security reform. He continues to see the US economy expanding at a reasonable pace, but warned that the budget deficit could slow growth. He also said that he supports social security reform combined with private accounts. Mr. Greenspan commented that the current system for retirement needs to be revamped “sooner rather than later.”
This week we saw a stronger than expected Chicago Purchasing Managers Index, and a very strong February non-farm payrolls report. The report blew away economist estimates of 225,000 coming in at 262,000 new jobs. Given the current economic data economist are expecting the economy to continue with its solid growth through the first half of the year. Economist are now projecting the GDP growth of between 3 ½% to 4%.
Bond yields fell this week with the 5 year Treasury note closing the week at 3.95%. The 10 year Treasury note closed yielding 4.30% and the 30 year bond closed at 4.64%.
Once again, I will state that next weeks trading will revolve around oil prices and the fear that higher energy cost will cause the Federal Reserve to raise interest rates more aggressively to head off inflation. Expect to see more merger and acquisition announcements, stock repurchase plans and dividend increases in coming weeks since companies are sitting on record levels of cash.
Companies releasing earnings next week are; Checkpoint Systems (CKP), Tenet Healthcare (THC), The Kroger Co. (KR), and BASF (BF).
By Rick Paler
Despite a surge in oil prices this week, the Dow Jones Industrial index passed the 10,900 level for the first time since 2001. All the major indices were positive for the week yet the volatile NASDAQ continues to trade in the red for the year. Economic data for the week was fairly positive along with Greenspan’s comments before the House Banking Committee. Earnings came in strong for the week, but several companies gave earnings warnings. Biogen Idec along with Elan Plc got hammered by investors when it was announced that they would pull a drug from the market.
Oil prices continue to be a major concern on Wall Street, since higher oil prices act as a tax on the economy. This tax has the potential to slow the economy to the point of another potential recession. Even worse it could not only slow the economy, but cause a rapid spike in inflation. Do you remember the nightmare of the 1970’s and stagflation, when the economy did nothing while inflation was out of control? World demand is continuing to rise and the weaker dollar is not helping matters. This is because oil is traded in U.S. dollars and a weaker dollar makes foreign goods more expensive. To maintain purchasing power in Europe, oil producing countries have to raise the price of oil. OPEC’s Secretary General said he believes that oil will be trading at $80 dollars a barrel within the next two years and some analyst are projecting $100 dollars per barrel.
There was more bad news in the pharmaceutical sector when Biogen Idec (BIIB) and Elan Plc (ELN) announced that they would be pulling Tysabri from the market. This was announced after two patients taking the drug in combination with Avonex developed sever neurological problems and one patient died. Both companies stock got hammered on news.
Retail companies giant Wal-Mart (WMT) reported their February same-store sales numbers increased 4.1% and indicated that they expected the same or better numbers for March. The company also increased their dividend 15.4%.
TJX Companies also reported strong same-store sales increases. Same-store sales at the company increased 6% in February exceeding Wall Streets estimates of only a 5.1% increase. Total sales at the retailer also increased 12%. Giving guidance the company said that it expected to earn $0.32 to $0.34 per share for the first quarter.
Costco Wholesale Corp. (COST) reported same-store sales increased 7% and that earnings excluding items missed analyst’s estimates by a penny. The company reported earnings of $0.54 per share. Wall Street was also disappointed with the company’s future guidance.
American Eagle Outfitters (AEOS) reported that their February same-store sales surged upwards 32.4%. The company also had a very good earnings report for the fourth quarter. The clothing retailer reported earnings of $1.40 per share exceeding the streets estimates. The retailer also upped their guidance for the first quarter to $0.52 to $0.54 per share from the prior $0.43 to $0.45 per share.
H.J. Heinz (HNZ) reported earnings excluding items of $0.60 per share coming in above estimates of $0.59 per share as strong U.S. sales helped raise overall sales up 7.8%. Giving guidance for the next quarter the company said that it expected to earn $2.32 to $2.42 per share.
Merger mania continued this week with Johnson & Johnson agreeing to acquire Closure Medical Corp. (CLSR) for $27 in cash for each outstanding share. Federated Department Stores (FD) announced they are purchasing May Department Stores (MAY) for $17 billion including debt. Yellow Roadway (YELL) will purchase USF Corp (USFC) the transportation company will pay $1.37 billion in cash. Finally Quest (Q) has not given up on their effort to purchase MCI (MCIP). MCI has already agreed to be acquired by Verizon (VZ) yet Quest stated this week that they are willing to continue further negotiations.
In economic news this week, Alan Greenspan testified before the House Budget Committee and focused his comments on the budget deficit and Social Security reform. He continues to see the US economy expanding at a reasonable pace, but warned that the budget deficit could slow growth. He also said that he supports social security reform combined with private accounts. Mr. Greenspan commented that the current system for retirement needs to be revamped “sooner rather than later.”
This week we saw a stronger than expected Chicago Purchasing Managers Index, and a very strong February non-farm payrolls report. The report blew away economist estimates of 225,000 coming in at 262,000 new jobs. Given the current economic data economist are expecting the economy to continue with its solid growth through the first half of the year. Economist are now projecting the GDP growth of between 3 ½% to 4%.
Bond yields fell this week with the 5 year Treasury note closing the week at 3.95%. The 10 year Treasury note closed yielding 4.30% and the 30 year bond closed at 4.64%.
Once again, I will state that next weeks trading will revolve around oil prices and the fear that higher energy cost will cause the Federal Reserve to raise interest rates more aggressively to head off inflation. Expect to see more merger and acquisition announcements, stock repurchase plans and dividend increases in coming weeks since companies are sitting on record levels of cash.
Companies releasing earnings next week are; Checkpoint Systems (CKP), Tenet Healthcare (THC), The Kroger Co. (KR), and BASF (BF).
Friday, February 25, 2005
S&P 500 and Dow Jones Index erase loses
S&P 500 and Dow Jones Index erase loses
By Rick Paler
Wall Street traders returned from Monday’s holiday and renewed their fears of inflation after last Friday’s higher than expected PPI numbers. Tuesday saw oil prices shoot upwards and the dollar continued with its free fall causing fear. Overall the market later in the week overlooked inflation fears as positive economic data was released, oil prices fell and Japanese leaders said that they would continue buying U.S. government bonds Japan also said that it would not sell off their dollar bases investments. Earnings reports for the week were again generally positive with Hormel Foods and H&R Block beating estimates, while Home Depot and Staples met expectations.
The stock market continued with its broad based rally this week after a bad start to erase this year’s loses. The NASDAQ, while also improving this week continues to struggle as investors shy away from higher PE stocks and look for safer stock investments.
In general news Exxon Mobil (XON) surpassed General Electric (GE) as the largest capitalized company in the world. Higher oil prices have caused a run up in the company’s stock price.
Hormel Foods (HRL) reported that their fiscal first quarter earnings beat Wall Streets estimates by two cents. The maker of Spam, Stag Chili, Dinty Moore and Jenny-O said their net income for the quarter surged 24%. The company posted earnings of $0.46 per share or $64.5 million. Net sales at the company climbed to $1.27 billion up 12%. The company also raised guidance for their fiscal second quarter to $0.38 to $0.44 per share and boosted there full year guidance to $1.70 to $1.80 per share.
H&R Block (HRB) announced that their fiscal third quarter net income fell 14% to $0.55 per share. The company cited lower margins in their mortgage division. The company did however beat Wall Streets estimated by a nickel. The company also said they expect a good tax season.
Home Depot (HD) announced that former Secretary of the Department of Homeland Security, Tom Ridge will join the company’s board of directors. The company also said that they would increase their dividend by nearly 18% to $0.10 per share and repurchase an additional $2 billion of the company’s stock. Fourth quarter earnings at the company rose 11.9% to $1.09 billion or $0.47 per share matching analyst estimates. The company also reaffirmed their prior guidance for 2005 saying they expected earnings growth of 10% to 15% for the year.
Staples (SPLS) matched analyst estimates by posting earnings of $0.50 per share a 19% increase over last years results. Sales at the company rose 13%. Giving guidance the retailer said it expects to earn $0.29 to $0.30 per share for the first quarter.
Genuine Parts Company (GPC) reported record earnings and sales for 2004. Earnings at the company were up 11% from the prior year to $2.25 per share. Sales were up 8% to $9.1 billion. For the fourth quarter 2004 earnings came in at $0.55 per share up 10% year over year. While sales rose 8% to $2.25 billion.
Patterson Companies Inc. (PDCO) saw their fiscal third quarter earnings rise 25% to $0.36 per share or $50.1 million meeting the streets estimates. The dental, veterinary and rehabilitation supply company said it expects fourth quarter earning between $0.38 and $0.40 per share.
Additionally Quest Communications (Q) submitted another offer to purchase MCI (MCIP) that nearly matched Verizon Communication’s (VZ) offer. Federated Department Stores board of directors and May Department Stores (MAY) board will be meeting this weekend to discuss their possible merger.
Economic news this week was highlighted by the release of the fourth quarter GDP numbers. The Commerce Department said that the preliminary fourth quarter GDP rose more than economist had expected rising 3.8%. Economist had expected growth of only 3.7%. Economist attributed the rise to strong trade and business investment. Economists are now expecting the economy to continue with its strong growth between 3.5% and 4% for the first half of 2005. This is well ahead of historical norms and bodes well for the stock market.
After the poor PPI numbers released last Friday, that worried traders that inflation was picking up, the CPI numbers indicated that was not the case. The Consumer Price Index which measures inflation at the retail level came in at 0.1% and the core rate which excludes food and energy came in at 0.2%. Both numbers were in line with estimates.
In bonds yields rose across the entire yield curve this week as oil prices and the weaker dollar made traders think higher interest rates were down the road. The 5 year Treasury notes yield rose to 3.89%. The 5 year note increased to 4.26% and the 30 year bond ended that week higher at 4.63%.
Next week the market will continue to be swayed by oil prices and the dollar. Even as Wall Street becomes comfortable with the idea of oil prices of between $50.00 and $55.00 per barrel. Earnings releases will be lighter next week with H.J. Heinz Company (HNZ), Tiffany & Co. (TIF), Iron Mountain Inc. (IRM), Costco (COST) and Berkshire Hathaway (BRK.A / BRK.B) reporting.
By Rick Paler
Wall Street traders returned from Monday’s holiday and renewed their fears of inflation after last Friday’s higher than expected PPI numbers. Tuesday saw oil prices shoot upwards and the dollar continued with its free fall causing fear. Overall the market later in the week overlooked inflation fears as positive economic data was released, oil prices fell and Japanese leaders said that they would continue buying U.S. government bonds Japan also said that it would not sell off their dollar bases investments. Earnings reports for the week were again generally positive with Hormel Foods and H&R Block beating estimates, while Home Depot and Staples met expectations.
The stock market continued with its broad based rally this week after a bad start to erase this year’s loses. The NASDAQ, while also improving this week continues to struggle as investors shy away from higher PE stocks and look for safer stock investments.
In general news Exxon Mobil (XON) surpassed General Electric (GE) as the largest capitalized company in the world. Higher oil prices have caused a run up in the company’s stock price.
Hormel Foods (HRL) reported that their fiscal first quarter earnings beat Wall Streets estimates by two cents. The maker of Spam, Stag Chili, Dinty Moore and Jenny-O said their net income for the quarter surged 24%. The company posted earnings of $0.46 per share or $64.5 million. Net sales at the company climbed to $1.27 billion up 12%. The company also raised guidance for their fiscal second quarter to $0.38 to $0.44 per share and boosted there full year guidance to $1.70 to $1.80 per share.
H&R Block (HRB) announced that their fiscal third quarter net income fell 14% to $0.55 per share. The company cited lower margins in their mortgage division. The company did however beat Wall Streets estimated by a nickel. The company also said they expect a good tax season.
Home Depot (HD) announced that former Secretary of the Department of Homeland Security, Tom Ridge will join the company’s board of directors. The company also said that they would increase their dividend by nearly 18% to $0.10 per share and repurchase an additional $2 billion of the company’s stock. Fourth quarter earnings at the company rose 11.9% to $1.09 billion or $0.47 per share matching analyst estimates. The company also reaffirmed their prior guidance for 2005 saying they expected earnings growth of 10% to 15% for the year.
Staples (SPLS) matched analyst estimates by posting earnings of $0.50 per share a 19% increase over last years results. Sales at the company rose 13%. Giving guidance the retailer said it expects to earn $0.29 to $0.30 per share for the first quarter.
Genuine Parts Company (GPC) reported record earnings and sales for 2004. Earnings at the company were up 11% from the prior year to $2.25 per share. Sales were up 8% to $9.1 billion. For the fourth quarter 2004 earnings came in at $0.55 per share up 10% year over year. While sales rose 8% to $2.25 billion.
Patterson Companies Inc. (PDCO) saw their fiscal third quarter earnings rise 25% to $0.36 per share or $50.1 million meeting the streets estimates. The dental, veterinary and rehabilitation supply company said it expects fourth quarter earning between $0.38 and $0.40 per share.
Additionally Quest Communications (Q) submitted another offer to purchase MCI (MCIP) that nearly matched Verizon Communication’s (VZ) offer. Federated Department Stores board of directors and May Department Stores (MAY) board will be meeting this weekend to discuss their possible merger.
Economic news this week was highlighted by the release of the fourth quarter GDP numbers. The Commerce Department said that the preliminary fourth quarter GDP rose more than economist had expected rising 3.8%. Economist had expected growth of only 3.7%. Economist attributed the rise to strong trade and business investment. Economists are now expecting the economy to continue with its strong growth between 3.5% and 4% for the first half of 2005. This is well ahead of historical norms and bodes well for the stock market.
After the poor PPI numbers released last Friday, that worried traders that inflation was picking up, the CPI numbers indicated that was not the case. The Consumer Price Index which measures inflation at the retail level came in at 0.1% and the core rate which excludes food and energy came in at 0.2%. Both numbers were in line with estimates.
In bonds yields rose across the entire yield curve this week as oil prices and the weaker dollar made traders think higher interest rates were down the road. The 5 year Treasury notes yield rose to 3.89%. The 5 year note increased to 4.26% and the 30 year bond ended that week higher at 4.63%.
Next week the market will continue to be swayed by oil prices and the dollar. Even as Wall Street becomes comfortable with the idea of oil prices of between $50.00 and $55.00 per barrel. Earnings releases will be lighter next week with H.J. Heinz Company (HNZ), Tiffany & Co. (TIF), Iron Mountain Inc. (IRM), Costco (COST) and Berkshire Hathaway (BRK.A / BRK.B) reporting.
Weekly Market Report 02-25-2005
S&P 500 and Dow Jones Index erase loses
By Rick Paler
Wall Street traders returned from Monday’s holiday and renewed their fears of inflation after last Friday’s higher than expected PPI numbers. Tuesday saw oil prices shoot upwards and the dollar continued with its free fall causing fear. Overall the market later in the week overlooked inflation fears as positive economic data was released, oil prices fell and Japanese leaders said that they would continue buying U.S. government bonds Japan also said that it would not sell off their dollar bases investments. Earnings reports for the week were again generally positive with Hormel Foods and H&R Block beating estimates, while Home Depot and Staples met expectations.
The stock market continued with its broad based rally this week after a bad start to erase this year’s loses. The NASDAQ, while also improving this week continues to struggle as investors shy away from higher PE stocks and look for safer stock investments.
In general news Exxon Mobil (XON) surpassed General Electric (GE) as the largest capitalized company in the world. Higher oil prices have caused a run up in the company’s stock price.
Hormel Foods (HRL) reported that their fiscal first quarter earnings beat Wall Streets estimates by two cents. The maker of Spam, Stag Chili, Dinty Moore and Jenny-O said their net income for the quarter surged 24%. The company posted earnings of $0.46 per share or $64.5 million. Net sales at the company climbed to $1.27 billion up 12%. The company also raised guidance for their fiscal second quarter to $0.38 to $0.44 per share and boosted there full year guidance to $1.70 to $1.80 per share.
H&R Block (HRB) announced that their fiscal third quarter net income fell 14% to $0.55 per share. The company cited lower margins in their mortgage division. The company did however beat Wall Streets estimated by a nickel. The company also said they expect a good tax season.
Home Depot (HD) announced that former Secretary of the Department of Homeland Security, Tom Ridge will join the company’s board of directors. The company also said that they would increase their dividend by nearly 18% to $0.10 per share and repurchase an additional $2 billion of the company’s stock. Fourth quarter earnings at the company rose 11.9% to $1.09 billion or $0.47 per share matching analyst estimates. The company also reaffirmed their prior guidance for 2005 saying they expected earnings growth of 10% to 15% for the year.
Staples (SPLS) matched analyst estimates by posting earnings of $0.50 per share a 19% increase over last years results. Sales at the company rose 13%. Giving guidance the retailer said it expects to earn $0.29 to $0.30 per share for the first quarter.
Genuine Parts Company (GPC) reported record earnings and sales for 2004. Earnings at the company were up 11% from the prior year to $2.25 per share. Sales were up 8% to $9.1 billion. For the fourth quarter 2004 earnings came in at $0.55 per share up 10% year over year. While sales rose 8% to $2.25 billion.
Patterson Companies Inc. (PDCO) saw their fiscal third quarter earnings rise 25% to $0.36 per share or $50.1 million meeting the streets estimates. The dental, veterinary and rehabilitation supply company said it expects fourth quarter earning between $0.38 and $0.40 per share.
Additionally Quest Communications (Q) submitted another offer to purchase MCI (MCIP) that nearly matched Verizon Communication’s (VZ) offer. Federated Department Stores board of directors and May Department Stores (MAY) board will be meeting this weekend to discuss their possible merger.
Economic news this week was highlighted by the release of the fourth quarter GDP numbers. The Commerce Department said that the preliminary fourth quarter GDP rose more than economist had expected rising 3.8%. Economist had expected growth of only 3.7%. Economist attributed the rise to strong trade and business investment. Economists are now expecting the economy to continue with its strong growth between 3.5% and 4% for the first half of 2005. This is well ahead of historical norms and bodes well for the stock market.
After the poor PPI numbers released last Friday, that worried traders that inflation was picking up, the CPI numbers indicated that was not the case. The Consumer Price Index which measures inflation at the retail level came in at 0.1% and the core rate which excludes food and energy came in at 0.2%. Both numbers were in line with estimates.
In bonds yields rose across the entire yield curve this week as oil prices and the weaker dollar made traders think higher interest rates were down the road. The 5 year Treasury notes yield rose to 3.89%. The 5 year note increased to 4.26% and the 30 year bond ended that week higher at 4.63%.
Next week the market will continue to be swayed by oil prices and the dollar. Even as Wall Street becomes comfortable with the idea of oil prices of between $50.00 and $55.00 per barrel. Earnings releases will be lighter next week with H.J. Heinz Company (HNZ), Tiffany & Co. (TIF), Iron Mountain Inc. (IRM), Costco (COST) and Berkshire Hathaway (BRK.A / BRK.B) reporting.
By Rick Paler
Wall Street traders returned from Monday’s holiday and renewed their fears of inflation after last Friday’s higher than expected PPI numbers. Tuesday saw oil prices shoot upwards and the dollar continued with its free fall causing fear. Overall the market later in the week overlooked inflation fears as positive economic data was released, oil prices fell and Japanese leaders said that they would continue buying U.S. government bonds Japan also said that it would not sell off their dollar bases investments. Earnings reports for the week were again generally positive with Hormel Foods and H&R Block beating estimates, while Home Depot and Staples met expectations.
The stock market continued with its broad based rally this week after a bad start to erase this year’s loses. The NASDAQ, while also improving this week continues to struggle as investors shy away from higher PE stocks and look for safer stock investments.
In general news Exxon Mobil (XON) surpassed General Electric (GE) as the largest capitalized company in the world. Higher oil prices have caused a run up in the company’s stock price.
Hormel Foods (HRL) reported that their fiscal first quarter earnings beat Wall Streets estimates by two cents. The maker of Spam, Stag Chili, Dinty Moore and Jenny-O said their net income for the quarter surged 24%. The company posted earnings of $0.46 per share or $64.5 million. Net sales at the company climbed to $1.27 billion up 12%. The company also raised guidance for their fiscal second quarter to $0.38 to $0.44 per share and boosted there full year guidance to $1.70 to $1.80 per share.
H&R Block (HRB) announced that their fiscal third quarter net income fell 14% to $0.55 per share. The company cited lower margins in their mortgage division. The company did however beat Wall Streets estimated by a nickel. The company also said they expect a good tax season.
Home Depot (HD) announced that former Secretary of the Department of Homeland Security, Tom Ridge will join the company’s board of directors. The company also said that they would increase their dividend by nearly 18% to $0.10 per share and repurchase an additional $2 billion of the company’s stock. Fourth quarter earnings at the company rose 11.9% to $1.09 billion or $0.47 per share matching analyst estimates. The company also reaffirmed their prior guidance for 2005 saying they expected earnings growth of 10% to 15% for the year.
Staples (SPLS) matched analyst estimates by posting earnings of $0.50 per share a 19% increase over last years results. Sales at the company rose 13%. Giving guidance the retailer said it expects to earn $0.29 to $0.30 per share for the first quarter.
Genuine Parts Company (GPC) reported record earnings and sales for 2004. Earnings at the company were up 11% from the prior year to $2.25 per share. Sales were up 8% to $9.1 billion. For the fourth quarter 2004 earnings came in at $0.55 per share up 10% year over year. While sales rose 8% to $2.25 billion.
Patterson Companies Inc. (PDCO) saw their fiscal third quarter earnings rise 25% to $0.36 per share or $50.1 million meeting the streets estimates. The dental, veterinary and rehabilitation supply company said it expects fourth quarter earning between $0.38 and $0.40 per share.
Additionally Quest Communications (Q) submitted another offer to purchase MCI (MCIP) that nearly matched Verizon Communication’s (VZ) offer. Federated Department Stores board of directors and May Department Stores (MAY) board will be meeting this weekend to discuss their possible merger.
Economic news this week was highlighted by the release of the fourth quarter GDP numbers. The Commerce Department said that the preliminary fourth quarter GDP rose more than economist had expected rising 3.8%. Economist had expected growth of only 3.7%. Economist attributed the rise to strong trade and business investment. Economists are now expecting the economy to continue with its strong growth between 3.5% and 4% for the first half of 2005. This is well ahead of historical norms and bodes well for the stock market.
After the poor PPI numbers released last Friday, that worried traders that inflation was picking up, the CPI numbers indicated that was not the case. The Consumer Price Index which measures inflation at the retail level came in at 0.1% and the core rate which excludes food and energy came in at 0.2%. Both numbers were in line with estimates.
In bonds yields rose across the entire yield curve this week as oil prices and the weaker dollar made traders think higher interest rates were down the road. The 5 year Treasury notes yield rose to 3.89%. The 5 year note increased to 4.26% and the 30 year bond ended that week higher at 4.63%.
Next week the market will continue to be swayed by oil prices and the dollar. Even as Wall Street becomes comfortable with the idea of oil prices of between $50.00 and $55.00 per barrel. Earnings releases will be lighter next week with H.J. Heinz Company (HNZ), Tiffany & Co. (TIF), Iron Mountain Inc. (IRM), Costco (COST) and Berkshire Hathaway (BRK.A / BRK.B) reporting.
Weekly Market Report 02-25-2005
S&P 500 and Dow Jones Index erase loses
By Rick Paler
Wall Street traders returned from Monday’s holiday and renewed their fears of inflation after last Friday’s higher than expected PPI numbers. Tuesday saw oil prices shoot upwards and the dollar continued with its free fall causing fear. Overall the market later in the week overlooked inflation fears as positive economic data was released, oil prices fell and Japanese leaders said that they would continue buying U.S. government bonds Japan also said that it would not sell off their dollar bases investments. Earnings reports for the week were again generally positive with Hormel Foods and H&R Block beating estimates, while Home Depot and Staples met expectations.
The stock market continued with its broad based rally this week after a bad start to erase this year’s loses. The NASDAQ, while also improving this week continues to struggle as investors shy away from higher PE stocks and look for safer stock investments.
In general news Exxon Mobil (XON) surpassed General Electric (GE) as the largest capitalized company in the world. Higher oil prices have caused a run up in the company’s stock price.
Hormel Foods (HRL) reported that their fiscal first quarter earnings beat Wall Streets estimates by two cents. The maker of Spam, Stag Chili, Dinty Moore and Jenny-O said their net income for the quarter surged 24%. The company posted earnings of $0.46 per share or $64.5 million. Net sales at the company climbed to $1.27 billion up 12%. The company also raised guidance for their fiscal second quarter to $0.38 to $0.44 per share and boosted there full year guidance to $1.70 to $1.80 per share.
H&R Block (HRB) announced that their fiscal third quarter net income fell 14% to $0.55 per share. The company cited lower margins in their mortgage division. The company did however beat Wall Streets estimated by a nickel. The company also said they expect a good tax season.
Home Depot (HD) announced that former Secretary of the Department of Homeland Security, Tom Ridge will join the company’s board of directors. The company also said that they would increase their dividend by nearly 18% to $0.10 per share and repurchase an additional $2 billion of the company’s stock. Fourth quarter earnings at the company rose 11.9% to $1.09 billion or $0.47 per share matching analyst estimates. The company also reaffirmed their prior guidance for 2005 saying they expected earnings growth of 10% to 15% for the year.
Staples (SPLS) matched analyst estimates by posting earnings of $0.50 per share a 19% increase over last years results. Sales at the company rose 13%. Giving guidance the retailer said it expects to earn $0.29 to $0.30 per share for the first quarter.
Genuine Parts Company (GPC) reported record earnings and sales for 2004. Earnings at the company were up 11% from the prior year to $2.25 per share. Sales were up 8% to $9.1 billion. For the fourth quarter 2004 earnings came in at $0.55 per share up 10% year over year. While sales rose 8% to $2.25 billion.
Patterson Companies Inc. (PDCO) saw their fiscal third quarter earnings rise 25% to $0.36 per share or $50.1 million meeting the streets estimates. The dental, veterinary and rehabilitation supply company said it expects fourth quarter earning between $0.38 and $0.40 per share.
Additionally Quest Communications (Q) submitted another offer to purchase MCI (MCIP) that nearly matched Verizon Communication’s (VZ) offer. Federated Department Stores board of directors and May Department Stores (MAY) board will be meeting this weekend to discuss their possible merger.
Economic news this week was highlighted by the release of the fourth quarter GDP numbers. The Commerce Department said that the preliminary fourth quarter GDP rose more than economist had expected rising 3.8%. Economist had expected growth of only 3.7%. Economist attributed the rise to strong trade and business investment. Economists are now expecting the economy to continue with its strong growth between 3.5% and 4% for the first half of 2005. This is well ahead of historical norms and bodes well for the stock market.
After the poor PPI numbers released last Friday, that worried traders that inflation was picking up, the CPI numbers indicated that was not the case. The Consumer Price Index which measures inflation at the retail level came in at 0.1% and the core rate which excludes food and energy came in at 0.2%. Both numbers were in line with estimates.
In bonds yields rose across the entire yield curve this week as oil prices and the weaker dollar made traders think higher interest rates were down the road. The 5 year Treasury notes yield rose to 3.89%. The 5 year note increased to 4.26% and the 30 year bond ended that week higher at 4.63%.
Next week the market will continue to be swayed by oil prices and the dollar. Even as Wall Street becomes comfortable with the idea of oil prices of between $50.00 and $55.00 per barrel. Earnings releases will be lighter next week with H.J. Heinz Company (HNZ), Tiffany & Co. (TIF), Iron Mountain Inc. (IRM), Costco (COST) and Berkshire Hathaway (BRK.A / BRK.B) reporting.
By Rick Paler
Wall Street traders returned from Monday’s holiday and renewed their fears of inflation after last Friday’s higher than expected PPI numbers. Tuesday saw oil prices shoot upwards and the dollar continued with its free fall causing fear. Overall the market later in the week overlooked inflation fears as positive economic data was released, oil prices fell and Japanese leaders said that they would continue buying U.S. government bonds Japan also said that it would not sell off their dollar bases investments. Earnings reports for the week were again generally positive with Hormel Foods and H&R Block beating estimates, while Home Depot and Staples met expectations.
The stock market continued with its broad based rally this week after a bad start to erase this year’s loses. The NASDAQ, while also improving this week continues to struggle as investors shy away from higher PE stocks and look for safer stock investments.
In general news Exxon Mobil (XON) surpassed General Electric (GE) as the largest capitalized company in the world. Higher oil prices have caused a run up in the company’s stock price.
Hormel Foods (HRL) reported that their fiscal first quarter earnings beat Wall Streets estimates by two cents. The maker of Spam, Stag Chili, Dinty Moore and Jenny-O said their net income for the quarter surged 24%. The company posted earnings of $0.46 per share or $64.5 million. Net sales at the company climbed to $1.27 billion up 12%. The company also raised guidance for their fiscal second quarter to $0.38 to $0.44 per share and boosted there full year guidance to $1.70 to $1.80 per share.
H&R Block (HRB) announced that their fiscal third quarter net income fell 14% to $0.55 per share. The company cited lower margins in their mortgage division. The company did however beat Wall Streets estimated by a nickel. The company also said they expect a good tax season.
Home Depot (HD) announced that former Secretary of the Department of Homeland Security, Tom Ridge will join the company’s board of directors. The company also said that they would increase their dividend by nearly 18% to $0.10 per share and repurchase an additional $2 billion of the company’s stock. Fourth quarter earnings at the company rose 11.9% to $1.09 billion or $0.47 per share matching analyst estimates. The company also reaffirmed their prior guidance for 2005 saying they expected earnings growth of 10% to 15% for the year.
Staples (SPLS) matched analyst estimates by posting earnings of $0.50 per share a 19% increase over last years results. Sales at the company rose 13%. Giving guidance the retailer said it expects to earn $0.29 to $0.30 per share for the first quarter.
Genuine Parts Company (GPC) reported record earnings and sales for 2004. Earnings at the company were up 11% from the prior year to $2.25 per share. Sales were up 8% to $9.1 billion. For the fourth quarter 2004 earnings came in at $0.55 per share up 10% year over year. While sales rose 8% to $2.25 billion.
Patterson Companies Inc. (PDCO) saw their fiscal third quarter earnings rise 25% to $0.36 per share or $50.1 million meeting the streets estimates. The dental, veterinary and rehabilitation supply company said it expects fourth quarter earning between $0.38 and $0.40 per share.
Additionally Quest Communications (Q) submitted another offer to purchase MCI (MCIP) that nearly matched Verizon Communication’s (VZ) offer. Federated Department Stores board of directors and May Department Stores (MAY) board will be meeting this weekend to discuss their possible merger.
Economic news this week was highlighted by the release of the fourth quarter GDP numbers. The Commerce Department said that the preliminary fourth quarter GDP rose more than economist had expected rising 3.8%. Economist had expected growth of only 3.7%. Economist attributed the rise to strong trade and business investment. Economists are now expecting the economy to continue with its strong growth between 3.5% and 4% for the first half of 2005. This is well ahead of historical norms and bodes well for the stock market.
After the poor PPI numbers released last Friday, that worried traders that inflation was picking up, the CPI numbers indicated that was not the case. The Consumer Price Index which measures inflation at the retail level came in at 0.1% and the core rate which excludes food and energy came in at 0.2%. Both numbers were in line with estimates.
In bonds yields rose across the entire yield curve this week as oil prices and the weaker dollar made traders think higher interest rates were down the road. The 5 year Treasury notes yield rose to 3.89%. The 5 year note increased to 4.26% and the 30 year bond ended that week higher at 4.63%.
Next week the market will continue to be swayed by oil prices and the dollar. Even as Wall Street becomes comfortable with the idea of oil prices of between $50.00 and $55.00 per barrel. Earnings releases will be lighter next week with H.J. Heinz Company (HNZ), Tiffany & Co. (TIF), Iron Mountain Inc. (IRM), Costco (COST) and Berkshire Hathaway (BRK.A / BRK.B) reporting.
Saturday, February 19, 2005
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).
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).
Friday, February 11, 2005
Weekly Market Report 02-11-2005
Dell and Cisco disappoint analyst
By Rick Paler
This week was a slower week for earnings releases. Only 46 companies that make up the S&P 500 index reported. The two big earnings reports of the week were Dell and Cisco, unfortunately both disappointed. Also in the Technology sector, Hewlett-Packard’s CEO unexpectedly resigned. There was little to report this week on economic news which left bond traders looking to next week for direction.
As the fourth quarter earnings season comes to a close it looks like the S&P 500 posted some great numbers, once again exceeding the streets estimates. Now Wall Street is digesting corporate guidance for the first quarter. Currently the street is projecting profit growth of 6.9% up from 6.6%. While this number is substantially lower than last years earnings numbers, 7% year over year earnings growth is respectable and inline with historical levels.
Technology bellwether Cisco Systems (CSCO) reported that their fiscal second quarter earnings came in at $0.22 per share matching the streets estimates. Sale rose 12% to $6.06 billion which was near the company’s lower end of guidance. The company also announced their guidance for next quarter and disappointed the market. Looking at the next quarter the company expects that their fiscal third quarter revenue would be flat to up only 2%.
Dell (DELL) reported that their fiscal fourth quarter earnings came in at $0.37 per share beating expectations by a penny as revenues grew to $13.46 billion up 17%. The company also announced that their U.S. market share of PC’s had grown to 33%. Looking forward the company disappointed the market when they released their fiscal first quarter guidance. The company expects their first quarter revenues to come in at $13.4 billion and earnings of $0.37 per share. The street had expected revenues of $13.5 billion and earnings of $0.36 per share.
Cognizant Technology Solutions (CTSH) announced that their fourth quarter profits rocketed up 73%. The company earned $30.6 million or $0.21 per share, up from only $17.7 million or $0.13 per share for the same period a year ago. Revenues at the company also surged up 60% to $172.8 million. The IT service company also released first quarter guidance that was inline with analyst estimates. Full year guidance was ahead of current estimates. The company expects to earn $0.96 per share, on revenues of $845 million. Shares rose sharply on the news.
Clorox (CLX) reported fiscal second quarter earnings of $0.59 per share beating Wall Streets estimates of $0.52 per share. Sales at the company rose 8.7% to $1.0 billion. Guidance released by the company for their fiscal third quarter was inline with analyst estimates. The company expects earnings between $0.62 and $0.68 per share.
Hewlett-Packard’s (HPQ) CEO Carly Fiorina unexpectedly resigned after being forced out by the company’s board of directors. The company’s shares rose initially on the news. The company continues to lose market share to competitors even after the much publicized purchase of Compaq. The board of director will begin looking for a new CEO immediately to replace her.
Pfizer (PFE) announced that the company would implement a reorganization plan that would save the company $2 billion. The plan would change the way the company markets drugs to physicians and would not include layoffs, but would lower the company’s employee head count through normal attrition.
Black & Decker Corp. (BDK) will increase their dividend 33% to $0.28 per share from the prior $0.21 per share. The company also announced that they would repurchase an additional 2.5 million shares of the company’s stock.
In economic news there were two reports released this week that were of interest. Initial jobless claims fell unexpectedly to 303,000 versus economist estimates of 325,000. This was the lowest level in for years. The four week moving average also fell to a four year low of 315,500. This was interrupted by the market that the job market is continuing to improve.
The trade deficit for December fell to $56.4 billion from the prior months $59.3 billion. Economist had expected the deficit to come in at $57.0 billion. For the full 2004 year the trade deficit increased 24.4% to a record $617.7 billion as demand and higher prices for oil pushed the deficit higher.
The 5 year Treasury note closed the week yielding 3.68%. The 10 year note closed at 4.08% and the 30 year Treasury bond closed yielding 4.47%.
Next week there will be more economic news released. Traders will be digesting the release of retail sale, industrial production, housing starts and the PPI. The market will also watch Federal Reserve Chairman Alan Greenspan as he testifies before the Senate Banking Committee. Next week the following companies will be releasing earnings; Deere & Company (DE), HCC Insurance Holdings (HCC), Nordstrom (JWN), Hewlett-Packard (HPQ), Intuit (INTU), Target Corp (TGT), and Wal-Mart (WMT).
By Rick Paler
This week was a slower week for earnings releases. Only 46 companies that make up the S&P 500 index reported. The two big earnings reports of the week were Dell and Cisco, unfortunately both disappointed. Also in the Technology sector, Hewlett-Packard’s CEO unexpectedly resigned. There was little to report this week on economic news which left bond traders looking to next week for direction.
As the fourth quarter earnings season comes to a close it looks like the S&P 500 posted some great numbers, once again exceeding the streets estimates. Now Wall Street is digesting corporate guidance for the first quarter. Currently the street is projecting profit growth of 6.9% up from 6.6%. While this number is substantially lower than last years earnings numbers, 7% year over year earnings growth is respectable and inline with historical levels.
Technology bellwether Cisco Systems (CSCO) reported that their fiscal second quarter earnings came in at $0.22 per share matching the streets estimates. Sale rose 12% to $6.06 billion which was near the company’s lower end of guidance. The company also announced their guidance for next quarter and disappointed the market. Looking at the next quarter the company expects that their fiscal third quarter revenue would be flat to up only 2%.
Dell (DELL) reported that their fiscal fourth quarter earnings came in at $0.37 per share beating expectations by a penny as revenues grew to $13.46 billion up 17%. The company also announced that their U.S. market share of PC’s had grown to 33%. Looking forward the company disappointed the market when they released their fiscal first quarter guidance. The company expects their first quarter revenues to come in at $13.4 billion and earnings of $0.37 per share. The street had expected revenues of $13.5 billion and earnings of $0.36 per share.
Cognizant Technology Solutions (CTSH) announced that their fourth quarter profits rocketed up 73%. The company earned $30.6 million or $0.21 per share, up from only $17.7 million or $0.13 per share for the same period a year ago. Revenues at the company also surged up 60% to $172.8 million. The IT service company also released first quarter guidance that was inline with analyst estimates. Full year guidance was ahead of current estimates. The company expects to earn $0.96 per share, on revenues of $845 million. Shares rose sharply on the news.
Clorox (CLX) reported fiscal second quarter earnings of $0.59 per share beating Wall Streets estimates of $0.52 per share. Sales at the company rose 8.7% to $1.0 billion. Guidance released by the company for their fiscal third quarter was inline with analyst estimates. The company expects earnings between $0.62 and $0.68 per share.
Hewlett-Packard’s (HPQ) CEO Carly Fiorina unexpectedly resigned after being forced out by the company’s board of directors. The company’s shares rose initially on the news. The company continues to lose market share to competitors even after the much publicized purchase of Compaq. The board of director will begin looking for a new CEO immediately to replace her.
Pfizer (PFE) announced that the company would implement a reorganization plan that would save the company $2 billion. The plan would change the way the company markets drugs to physicians and would not include layoffs, but would lower the company’s employee head count through normal attrition.
Black & Decker Corp. (BDK) will increase their dividend 33% to $0.28 per share from the prior $0.21 per share. The company also announced that they would repurchase an additional 2.5 million shares of the company’s stock.
In economic news there were two reports released this week that were of interest. Initial jobless claims fell unexpectedly to 303,000 versus economist estimates of 325,000. This was the lowest level in for years. The four week moving average also fell to a four year low of 315,500. This was interrupted by the market that the job market is continuing to improve.
The trade deficit for December fell to $56.4 billion from the prior months $59.3 billion. Economist had expected the deficit to come in at $57.0 billion. For the full 2004 year the trade deficit increased 24.4% to a record $617.7 billion as demand and higher prices for oil pushed the deficit higher.
The 5 year Treasury note closed the week yielding 3.68%. The 10 year note closed at 4.08% and the 30 year Treasury bond closed yielding 4.47%.
Next week there will be more economic news released. Traders will be digesting the release of retail sale, industrial production, housing starts and the PPI. The market will also watch Federal Reserve Chairman Alan Greenspan as he testifies before the Senate Banking Committee. Next week the following companies will be releasing earnings; Deere & Company (DE), HCC Insurance Holdings (HCC), Nordstrom (JWN), Hewlett-Packard (HPQ), Intuit (INTU), Target Corp (TGT), and Wal-Mart (WMT).
Friday, February 04, 2005
Weekly Market Report 02-04-2005
Safe Iraqi elections allows market to rise
By Rick Paler
Sunday’s historic elections in Iraq went off without the terrorism that some expected. Turnout for the election was very high as voters risked being killed to participate in democracy. Initial figures indicate that close to 60% of the nations citizens voted. This was the same percentage of U.S citizens that voted in our last election and we did not have to worry about being killed when we voted. The smooth election removed traders concerns about heavy casualties occurring during the election and allowed the market bulls to push the market higher for the week.
The election alone was not the only factor affecting the markets this week. Additionally we saw a decline in oil prices and OPEC announced that they would leave production at current levels. We continue to see great corporate earnings combined with good economic reports. Ads to this, an increase in merger and acquisition activity and you have a recipe for a higher market.
Earnings continued to come in and this week we saw 93 of the 500 companies that make up the S&P 500 report. To date operating earnings are on target to show 18% growth for the fourth quarter exceeding the streets prior estimates of only 15% - 16%. So what is preventing the market from taking off like a rocket? It is my feeling that corporate guidance for 2005 indicates that the S&P 500 will have earnings growth of around 7%. This is not a bad number and puts growth closer to historical norms. Also expectations are that the Federal Reserve will continue with their policy of rising interest rates. These two factors combined with the continued threat of a terrorist attack are the causes for the cautious sentiment in the market.
M&A activity continued this week with the announcement that SBC Communications (SBC) has agreed to purchase AT&T (T) for $16 billion. Share holders of AT&T will receive 0.77942 shares of SBC common stock or about $18.41 per share and a $1.30 cash dividend.
Quest Communications (Q) has thrown its hat into the ring, when it was reported that the company was making an offer to purchase MCI (MCIP) for $6.3 billion. Verizon Communications (VZ) has been reported to also be in talks to purchase the company.
MetLife (MET) announced that they would acquire Citigroup’s (C) insurance group Travelers Life & Annuity Co. and all of their international insurance business for $11.5 billion.
As a point to note, in January alone $120 billion dollars worth of M&A deal have been announce along with over $30 billion worth of stock repurchase programs. This is a positive for the market and should continue for some time, since corporations are sitting on record amounts of cash. I would also expect more companies to raise their dividends this year to pay out some of this cash.
In corporate earnings news this week Northrop Grumman (NOC), PepsiCo (PEP), Disney (DIS), Google (GOOG), Chubb Corp (CB), Sherwin Williams (SHW) and AFLAC (AFL) all exceeded analyst earnings estimates.
Google (GOOG) surprised the street when they announced an eightfold increase in their fourth quarter net income. The company’s fourth quarter net rose to $204 million or $0.71 per share. Excluding items the company reported earnings of $0.90 per share well ahead of Wall Streets estimates of only $0.77 per share.
Chubb Corp (CB) report that their net income increased six times to $467.6 million or $2.39 per share ahead of analyst estimates. The company also reported that their full year 2004 net income increased 91% over the prior year to $1.55 billion or $8.01 per share. The insurance company also gave 2005 operating income guidance of $7.60 - $8.00 per share.
Paint manufacture Sherwin-Williams (SHW) reported earnings of $82.5 million or $0.57 per share, which is a $16.5% increase over the same period last year. The company earned $393.3 million or $2.72 per share for the full 2004 year. Both results beat Wall Street estimates by a penny.
In other news ConocoPhillips (COP) announced plans to repurchase up to $1 billion of the company’s stock over the next two years. The company’s repurchase plan is to offset dilution from the company’s stock based employee compensation plan.
Adobe Systems Inc. (ADBE) raised their first quarter revenue guidance to $450 million to $470 million from a prior $435 million to $455 million. The company also increased their earnings outlook to $0.47 to $0.51 per share from $0.45 to $0.48 per share. The company cited strong demand for their products including their newly release Acrobat 7.0.
In economic news it was no surprise when it was announced that the Federal Reserve raised interest rates for the sixth time. The increase of 25 basis points puts the Federal Funds rate at 2.50%. The closely watch policy statement remained unchanged indicating that the Federal Reserve would continue with its measured policy of interest rate increases. Indications are that a natural Fed policy would bring rates up to the 3.25% range.
Bond traders pushed rates lower along the yield curve this week. The 5 year Treasury closed yielding 3.66%. The 5 year note ending yielding 4.07% and the 30 year Treasury bond closed at 4.48%.
Next week companies to watch are Bp PLC (BP), Cisco Systems (CSCO), MetLife (MET), Cognizant Technology (CTSH), Dell (DELL), and Unilever (UN).
By Rick Paler
Sunday’s historic elections in Iraq went off without the terrorism that some expected. Turnout for the election was very high as voters risked being killed to participate in democracy. Initial figures indicate that close to 60% of the nations citizens voted. This was the same percentage of U.S citizens that voted in our last election and we did not have to worry about being killed when we voted. The smooth election removed traders concerns about heavy casualties occurring during the election and allowed the market bulls to push the market higher for the week.
The election alone was not the only factor affecting the markets this week. Additionally we saw a decline in oil prices and OPEC announced that they would leave production at current levels. We continue to see great corporate earnings combined with good economic reports. Ads to this, an increase in merger and acquisition activity and you have a recipe for a higher market.
Earnings continued to come in and this week we saw 93 of the 500 companies that make up the S&P 500 report. To date operating earnings are on target to show 18% growth for the fourth quarter exceeding the streets prior estimates of only 15% - 16%. So what is preventing the market from taking off like a rocket? It is my feeling that corporate guidance for 2005 indicates that the S&P 500 will have earnings growth of around 7%. This is not a bad number and puts growth closer to historical norms. Also expectations are that the Federal Reserve will continue with their policy of rising interest rates. These two factors combined with the continued threat of a terrorist attack are the causes for the cautious sentiment in the market.
M&A activity continued this week with the announcement that SBC Communications (SBC) has agreed to purchase AT&T (T) for $16 billion. Share holders of AT&T will receive 0.77942 shares of SBC common stock or about $18.41 per share and a $1.30 cash dividend.
Quest Communications (Q) has thrown its hat into the ring, when it was reported that the company was making an offer to purchase MCI (MCIP) for $6.3 billion. Verizon Communications (VZ) has been reported to also be in talks to purchase the company.
MetLife (MET) announced that they would acquire Citigroup’s (C) insurance group Travelers Life & Annuity Co. and all of their international insurance business for $11.5 billion.
As a point to note, in January alone $120 billion dollars worth of M&A deal have been announce along with over $30 billion worth of stock repurchase programs. This is a positive for the market and should continue for some time, since corporations are sitting on record amounts of cash. I would also expect more companies to raise their dividends this year to pay out some of this cash.
In corporate earnings news this week Northrop Grumman (NOC), PepsiCo (PEP), Disney (DIS), Google (GOOG), Chubb Corp (CB), Sherwin Williams (SHW) and AFLAC (AFL) all exceeded analyst earnings estimates.
Google (GOOG) surprised the street when they announced an eightfold increase in their fourth quarter net income. The company’s fourth quarter net rose to $204 million or $0.71 per share. Excluding items the company reported earnings of $0.90 per share well ahead of Wall Streets estimates of only $0.77 per share.
Chubb Corp (CB) report that their net income increased six times to $467.6 million or $2.39 per share ahead of analyst estimates. The company also reported that their full year 2004 net income increased 91% over the prior year to $1.55 billion or $8.01 per share. The insurance company also gave 2005 operating income guidance of $7.60 - $8.00 per share.
Paint manufacture Sherwin-Williams (SHW) reported earnings of $82.5 million or $0.57 per share, which is a $16.5% increase over the same period last year. The company earned $393.3 million or $2.72 per share for the full 2004 year. Both results beat Wall Street estimates by a penny.
In other news ConocoPhillips (COP) announced plans to repurchase up to $1 billion of the company’s stock over the next two years. The company’s repurchase plan is to offset dilution from the company’s stock based employee compensation plan.
Adobe Systems Inc. (ADBE) raised their first quarter revenue guidance to $450 million to $470 million from a prior $435 million to $455 million. The company also increased their earnings outlook to $0.47 to $0.51 per share from $0.45 to $0.48 per share. The company cited strong demand for their products including their newly release Acrobat 7.0.
In economic news it was no surprise when it was announced that the Federal Reserve raised interest rates for the sixth time. The increase of 25 basis points puts the Federal Funds rate at 2.50%. The closely watch policy statement remained unchanged indicating that the Federal Reserve would continue with its measured policy of interest rate increases. Indications are that a natural Fed policy would bring rates up to the 3.25% range.
Bond traders pushed rates lower along the yield curve this week. The 5 year Treasury closed yielding 3.66%. The 5 year note ending yielding 4.07% and the 30 year Treasury bond closed at 4.48%.
Next week companies to watch are Bp PLC (BP), Cisco Systems (CSCO), MetLife (MET), Cognizant Technology (CTSH), Dell (DELL), and Unilever (UN).
Friday, January 28, 2005
Weekly Market Report 01-28-2005
Market post first gain of the year
By Rick Paler
The stock market posted its first weekly gain this year on positive earnings news. Overall sentiment remains cautious ahead of the Iraq elections taking place this Sunday. Merger activity continued this week with announcements from both Procter & Gamble and SBC Communications. Economic reports for the week were generally positive with no big surprises.
After watching the market slide downwards the first three weeks of 2005 the market managed to squeeze out a small gain this week. Positive earnings news was the main impetus for the gain. As I have mentioned in previous articles, I believe that fourth quarter earnings for the S&P 500 would come in at 16% earnings growth or better. Now that we are in the middle of the reporting season Wall Street analyst as a whole are estimating a 17% gain in earnings over last years same period. This is very impressive considering that earnings for the fourth quarter 2003 grew by 28.3%. This earnings growth continues to be fueled by productivity increases, the weaker dollar, and strong consumer spending. Although corporate earnings remain at record levels the sentiment remains cautious with many traders waiting for this weekend’s election in Iraq. Many fear major terrorist attacks and a disruption in Iraq’s oil production. This was evident when Microsoft posted excellent results and Procter & Gamble announce their merger plans with Gillette and the market as a whole barely moved upwards.
In corporate news as I anticipated merger mania continued this week with rumors that SBC Communications (SBC) was looking to merger with AT&T (T) and Procter & Gamble (PG) announce their plans to purchase Gillette (G). Again I will state that I expect this kind of merger activity to continue throughout this year. This is due to the fact that U.S corporations are sitting on record amounts of cash.
SBC Communications (SBC) is rumored to be in current talks with AT&T (T) to purchase the once dominate telecommunications company known as Ma Bell for an estimated $15 billion. The deal would have to pass antitrust regulatory review.
Procter & Gamble (PG) announce plans to acquire Gillette (G) for a massive $57 billion. The merger would create the world’s largest consumer product company exceeding the size of European rival Unileaver (UN). The company said that shareholders of Gillette would receive 0.975 shares of P&G for each share they hold. P&G also said that they would purchase $18 billion to $22 billion of its own stock over the next 12 months.
Microsoft (MSFT) earnings for their fiscal second quarter excluding items came in at $0.35 per share topping the streets estimates of only $0.33 per share. The company cited strong personal computer sales and the release of Halo 2 game for their Xbox gaming system. The company also raised their full-year revenue guidance to $39.8 billion to $40.0 billion.
Newell Rubbermaid Inc. (NWL) exceeded analyst earnings estimates by two cents when they announced earnings excluding items of 127 million or $0.46 per share. This compares favorably from last years loss of -$211.6 million or -$0.77 per share for the same period.
Estée Lauder Companies (EL) reported profits rose by 44.5% to $138.3 million or $0.60 per share exceeding Wall Streets estimates of $0.57 per share. The company said that the saw strong sales growth across all product lines.
Rayonier’s (RYN) fourth quarter income rose to $13.5 million or $0.26 per share and reported that their full-year 2004 net income came in at $3.08 per share compared to last years $1.16 per share. This was the company’s first year of operation as a REIT which gave the company a tax benefit of $49.7 million or $0.98 per share in the first quarter 2003.
In economic new, reports this week were mixed yet still indicated that the economy continues to grow. An unexpected raise in consumer confidence was reported by the Conference Board this week. Economist anticipated a reading of 101.0 for January yet the report indicated that consumer confidence rose to 103.4 indicating that consumer spending should remain strong.
The advanced Gross Domestic Product figures indicated that the economy continues to grow at a rate above the historical average, but the number missed economist estimates. The advanced GDP reported that the economy grew in fourth quarter 3.1%, economist had anticipated a reading of 3.5%.
Bond rates continue to rise on the short end of the yield curve as traders anticipate the FOMC to raise the Fed Funds rate again at their next meeting in February. The 5 year Treasury note closed yielding 3.68% this week, while the 10 year closed yielding 4.13% and the 30 year bond closed yielding 4.60%.
Next week could be another positive week for the market. If the elections in Iraq on Sunday proceed without major disruptions, it would remove some of the cautious sentiment in the market. This will allow traders to focus on the positive earnings the S&P 500 companies are posting. Companies that will release earnings next week that will be of interest are AFLAC (AFL), Exxon Mobile (XOM), Fuji Photo (FUJIY), Walt Disney Co. (DIS), Chubb Corp. (CB), Google (GOOG), Anheuser-Bush (BUD), Boeing (BA), and PepsiCo (PEP).
By Rick Paler
The stock market posted its first weekly gain this year on positive earnings news. Overall sentiment remains cautious ahead of the Iraq elections taking place this Sunday. Merger activity continued this week with announcements from both Procter & Gamble and SBC Communications. Economic reports for the week were generally positive with no big surprises.
After watching the market slide downwards the first three weeks of 2005 the market managed to squeeze out a small gain this week. Positive earnings news was the main impetus for the gain. As I have mentioned in previous articles, I believe that fourth quarter earnings for the S&P 500 would come in at 16% earnings growth or better. Now that we are in the middle of the reporting season Wall Street analyst as a whole are estimating a 17% gain in earnings over last years same period. This is very impressive considering that earnings for the fourth quarter 2003 grew by 28.3%. This earnings growth continues to be fueled by productivity increases, the weaker dollar, and strong consumer spending. Although corporate earnings remain at record levels the sentiment remains cautious with many traders waiting for this weekend’s election in Iraq. Many fear major terrorist attacks and a disruption in Iraq’s oil production. This was evident when Microsoft posted excellent results and Procter & Gamble announce their merger plans with Gillette and the market as a whole barely moved upwards.
In corporate news as I anticipated merger mania continued this week with rumors that SBC Communications (SBC) was looking to merger with AT&T (T) and Procter & Gamble (PG) announce their plans to purchase Gillette (G). Again I will state that I expect this kind of merger activity to continue throughout this year. This is due to the fact that U.S corporations are sitting on record amounts of cash.
SBC Communications (SBC) is rumored to be in current talks with AT&T (T) to purchase the once dominate telecommunications company known as Ma Bell for an estimated $15 billion. The deal would have to pass antitrust regulatory review.
Procter & Gamble (PG) announce plans to acquire Gillette (G) for a massive $57 billion. The merger would create the world’s largest consumer product company exceeding the size of European rival Unileaver (UN). The company said that shareholders of Gillette would receive 0.975 shares of P&G for each share they hold. P&G also said that they would purchase $18 billion to $22 billion of its own stock over the next 12 months.
Microsoft (MSFT) earnings for their fiscal second quarter excluding items came in at $0.35 per share topping the streets estimates of only $0.33 per share. The company cited strong personal computer sales and the release of Halo 2 game for their Xbox gaming system. The company also raised their full-year revenue guidance to $39.8 billion to $40.0 billion.
Newell Rubbermaid Inc. (NWL) exceeded analyst earnings estimates by two cents when they announced earnings excluding items of 127 million or $0.46 per share. This compares favorably from last years loss of -$211.6 million or -$0.77 per share for the same period.
Estée Lauder Companies (EL) reported profits rose by 44.5% to $138.3 million or $0.60 per share exceeding Wall Streets estimates of $0.57 per share. The company said that the saw strong sales growth across all product lines.
Rayonier’s (RYN) fourth quarter income rose to $13.5 million or $0.26 per share and reported that their full-year 2004 net income came in at $3.08 per share compared to last years $1.16 per share. This was the company’s first year of operation as a REIT which gave the company a tax benefit of $49.7 million or $0.98 per share in the first quarter 2003.
In economic new, reports this week were mixed yet still indicated that the economy continues to grow. An unexpected raise in consumer confidence was reported by the Conference Board this week. Economist anticipated a reading of 101.0 for January yet the report indicated that consumer confidence rose to 103.4 indicating that consumer spending should remain strong.
The advanced Gross Domestic Product figures indicated that the economy continues to grow at a rate above the historical average, but the number missed economist estimates. The advanced GDP reported that the economy grew in fourth quarter 3.1%, economist had anticipated a reading of 3.5%.
Bond rates continue to rise on the short end of the yield curve as traders anticipate the FOMC to raise the Fed Funds rate again at their next meeting in February. The 5 year Treasury note closed yielding 3.68% this week, while the 10 year closed yielding 4.13% and the 30 year bond closed yielding 4.60%.
Next week could be another positive week for the market. If the elections in Iraq on Sunday proceed without major disruptions, it would remove some of the cautious sentiment in the market. This will allow traders to focus on the positive earnings the S&P 500 companies are posting. Companies that will release earnings next week that will be of interest are AFLAC (AFL), Exxon Mobile (XOM), Fuji Photo (FUJIY), Walt Disney Co. (DIS), Chubb Corp. (CB), Google (GOOG), Anheuser-Bush (BUD), Boeing (BA), and PepsiCo (PEP).
Friday, January 21, 2005
Weekly Market Report 01-21-2005
Markets decline three weeks in a row
By Rick Paler
The recent decline in the market has many scratching their heads trying to analyze the cause. Nothing has fundamentally changed in the last three week. Any negative news should have already been priced into the market, such as the decline in the value of the dollar, the Federal Reserves continuation of their policy of raising interest rates, Iraq, terrorism, the rise in commodity cost and the slowing earnings growth estimated for 2005.
Overall the markets tend to be nervous at the beginning of each earnings season causing many traders to sit on the sidelines and take a wait and see attitude. This combined with last years late rally is causing some to book their profits ahead of earnings announcements. My expectation is that this downward trend has the potential to reverse itself as some to the market leaders post respectable earnings growth.
In earnings news Yahoo (YHOO) posted great numbers. The internet search company increased their earnings 62% in the fourth quarter posting earnings of $0.13 per share exceeding Wall Street estimates of only $0.11 per share.
Drug maker Pfizer (PFE) announced that their fourth quarter net income quadrupled to $0.38 per share. The company cited strong sales growth both in their cholesterol-fighting drug Lipitor and their arthritis drug Celebrex.
Bellwether giant General Electric (GE) beat Wall Street estimates by a penny reporting earnings of $0.51 per share as revenues came in at $43.7 billion jumping 18%. The company cited an excellent global economy for their results. For 2005 the company also said that it was confident that it could post earnings growth of 10% to 15%.
II-VI Inc. (IIVI) reported their fiscal second quarter results this week. Net earnings were $0.39 per share or $5.7 million dollars up from only $0.23 per share or $3.4 million dollars a year ago. The company said “record revenues and bookings for the second quarter attest to the continued strong worldwide demand for II-VI products.”
Fortune Brands (FO) net income rose 59% to $249.5 million or $1.68 per share. Wall Street estimates had been for the company to earn only $1.21 per share. The consumer brands company and maker of such brands as Moen, Titleist, and Jim Beam said that sales increased 15% to $1.91 billion for the period. The company also said that they expect earnings growth in the double-digits for both the first quarter and 2005.
Johnson & Johnson (JNJ) announced that they would take advantage of the American Jobs Creation Act of 2004 by repatriating $11 billion of overseas earnings back into the United States. The Act allows corporations to repatriate earnings from overseas at the reduced tax rate of 5.25% versus the maximum 35%. It is expected that over $300 billion in corporate profits will flow back into the United States before the tax break expires at the end of 2005.
Shares of online auction company eBay (EBAY) were hit hard this week when the company reported disappointing fourth quarter earnings and first quarter guidance. The company reported earnings of $0.33 per share, which was a penny below analyst estimates. First quarter guidance also missed their mark. The street was expecting earnings estimates of $0.37 per share and the company gave guidance of only $0.34 to $0.35 per share.
In economic news the New York Empire State index which measures manufacturing activity missed economist estimates but continued to show strong economic growth for the region. Real estate continues to surprise on the upside. Housing Starts jumped 11% to 2.0 million and building permits rose to 2.0 million, both exceeding estimates. The Consumer Price Index for December fell 0.1% indicating that inflation at the consumer level remains under control. Economist had expected the CPI to come in unchanged.
The current yield curve for bonds remains flat as interest rates on the short end of the yield curve are expected to rise throughout 2005. Bond rates were lower across the board this week. The 5 year Treasury note closed yielding 3.63% and the 10 year and 30 year closed yielding 4.14% and 4.64% respectively.
Next week traders will continue to focus on earnings. Company missing earnings will be greatly punished by the market and those meeting or exceeding estimates will for the most part be greeted with cautious enthusiasm. I am currently still expecting earnings for the S&P 500 to post growth of 16% then return to more normal levels of growth for the first quarter. Companies in the earnings spotlight next week are Rayonier Inc. (RYN), Johnson & Johnson (JNJ), Merck (MRK), DuPont (DD), Electronic Arts (ERTS), Black & Decker (BDK), Amgen (AMGN), Getty Images (GYI), Microsoft (MSFT), Estée Lauder (EL), and Procter & Gamble (PG),
By Rick Paler
The recent decline in the market has many scratching their heads trying to analyze the cause. Nothing has fundamentally changed in the last three week. Any negative news should have already been priced into the market, such as the decline in the value of the dollar, the Federal Reserves continuation of their policy of raising interest rates, Iraq, terrorism, the rise in commodity cost and the slowing earnings growth estimated for 2005.
Overall the markets tend to be nervous at the beginning of each earnings season causing many traders to sit on the sidelines and take a wait and see attitude. This combined with last years late rally is causing some to book their profits ahead of earnings announcements. My expectation is that this downward trend has the potential to reverse itself as some to the market leaders post respectable earnings growth.
In earnings news Yahoo (YHOO) posted great numbers. The internet search company increased their earnings 62% in the fourth quarter posting earnings of $0.13 per share exceeding Wall Street estimates of only $0.11 per share.
Drug maker Pfizer (PFE) announced that their fourth quarter net income quadrupled to $0.38 per share. The company cited strong sales growth both in their cholesterol-fighting drug Lipitor and their arthritis drug Celebrex.
Bellwether giant General Electric (GE) beat Wall Street estimates by a penny reporting earnings of $0.51 per share as revenues came in at $43.7 billion jumping 18%. The company cited an excellent global economy for their results. For 2005 the company also said that it was confident that it could post earnings growth of 10% to 15%.
II-VI Inc. (IIVI) reported their fiscal second quarter results this week. Net earnings were $0.39 per share or $5.7 million dollars up from only $0.23 per share or $3.4 million dollars a year ago. The company said “record revenues and bookings for the second quarter attest to the continued strong worldwide demand for II-VI products.”
Fortune Brands (FO) net income rose 59% to $249.5 million or $1.68 per share. Wall Street estimates had been for the company to earn only $1.21 per share. The consumer brands company and maker of such brands as Moen, Titleist, and Jim Beam said that sales increased 15% to $1.91 billion for the period. The company also said that they expect earnings growth in the double-digits for both the first quarter and 2005.
Johnson & Johnson (JNJ) announced that they would take advantage of the American Jobs Creation Act of 2004 by repatriating $11 billion of overseas earnings back into the United States. The Act allows corporations to repatriate earnings from overseas at the reduced tax rate of 5.25% versus the maximum 35%. It is expected that over $300 billion in corporate profits will flow back into the United States before the tax break expires at the end of 2005.
Shares of online auction company eBay (EBAY) were hit hard this week when the company reported disappointing fourth quarter earnings and first quarter guidance. The company reported earnings of $0.33 per share, which was a penny below analyst estimates. First quarter guidance also missed their mark. The street was expecting earnings estimates of $0.37 per share and the company gave guidance of only $0.34 to $0.35 per share.
In economic news the New York Empire State index which measures manufacturing activity missed economist estimates but continued to show strong economic growth for the region. Real estate continues to surprise on the upside. Housing Starts jumped 11% to 2.0 million and building permits rose to 2.0 million, both exceeding estimates. The Consumer Price Index for December fell 0.1% indicating that inflation at the consumer level remains under control. Economist had expected the CPI to come in unchanged.
The current yield curve for bonds remains flat as interest rates on the short end of the yield curve are expected to rise throughout 2005. Bond rates were lower across the board this week. The 5 year Treasury note closed yielding 3.63% and the 10 year and 30 year closed yielding 4.14% and 4.64% respectively.
Next week traders will continue to focus on earnings. Company missing earnings will be greatly punished by the market and those meeting or exceeding estimates will for the most part be greeted with cautious enthusiasm. I am currently still expecting earnings for the S&P 500 to post growth of 16% then return to more normal levels of growth for the first quarter. Companies in the earnings spotlight next week are Rayonier Inc. (RYN), Johnson & Johnson (JNJ), Merck (MRK), DuPont (DD), Electronic Arts (ERTS), Black & Decker (BDK), Amgen (AMGN), Getty Images (GYI), Microsoft (MSFT), Estée Lauder (EL), and Procter & Gamble (PG),
Friday, January 14, 2005
Weekly Market Report 01-14-2005
Merger mania continues
By Rick Paler
This week additional corporate mergers were announced and the final fourth quarter earnings season officially started. Economic reports released this week were mixed causing the long end of the bond yield curve to fall. Overall, market sediment for the week was negative causing the market to close lower again this week.
On the heels of several notable mergers occurring last year, including the headline making Oracle merger with PeopleSoft, Cingular and AT&T Wireless, and Sprint (FON) merging with Nextel Communications (NXTL) more merger activity was announced this week.
Consolidation within the wireless phone industry continued when early in the week Alltel (AT) reported they will purchase Western Wireless (WWCA) in a deal worth about $6 billion dollars. The deal will make the company the fifth largest in the country. Shareholders of Western Wireless will receive 0.535 shares of Alltel and $9.25 in cash.
Additionally in merger news, Movie Gallery (MOVI) agreed to purchase Hollywood Entertainment (HLYW) for $1.2 billion in cash and debt. Meanwhile News Corp. (NWS) offered Fox Entertainment Group (FOX) to purchase the remaining 18% of their outstanding shares for $6 billion. News Corp. will offer 1.6 shares of common stock for each share of Fox.
The final fourth quarter earnings season started off rocky when Alcoa (AA) and Genentech (DNA) both led off by missing their expected earnings numbers. While Alcoa also missed their revenue target citing higher energy cost and the weaker dollar.
This gave the bears a reason to sell while the rest of the market held their breath. The poor start of the week was then followed up by very positive earnings news in the technology sector. Chip maker Intel (INTC) reported fourth quarter earnings of $2.1 billion or $0.33 per share easily exceeding Wall Streets estimates of only $0.31 per share. The company also reported that revenues rose 13% to $9.6 billion also exceeding analysts’ estimates. The company reported that they had strong growth in every product area.
Intel’s performance was followed up by a spectacular report from Apple Computer (AAPL). The maker of the red hot iPod mp3 player and computers said that their fiscal first quarter net income surged by more than four times to $0.70 per share or $295 million. Revenues at the company rocketed upward 74% to $3.5 billion. The company cited their iPod sales the rose almost five times previous levels to $1.2 billion. The company also noted that sales of their Macintosh computers rose 33%.
In other corporate news Home Depot (HD) gave guidance for their fiscal 2005. The company said that they expect earnings to grow by 10% to 14% and sales to increase by 9% to 12% with same-store sales increasing 4% to 7%. The home improvement leader also announced that they would begin carrying LG Electronics new line of home appliances. For 2004 the company expects to report earnings of $2.26 per share up 20.2% from 2003.
Specialty retail Williams-Sonoma (WSM) announced that their revenues for the eight week holiday sales period jumped 7.3% to $775.9 million from year ago numbers, but that numbers had been impacted by weaker than expected sales from their Pottery Barn stores. Additionally the company reaffirmed their fourth quarter and fiscal 2005 guidance.
Newhall Rubbermaid (NWL) continued to streamline their business by selling Curver their European division. The sale allows the company to focus on its most profitable core businesses. The sale of the division to Jardin International Holding BV is not expected to impact the company’s 2004 results, but is expected to negatively impact their first quarter results due to charges affected by the sale.
Paychex Inc. (PAYX) and the American Bar Association announced this week that the company will be providing members of the ABA access to free mandatory continuing legal education. The continuing legal education classes will be held via live teleconferences and serves to strengthen the relationship and benefits Paychex provides to ABA members and the businesses they serve.
Pharmaceutical company Celgene (CELG) reported that they expect fourth quarter earnings to be inline with analysts estimated of $0.9 per share and 2004 yearly revenues to come in at $375 million up 38% from a year earlier. For 2005 the company gave guidance of earnings of $0.55 per share and revenues to jump 35% to 40% to $525 million.
Economic news reports released this week were mixed. The November trade deficit hit record levels as consumer demand and oil drove imports. The report indicated that the trade deficit had risen to $60.3 billion. Despite the weak dollar that should spur exports that U.S economy and demand is exceeding both the European and Asian economies.
The Producer Price Index which measures inflation came in better than expected. The December PPI fell more than expected showing a decline of 0.7%. This was the first decline in wholesale prices in six months. The core rate which excludes food and energy also came in better than expected rising only 0.1%. This subdued fears of inflation and the Federal Reserve taking a more aggressive stance on interest rates. Industrial production for December was better than expected rising the 2004 results of 4.1% to the best level in four years.
Bond rates fell on the positive economic news released this week indicating that the Federal Reserve would not have to take drastic action to stem inflation. The 5 year Treasury note closed unchanged from last weeks 3.7%. While the 10 year note and 30 year bond yields fell from the prior week to 4.21% and 4.72% respectively. Although this weeks economic news drove interest rates down it is still my belief that the Federal Reserve will continue with its policy of raising interest rates this year beginning with a 25 basis point hike in the Fed Funds rate at the February FOMC meeting.
Next week as a reminder the market will be closed on Monday in celebration of Martin Luther King’s day. Earnings will be the main focus of the week with many traders taking a wait and see attitude. Although we got off to a rocky start it is still my expectation that the S&P 500 will post earnings growth of 15% or better. Companies releasing earnings next week that are worth noting are 3M Company (MMM), Kinder Morgan (KMI), Motorola Inc. (MOT), US Bancorp (USB), Wells Fargo (WFC), Yahoo (YHOO), General Motors (GM), Pfizer (PFE), Qualcomm (QCOM), Wachovia Corp. (WB), Citigroup (C), Fortune Brands (FO), and General Electric (GE).
By Rick Paler
This week additional corporate mergers were announced and the final fourth quarter earnings season officially started. Economic reports released this week were mixed causing the long end of the bond yield curve to fall. Overall, market sediment for the week was negative causing the market to close lower again this week.
On the heels of several notable mergers occurring last year, including the headline making Oracle merger with PeopleSoft, Cingular and AT&T Wireless, and Sprint (FON) merging with Nextel Communications (NXTL) more merger activity was announced this week.
Consolidation within the wireless phone industry continued when early in the week Alltel (AT) reported they will purchase Western Wireless (WWCA) in a deal worth about $6 billion dollars. The deal will make the company the fifth largest in the country. Shareholders of Western Wireless will receive 0.535 shares of Alltel and $9.25 in cash.
Additionally in merger news, Movie Gallery (MOVI) agreed to purchase Hollywood Entertainment (HLYW) for $1.2 billion in cash and debt. Meanwhile News Corp. (NWS) offered Fox Entertainment Group (FOX) to purchase the remaining 18% of their outstanding shares for $6 billion. News Corp. will offer 1.6 shares of common stock for each share of Fox.
The final fourth quarter earnings season started off rocky when Alcoa (AA) and Genentech (DNA) both led off by missing their expected earnings numbers. While Alcoa also missed their revenue target citing higher energy cost and the weaker dollar.
This gave the bears a reason to sell while the rest of the market held their breath. The poor start of the week was then followed up by very positive earnings news in the technology sector. Chip maker Intel (INTC) reported fourth quarter earnings of $2.1 billion or $0.33 per share easily exceeding Wall Streets estimates of only $0.31 per share. The company also reported that revenues rose 13% to $9.6 billion also exceeding analysts’ estimates. The company reported that they had strong growth in every product area.
Intel’s performance was followed up by a spectacular report from Apple Computer (AAPL). The maker of the red hot iPod mp3 player and computers said that their fiscal first quarter net income surged by more than four times to $0.70 per share or $295 million. Revenues at the company rocketed upward 74% to $3.5 billion. The company cited their iPod sales the rose almost five times previous levels to $1.2 billion. The company also noted that sales of their Macintosh computers rose 33%.
In other corporate news Home Depot (HD) gave guidance for their fiscal 2005. The company said that they expect earnings to grow by 10% to 14% and sales to increase by 9% to 12% with same-store sales increasing 4% to 7%. The home improvement leader also announced that they would begin carrying LG Electronics new line of home appliances. For 2004 the company expects to report earnings of $2.26 per share up 20.2% from 2003.
Specialty retail Williams-Sonoma (WSM) announced that their revenues for the eight week holiday sales period jumped 7.3% to $775.9 million from year ago numbers, but that numbers had been impacted by weaker than expected sales from their Pottery Barn stores. Additionally the company reaffirmed their fourth quarter and fiscal 2005 guidance.
Newhall Rubbermaid (NWL) continued to streamline their business by selling Curver their European division. The sale allows the company to focus on its most profitable core businesses. The sale of the division to Jardin International Holding BV is not expected to impact the company’s 2004 results, but is expected to negatively impact their first quarter results due to charges affected by the sale.
Paychex Inc. (PAYX) and the American Bar Association announced this week that the company will be providing members of the ABA access to free mandatory continuing legal education. The continuing legal education classes will be held via live teleconferences and serves to strengthen the relationship and benefits Paychex provides to ABA members and the businesses they serve.
Pharmaceutical company Celgene (CELG) reported that they expect fourth quarter earnings to be inline with analysts estimated of $0.9 per share and 2004 yearly revenues to come in at $375 million up 38% from a year earlier. For 2005 the company gave guidance of earnings of $0.55 per share and revenues to jump 35% to 40% to $525 million.
Economic news reports released this week were mixed. The November trade deficit hit record levels as consumer demand and oil drove imports. The report indicated that the trade deficit had risen to $60.3 billion. Despite the weak dollar that should spur exports that U.S economy and demand is exceeding both the European and Asian economies.
The Producer Price Index which measures inflation came in better than expected. The December PPI fell more than expected showing a decline of 0.7%. This was the first decline in wholesale prices in six months. The core rate which excludes food and energy also came in better than expected rising only 0.1%. This subdued fears of inflation and the Federal Reserve taking a more aggressive stance on interest rates. Industrial production for December was better than expected rising the 2004 results of 4.1% to the best level in four years.
Bond rates fell on the positive economic news released this week indicating that the Federal Reserve would not have to take drastic action to stem inflation. The 5 year Treasury note closed unchanged from last weeks 3.7%. While the 10 year note and 30 year bond yields fell from the prior week to 4.21% and 4.72% respectively. Although this weeks economic news drove interest rates down it is still my belief that the Federal Reserve will continue with its policy of raising interest rates this year beginning with a 25 basis point hike in the Fed Funds rate at the February FOMC meeting.
Next week as a reminder the market will be closed on Monday in celebration of Martin Luther King’s day. Earnings will be the main focus of the week with many traders taking a wait and see attitude. Although we got off to a rocky start it is still my expectation that the S&P 500 will post earnings growth of 15% or better. Companies releasing earnings next week that are worth noting are 3M Company (MMM), Kinder Morgan (KMI), Motorola Inc. (MOT), US Bancorp (USB), Wells Fargo (WFC), Yahoo (YHOO), General Motors (GM), Pfizer (PFE), Qualcomm (QCOM), Wachovia Corp. (WB), Citigroup (C), Fortune Brands (FO), and General Electric (GE).
Friday, January 07, 2005
Weekly Market Review 01-07-2005
Superstitious say 2005 will be a negative year
By Rick Paler
Despite Wall Streets high expectation for 2005, the market closed the first trading week of the year lower, posting loses across all major indices. The markets down turn this week was due to valuation concerns. The market bears were able to push the markets lower on fears that the market had gone too far too fast. In an industry filled with superstitions, this is an ominous sign of things to come for the 2005 trading year.
There are fortune tellers out there that believe that a negative first week of trading foretells the direction of the market for the year. I am not one of those individuals. I believe that predictions such as these fall into the same category as moon phases, woman’s skirt lengths, super bowl winners and others crazy theories. If you look hard enough, I bet you could also find next years best stock pick in a bowl of alphabet soup.
Going into 2005 the economy looks like it will continue to grow at a reasonable rate posting a GDP of around 3.5%. Inflation should also remain under control as the Federal Reserve continues to raise interest rates to a more neutral stance. If the Federal Reserve continues to raise rates slowly it should not upset the market. Corporate earning should continue to grow, but not at the blistering pace set in 2004. Overall, given the current indicators, I believe that the market should post signal digit gains for the year. With that being said, I believe like last year it will be a stock pickers market were active professional money management has the potential to outpace the returns posted by the indices.
This week in corporate news Merck (MRK), Taser International (TASR) and Krispy Kreme (KKD) all announced additional bad news. Economic data was not earth shattering and bond yields were pushed higher.
The ghost of Merck’s (MRK) Vioxx continues to haunt the company. It was reported this week by the Financial Times that a report will be released that indicates that Vioxx may have had more serious side effects than first reported. In the report due to be released, it suggests that up to 139,000 people in the U.S. have been injured or died from the drug. If the report hold true it could open the company up to substantial litigation. Merck shares are off close to 40% from their 52 week high.
Shares of stun gun manufacture Taser International (TASR) were lower on news that the SEC is looking into the safety of the guns after reports of several deaths and a distribution deal.
The once red hot Krispy Kreme (KKD) shares continued their downward slide this week. The company announced that they would restate their fiscal 2004 earnings due to accounting irregularities and confirmed that they might default on a $150 million dollar line of credit. The company also announced that it might not file its annual 10-k report in a timely manner.
Walgreen (WAG) reported that December same-store sales rose 4.2% and that its first quarter net income rose 31% to $332.7 million or $0.32 per share topping analyst estimates. Rival drug store chain Rite-Aid (RAD) reported December same-store sale declined -2.7%.
American Eagle Outfitters (AEOS) reported that their December same-store sales surged 32.8% well ahead of Wall Streets estimates of an 18.8% increase. The company also raised their fourth quarter profit guidance to $1.30 to $1.31 from $1.08 to $1.10 per share.
TJX Companies (TJX) also reported a good December sales report. The company announced that same-store sales increased 6% at its Marshalls and T.J. Maxx stores and for the five weeks ending January 3 sales rose 15% from a year ago. Analysts had expected same-store sales to increase only 2.8%.
The big economic news this week was the jobs report. The nonfarm payroll report for December indicated that 157,000 new jobs were created, while both the November and October reports were revised higher. This number was viewed positively by the market, since a higher number could lead the Fed to raise interest rates quicker than anticipated and a lower number would have caused concern about future economic growth. For the year 2.2 million new jobs were created and averaged 185,000 new jobs per month. This should put away fears of a continued jobless economic recovery.
Bond yields were slightly higher for the week. Traders are still anticipating that at the next FOMC meeting the Federal Reserve will raise interest rates another 25 basis points.
The 5 year Treasury note closed yielding 3.70% and the 10 year note closed at 4.26%. The 30 year bond closed with its yield up to 4.83%.
Next week should provide some market moving news. Traders have for several weeks been waiting for the fourth quarter earnings season. The season begins with Alcoa (AA) announcing their earnings after the market close on Monday, January 10th. The technology sector and NASDAQ markets could be moved next week by earnings reports from Intel (INTC), Apple Computer (AAPL), Sun Microsystems (SUNW) and Samsung Electronics LTD (SSNLF). Overall the fourth quarter is expected to post 15% earnings growth for the S&P 500.
By Rick Paler
Despite Wall Streets high expectation for 2005, the market closed the first trading week of the year lower, posting loses across all major indices. The markets down turn this week was due to valuation concerns. The market bears were able to push the markets lower on fears that the market had gone too far too fast. In an industry filled with superstitions, this is an ominous sign of things to come for the 2005 trading year.
There are fortune tellers out there that believe that a negative first week of trading foretells the direction of the market for the year. I am not one of those individuals. I believe that predictions such as these fall into the same category as moon phases, woman’s skirt lengths, super bowl winners and others crazy theories. If you look hard enough, I bet you could also find next years best stock pick in a bowl of alphabet soup.
Going into 2005 the economy looks like it will continue to grow at a reasonable rate posting a GDP of around 3.5%. Inflation should also remain under control as the Federal Reserve continues to raise interest rates to a more neutral stance. If the Federal Reserve continues to raise rates slowly it should not upset the market. Corporate earning should continue to grow, but not at the blistering pace set in 2004. Overall, given the current indicators, I believe that the market should post signal digit gains for the year. With that being said, I believe like last year it will be a stock pickers market were active professional money management has the potential to outpace the returns posted by the indices.
This week in corporate news Merck (MRK), Taser International (TASR) and Krispy Kreme (KKD) all announced additional bad news. Economic data was not earth shattering and bond yields were pushed higher.
The ghost of Merck’s (MRK) Vioxx continues to haunt the company. It was reported this week by the Financial Times that a report will be released that indicates that Vioxx may have had more serious side effects than first reported. In the report due to be released, it suggests that up to 139,000 people in the U.S. have been injured or died from the drug. If the report hold true it could open the company up to substantial litigation. Merck shares are off close to 40% from their 52 week high.
Shares of stun gun manufacture Taser International (TASR) were lower on news that the SEC is looking into the safety of the guns after reports of several deaths and a distribution deal.
The once red hot Krispy Kreme (KKD) shares continued their downward slide this week. The company announced that they would restate their fiscal 2004 earnings due to accounting irregularities and confirmed that they might default on a $150 million dollar line of credit. The company also announced that it might not file its annual 10-k report in a timely manner.
Walgreen (WAG) reported that December same-store sales rose 4.2% and that its first quarter net income rose 31% to $332.7 million or $0.32 per share topping analyst estimates. Rival drug store chain Rite-Aid (RAD) reported December same-store sale declined -2.7%.
American Eagle Outfitters (AEOS) reported that their December same-store sales surged 32.8% well ahead of Wall Streets estimates of an 18.8% increase. The company also raised their fourth quarter profit guidance to $1.30 to $1.31 from $1.08 to $1.10 per share.
TJX Companies (TJX) also reported a good December sales report. The company announced that same-store sales increased 6% at its Marshalls and T.J. Maxx stores and for the five weeks ending January 3 sales rose 15% from a year ago. Analysts had expected same-store sales to increase only 2.8%.
The big economic news this week was the jobs report. The nonfarm payroll report for December indicated that 157,000 new jobs were created, while both the November and October reports were revised higher. This number was viewed positively by the market, since a higher number could lead the Fed to raise interest rates quicker than anticipated and a lower number would have caused concern about future economic growth. For the year 2.2 million new jobs were created and averaged 185,000 new jobs per month. This should put away fears of a continued jobless economic recovery.
Bond yields were slightly higher for the week. Traders are still anticipating that at the next FOMC meeting the Federal Reserve will raise interest rates another 25 basis points.
The 5 year Treasury note closed yielding 3.70% and the 10 year note closed at 4.26%. The 30 year bond closed with its yield up to 4.83%.
Next week should provide some market moving news. Traders have for several weeks been waiting for the fourth quarter earnings season. The season begins with Alcoa (AA) announcing their earnings after the market close on Monday, January 10th. The technology sector and NASDAQ markets could be moved next week by earnings reports from Intel (INTC), Apple Computer (AAPL), Sun Microsystems (SUNW) and Samsung Electronics LTD (SSNLF). Overall the fourth quarter is expected to post 15% earnings growth for the S&P 500.
Friday, December 31, 2004
Weekly Market Review 12-31-2004
Stock Market closes up for the year
By Rick Paler
The trading year ended with little fanfare as many traders were on vacation and there was no major corporate news released. The economic data released this week did not impact the market and market volume was low.
In corporate news no companies reported earnings. In retail, MasterCard International reported that holiday sales seemed to increase in the final weeks of the holiday shopping season. MasterCard reported an 8.1% rise in spending from last year. Analyst had estimated that holiday spending would increase only 4.5% over last year’s strong numbers. This should support the retail sector going into next year.
Wal-Mart Stores (WMT) announced that they saw an increase in store traffic in the final week of shopping. The company now expects their December same-store sale to come in towards the middle of their prior reduced forecast of 1% - 3% sales growth.
Amazon.com (AZMN) reported that they had the busiest season ever. The company reported that it had set a one day sales record of 2.8 million units ordered.
Pfizer (PFE) was in the news again this week as the FDA approved Lyrical. Lyrica is the first FDA approved treatment for the depilating forms of pain caused by nerve damage resulting from diabetes or shingles. The Wall Street Journal also reported that sales of the arthritis pain reliever Celebrex fell 56%, after a study indicated a possible link to heart problems. Some are now questioning the study, since the study was using twice the recommended dose and another recent study released indicated that there was no link to heart problems.
Economic news this week was light. Following last weeks better than expected consumer sentiment report the Conference Board reported that consumer confidence surged to 102.3 in December, well above economist estimates of 94.0. The reading indicates that consumers are more optimistic about the economy as oil prices drop, job growth increases and the stock market posted a gain for the year. The positive news is a plus for the stock market going into 2005.
The Chicago PMI fell to 61.2 below the estimates of 65.2, but still well into the range of an expanding economy. Any number greater than 50 indicates an expanding economy while any number less than 50 indicates a contracting economy.
Bond trading was also light due to the holiday and no major news releases. Bond yield closed lower across the board compares to last month. The 5 year Treasury notes yield closed at 3.60% versus last months 3.69%. The 10 year note closed at 4.21% down from 4.35%. While the 30 year Treasury bond closed the month at 4.82% versus Novembers 5.00%.
Over the next few weeks both institutional portfolio managers and individual investors will continue to evaluate their existing portfolio holdings making important changes in their composition and allocations as they look for what will be 2005’s hot sectors and losers.
The all important fourth quarter earnings season will begin shortly and the current consensus is that earnings for the S&P 500 will grow by 15%. I would not be surprised if the final number is north of 15%. As for 2005 it is my belief that it will continue to be a stock pickers market were active professional management will outpace the indexes.
By Rick Paler
The trading year ended with little fanfare as many traders were on vacation and there was no major corporate news released. The economic data released this week did not impact the market and market volume was low.
In corporate news no companies reported earnings. In retail, MasterCard International reported that holiday sales seemed to increase in the final weeks of the holiday shopping season. MasterCard reported an 8.1% rise in spending from last year. Analyst had estimated that holiday spending would increase only 4.5% over last year’s strong numbers. This should support the retail sector going into next year.
Wal-Mart Stores (WMT) announced that they saw an increase in store traffic in the final week of shopping. The company now expects their December same-store sale to come in towards the middle of their prior reduced forecast of 1% - 3% sales growth.
Amazon.com (AZMN) reported that they had the busiest season ever. The company reported that it had set a one day sales record of 2.8 million units ordered.
Pfizer (PFE) was in the news again this week as the FDA approved Lyrical. Lyrica is the first FDA approved treatment for the depilating forms of pain caused by nerve damage resulting from diabetes or shingles. The Wall Street Journal also reported that sales of the arthritis pain reliever Celebrex fell 56%, after a study indicated a possible link to heart problems. Some are now questioning the study, since the study was using twice the recommended dose and another recent study released indicated that there was no link to heart problems.
Economic news this week was light. Following last weeks better than expected consumer sentiment report the Conference Board reported that consumer confidence surged to 102.3 in December, well above economist estimates of 94.0. The reading indicates that consumers are more optimistic about the economy as oil prices drop, job growth increases and the stock market posted a gain for the year. The positive news is a plus for the stock market going into 2005.
The Chicago PMI fell to 61.2 below the estimates of 65.2, but still well into the range of an expanding economy. Any number greater than 50 indicates an expanding economy while any number less than 50 indicates a contracting economy.
Bond trading was also light due to the holiday and no major news releases. Bond yield closed lower across the board compares to last month. The 5 year Treasury notes yield closed at 3.60% versus last months 3.69%. The 10 year note closed at 4.21% down from 4.35%. While the 30 year Treasury bond closed the month at 4.82% versus Novembers 5.00%.
Over the next few weeks both institutional portfolio managers and individual investors will continue to evaluate their existing portfolio holdings making important changes in their composition and allocations as they look for what will be 2005’s hot sectors and losers.
The all important fourth quarter earnings season will begin shortly and the current consensus is that earnings for the S&P 500 will grow by 15%. I would not be surprised if the final number is north of 15%. As for 2005 it is my belief that it will continue to be a stock pickers market were active professional management will outpace the indexes.
Friday, December 24, 2004
Weekly Market Review 12-24-2004
Vioxx, Celebrex and now Aleve linked to heart problems
By Rick Paler
Overall this week’s market was nothing to write home about. As expected market action was very light due to the shortened holiday week. Big Pharma continued to take it on the chin this week, as another pain reliever was linked to heart attacks and strokes. There was little in the way of corporate news or earnings releases this week. Economic news for the week was light and uneventful.
In corporate news Pfizer (PFE) announced that it will halt the advertising of Celebrex, its blockbuster arthritis drug, after an ongoing study indicated the drug, a COX-2 Inhibitor was linked to an increase in heart problems in patients that took very high doses. But unlike Merck’s (MRK) Vioxx, Pfizer said that they would not pull the drug from the market. Additionally, this week a study was released that showed that Bayer AG‘s (BAY) over the counter pain reliever Aleve was linked to heart problems. At the same time, the same study indicated that Celebrex did not increase the likelihood of heart attacks or stroke and had the same results as the placebo.
Fannie Mae (FNM) reported this week that the CEO and CFO were forced to resign after major accounting problems were revealed. This will cause the company to restate earnings by as much a $9 billion. The new CEO Daniel Mudd and CFO Robert Levin immediately announced that the company had fired KPMG as the company’s independent auditor.
IAC/InterActive Corp (IACI) announced that the company would spin off Expedia.com. The travel related unit includes Expedia.com, Hotels.com and TripAdvisor. The company said it would maintain Ticketmaster, LendingTree, Evite and Match.com.
Insurance company PartnerRe Ltd. (PRE) has announced an accelerated share repurchase plan of 2 million shares. The share will be repurchased from Deutsche Bank AG (DB) on December 30.
Cell phone chip maker Qualcomm (QCOM) raised its first quarter guidance to $0.26 to $0.28 per share from a prior $0.24 to $0.26 per share. The company cited strong growth in networks using the company’s CDMA technology.
Cognizant Technology Solutions Corp. (CTSH) announced that it will be added to the NASDAQ-100 Index starting December 29, 2004. The IT service company’s President and CEO Lakshmi Narayanan said “We are the only IT Services firm on the list, and we are the first and only offshore firm to be included in the NASDAQ-100.”
In economic news, the final GDP was revised upwards to 4.0% from 3.9% and above what economist had estimated. The final University of Michigan Consumer Sentiment report for December came in above estimates, with a reading of 97.1 from the original reading of 95.7. The continuing positive economic data shows that the economy continues to improve and should continue its expansion well into 2005.
The slow week combined with economic data that did not overly surprise allowed bond rates to move very little. The 5 year Treasury note was unchanged from the prior week closing at 3.56%. While both the 10 year Treasury note and 30 year bond yields were fractionally higher, closing at 4.20% and 4.83% respectively.
Next week will be another very quite week with no earnings reports or major economic data being released. One point of interest is the fact that on a historical basis the final four days of trading combined with the first two of the New Year have averaged a return of 1.5% since 1950.
By Rick Paler
Overall this week’s market was nothing to write home about. As expected market action was very light due to the shortened holiday week. Big Pharma continued to take it on the chin this week, as another pain reliever was linked to heart attacks and strokes. There was little in the way of corporate news or earnings releases this week. Economic news for the week was light and uneventful.
In corporate news Pfizer (PFE) announced that it will halt the advertising of Celebrex, its blockbuster arthritis drug, after an ongoing study indicated the drug, a COX-2 Inhibitor was linked to an increase in heart problems in patients that took very high doses. But unlike Merck’s (MRK) Vioxx, Pfizer said that they would not pull the drug from the market. Additionally, this week a study was released that showed that Bayer AG‘s (BAY) over the counter pain reliever Aleve was linked to heart problems. At the same time, the same study indicated that Celebrex did not increase the likelihood of heart attacks or stroke and had the same results as the placebo.
Fannie Mae (FNM) reported this week that the CEO and CFO were forced to resign after major accounting problems were revealed. This will cause the company to restate earnings by as much a $9 billion. The new CEO Daniel Mudd and CFO Robert Levin immediately announced that the company had fired KPMG as the company’s independent auditor.
IAC/InterActive Corp (IACI) announced that the company would spin off Expedia.com. The travel related unit includes Expedia.com, Hotels.com and TripAdvisor. The company said it would maintain Ticketmaster, LendingTree, Evite and Match.com.
Insurance company PartnerRe Ltd. (PRE) has announced an accelerated share repurchase plan of 2 million shares. The share will be repurchased from Deutsche Bank AG (DB) on December 30.
Cell phone chip maker Qualcomm (QCOM) raised its first quarter guidance to $0.26 to $0.28 per share from a prior $0.24 to $0.26 per share. The company cited strong growth in networks using the company’s CDMA technology.
Cognizant Technology Solutions Corp. (CTSH) announced that it will be added to the NASDAQ-100 Index starting December 29, 2004. The IT service company’s President and CEO Lakshmi Narayanan said “We are the only IT Services firm on the list, and we are the first and only offshore firm to be included in the NASDAQ-100.”
In economic news, the final GDP was revised upwards to 4.0% from 3.9% and above what economist had estimated. The final University of Michigan Consumer Sentiment report for December came in above estimates, with a reading of 97.1 from the original reading of 95.7. The continuing positive economic data shows that the economy continues to improve and should continue its expansion well into 2005.
The slow week combined with economic data that did not overly surprise allowed bond rates to move very little. The 5 year Treasury note was unchanged from the prior week closing at 3.56%. While both the 10 year Treasury note and 30 year bond yields were fractionally higher, closing at 4.20% and 4.83% respectively.
Next week will be another very quite week with no earnings reports or major economic data being released. One point of interest is the fact that on a historical basis the final four days of trading combined with the first two of the New Year have averaged a return of 1.5% since 1950.
Friday, December 17, 2004
Weekly Market Report 12-17-2004
Interest rates, mergers and Pfizer dominate market
By Rick Paler
This week we saw the Federal Reserve raise interest rates as I had projected. Corporate mergers continue to be announced, which is a positive for the market. The biggest news of the week, although negative was Pfizer. Economic data was favorable and continues to show an expanding economy.
On Tuesday the FOMC had their meeting and as I had expected they continued with their policy of interest rate hikes to fend off inflation. The Federal Reserve raised interest rates another 25 basis points bringing the Federal Funds rate to 2.25%. The closely watched policy statement said “Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity.” This was the fifth increase since June of this year. Going into next year it is my expectation that the Federal Reserve will continue with removing its policy of accommodation at a measured pace. The next FOMC meeting is in February and based on the current economic data I anticipate another 25 basis point increase in the Fed funds rate.
Mergers seem to be the in thing to do. After last weeks announcement that Johnson & Johnson (JNJ) would be purchasing Guidant (GDT), Sprint (FON) announced that they have agreed to acquire Nextel Communications (NXTL). The $35 billion dollar deal would make Sprint the third largest wireless carrier behind Cingular Wireless and Verizon Wireless (VZ). Additionally a Vodafone (VOD) spokesperson denying rumors, said they were not planning to make a bid for Sprint.
It was reported this week that Symantec Corp. (SYMC) has been in negotiations for the last month to purchase Veritas Software (VRTS) for more than $13 billion. Shareholders of Veritas would receive 1.1242 shares of Symantec in the all-stock deal.
After a heated battle that began over a year ago Oracle (ORCL) signed an agreement to purchase PeopleSoft (PSFT) for $10.3 billion or $26.50 per share. The deal topped what they had called their final bid of $24 per share. The deal should close early next year. Additionally Oracle announced that their second quarter net income surged 32% to $815 million or $0.16 per share, well ahead of Wall Streets estimates of $0.13 per share. The company issuing third quarter guidance said it expects earning per share of $0.14 - $0.15 per share. Analysts are projecting $0.14 per share.
I view the recent increase in merger activity as a positive for the market and just the beginning of what might be an on slot of consolidation. After cutbacks in corporate spending, increases in productivity and slow hiring, during a period of expanding earnings corporations are flush with cash. Companies can do several things with the large amount of cash they are sitting on. They can use it to improve their operations infrastructure, retire long term debt, increase the dividends paid out to share holders, buy back their company shares or go shopping for acquisitions.
We have already seen corporations increasing their dividends and share buy back programs. It is my belief that many corporations are also looking for acquisition targets that would improve their market place share and provide overall cost savings.
The big corporate news this week was the announcement that Pfizer’s (PFE) arthritis drug Celebrex had been linked to increased heart risks when taken in very large doses. The study was based on patients taking between 400mg and 800mg of the drug. Most patients are taking only 100mg to 400mg and in very rare instances are given the amount used in the study. The study does put into question the entire class of Cox-2 inhibitors that are manufactured by several drug companies. Merck (MRK) had recently pulled their Cox-2 inhibitor Vioxx from the market.
Wal-Mart Stores (WMT) continues to disappoint as the company maintained their sales forecast for December of only 1% to 3% growth. The company said that their food sales remain strong but their general merchandise was not as strong. Wal-Mart recently lowered prices on many holiday gift items in an attempt to spur sales after the company started of the holiday sales season poorly.
Best Buy (BBY) reported that their net income increased 21% to $148 million or $0.45 per share which was ahead of analysts estimated by a penny. The company also announced their forth quarter guidance of $1.56 to $1.66 per share. Analysts are expecting earnings of $1.62 per share.
In economic news, retail sales for November were better than expected. The report said that retail sales for November increased 0.1% while economist had estimated a drop of 0.1%. The October number was also revised upwards from the original report of a 0.2% increase to a 0.8% increase.
This week both the Empire Manufacturing Index and the Philadelphia Fed’s Business Activity Index for December showed strong gains, coming in well above what economist had estimated. The strong numbers show that the economy is strong and continues to expand. Based on the overall all strong economic data reported for the fourth quarter I would expect the fourth quarter GDP number to come in around the 4.0% range which could provide additional stimulus for the market going into 2005.
In bond market news traders reacted after the Federal Reserve increased the Fed Funds rate by pushing bond yields higher on the short end of the yield curve, while the long end was down fractionally. This is because the shorter maturities bonds react quicker to interest rate changes. The 5 year Treasury note closed yielding 3.56% and the 10 year note was also yielding more at the close of the week, closing at 4.17%. The 30 year bond closed at 4.80% down from last week’s close of 4.81%.
Next week should be another slow week since many traders are leaving early for the holidays. There are no earnings announcements scheduled for the week and a few economic reports. Some of the economic reports due to be released are the final third quarter GDP, and Consumer Confidence report.
In closing, I would like to wish you and your family a wonderful holiday and prosperous New Year.
By Rick Paler
This week we saw the Federal Reserve raise interest rates as I had projected. Corporate mergers continue to be announced, which is a positive for the market. The biggest news of the week, although negative was Pfizer. Economic data was favorable and continues to show an expanding economy.
On Tuesday the FOMC had their meeting and as I had expected they continued with their policy of interest rate hikes to fend off inflation. The Federal Reserve raised interest rates another 25 basis points bringing the Federal Funds rate to 2.25%. The closely watched policy statement said “Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity.” This was the fifth increase since June of this year. Going into next year it is my expectation that the Federal Reserve will continue with removing its policy of accommodation at a measured pace. The next FOMC meeting is in February and based on the current economic data I anticipate another 25 basis point increase in the Fed funds rate.
Mergers seem to be the in thing to do. After last weeks announcement that Johnson & Johnson (JNJ) would be purchasing Guidant (GDT), Sprint (FON) announced that they have agreed to acquire Nextel Communications (NXTL). The $35 billion dollar deal would make Sprint the third largest wireless carrier behind Cingular Wireless and Verizon Wireless (VZ). Additionally a Vodafone (VOD) spokesperson denying rumors, said they were not planning to make a bid for Sprint.
It was reported this week that Symantec Corp. (SYMC) has been in negotiations for the last month to purchase Veritas Software (VRTS) for more than $13 billion. Shareholders of Veritas would receive 1.1242 shares of Symantec in the all-stock deal.
After a heated battle that began over a year ago Oracle (ORCL) signed an agreement to purchase PeopleSoft (PSFT) for $10.3 billion or $26.50 per share. The deal topped what they had called their final bid of $24 per share. The deal should close early next year. Additionally Oracle announced that their second quarter net income surged 32% to $815 million or $0.16 per share, well ahead of Wall Streets estimates of $0.13 per share. The company issuing third quarter guidance said it expects earning per share of $0.14 - $0.15 per share. Analysts are projecting $0.14 per share.
I view the recent increase in merger activity as a positive for the market and just the beginning of what might be an on slot of consolidation. After cutbacks in corporate spending, increases in productivity and slow hiring, during a period of expanding earnings corporations are flush with cash. Companies can do several things with the large amount of cash they are sitting on. They can use it to improve their operations infrastructure, retire long term debt, increase the dividends paid out to share holders, buy back their company shares or go shopping for acquisitions.
We have already seen corporations increasing their dividends and share buy back programs. It is my belief that many corporations are also looking for acquisition targets that would improve their market place share and provide overall cost savings.
The big corporate news this week was the announcement that Pfizer’s (PFE) arthritis drug Celebrex had been linked to increased heart risks when taken in very large doses. The study was based on patients taking between 400mg and 800mg of the drug. Most patients are taking only 100mg to 400mg and in very rare instances are given the amount used in the study. The study does put into question the entire class of Cox-2 inhibitors that are manufactured by several drug companies. Merck (MRK) had recently pulled their Cox-2 inhibitor Vioxx from the market.
Wal-Mart Stores (WMT) continues to disappoint as the company maintained their sales forecast for December of only 1% to 3% growth. The company said that their food sales remain strong but their general merchandise was not as strong. Wal-Mart recently lowered prices on many holiday gift items in an attempt to spur sales after the company started of the holiday sales season poorly.
Best Buy (BBY) reported that their net income increased 21% to $148 million or $0.45 per share which was ahead of analysts estimated by a penny. The company also announced their forth quarter guidance of $1.56 to $1.66 per share. Analysts are expecting earnings of $1.62 per share.
In economic news, retail sales for November were better than expected. The report said that retail sales for November increased 0.1% while economist had estimated a drop of 0.1%. The October number was also revised upwards from the original report of a 0.2% increase to a 0.8% increase.
This week both the Empire Manufacturing Index and the Philadelphia Fed’s Business Activity Index for December showed strong gains, coming in well above what economist had estimated. The strong numbers show that the economy is strong and continues to expand. Based on the overall all strong economic data reported for the fourth quarter I would expect the fourth quarter GDP number to come in around the 4.0% range which could provide additional stimulus for the market going into 2005.
In bond market news traders reacted after the Federal Reserve increased the Fed Funds rate by pushing bond yields higher on the short end of the yield curve, while the long end was down fractionally. This is because the shorter maturities bonds react quicker to interest rate changes. The 5 year Treasury note closed yielding 3.56% and the 10 year note was also yielding more at the close of the week, closing at 4.17%. The 30 year bond closed at 4.80% down from last week’s close of 4.81%.
Next week should be another slow week since many traders are leaving early for the holidays. There are no earnings announcements scheduled for the week and a few economic reports. Some of the economic reports due to be released are the final third quarter GDP, and Consumer Confidence report.
In closing, I would like to wish you and your family a wonderful holiday and prosperous New Year.
Friday, December 10, 2004
Weekly Market Report 12-10-2004
IBM sells its PC division
By Rick Paler
Not much happened this week as Wall Street prepares for the end of the year and 2005. This week Johnson and Johnson announced the largest purchase in the company’s history and IBM sold its PC to a Chinese based company. Oil continued its decline from record highs and the PPI number was higher than economist estimated.
It was a quite week in regards to corporate news with the only major news coming from Johnson & Johnson and IBM. It was revealed this week that Johnson & Johnson (JNJ) was in advanced talks with Guidant Corp. (GDT) to purchase the company. The board of directors of each company will be meeting over the weekend to work out the final approval of the deal and it is expected to fetch $75.00 per share for shareholders of Guidant. The purchase of Guidant would help Johnson & Johnson in the fast growing market of defibrillators, pacemakers and should help their coronary stent business. The deal would be the largest in the 118 year history of Johnson & Johnson.
As I had written about last week International Business Machines (IBM) announced that they were selling their PC division to China’s largest PC marker Lenovo Group (LNVGY) for $1.75 billion. IBM would still maintain an 18.9% stake in Lenovo. Once the deal is completed it would make Lenovo the third largest PC maker behind Dell (DELL) and Hewlett-Packard (HPQ). Lenovo said that they would move their headquarters from China to New York City. The move allows IBM to further enhance its higher margin businesses.
Proctor & Gamble (PG) confirmed that it was comfortable with analyst earnings estimates for the company’s second quarter of $0.71 to $0.72 per share and 2004 earnings of between $2.25 and $2.35 per share. The company also reaffirmed its long term sales growth target of 4% to 6%. Chairman, President and CEO A.G. Lafley said “We’re confident we have the strategies, brands, innovation pipeline and new market opportunities to sustain our strong growth.” Proctor & Gamble has 16 brands that have sales of a billion dollars and another 10 that have sales over one-half billion in sales.
Another consumer product company was in the news this week. Colgate-Palmolive (CL) announced that they would cut their work force by 12% or approximately 4,440 employees. The move is expected to save the company $250 million to $300 million after taxes annually by the fourth year. The company also reaffirmed its fourth quarter 2004 and full year 2005 guidance.
In economic news oil continued its decline from all time highs above $50.00 per barrel a short time ago, by closing the week lower at $40.70. This despite word from OPEC that it would cut production by 1 million barrels a day. Some energy analysts are suggesting that oil prices could drop lower in coming weeks.
Final Non-farm productivity for the third quarter came in below economist estimates of 2.0%. The released number showed that productivity grew at 1.8%. Productivity gains have been strong in past months. This has allowed companies to raise wages and limit hiring while not having to raise prices.
A large than anticipated rise in the November Producers Price Index, which measures inflation, had traders concerned. But after reviewing the core rate which excludes energy and food, trader’s fears of run away inflation were subdued. The PPI for November rose 0.5% after October’s sharp rise. Economist had expected an increase of just 0.1%. Year over year the PPI is up 5.0%, which is the largest increase in 15 years.
Next week, the Federal Open Market Committee will be meeting on Tuesday and after the release of this week PPI numbers the Federal Reserve will more than likely continue their policy of raising interest rates. I would anticipate the Federal Reserve to raise the Fed Funds rate another 25 basis points bringing the rate to 2.25% from this the low earlier this year of 1.0%.
Bond yields were oddly lower this week even with the streets anticipation that rates will be raised next week. The 5 year Treasury note closed at 3.51% and the 10 year note closed yielding 4.13%. The 30 year bonds yield was also lower closing at 4.81%.
Next week Wall Street will be watching the FOMC meeting on Tuesday. Additional economic news due to be released next week are Retail Sales which could effect retail stocks and the Consumer Price Index or CPI. Companies that are releasing earnings are; Oracle (ORCL), Bed Bath & Beyond (BBBY), Best Buy (BBY), Biomet (BMET), FedEx (FDX), and Nike (NKE)
By Rick Paler
Not much happened this week as Wall Street prepares for the end of the year and 2005. This week Johnson and Johnson announced the largest purchase in the company’s history and IBM sold its PC to a Chinese based company. Oil continued its decline from record highs and the PPI number was higher than economist estimated.
It was a quite week in regards to corporate news with the only major news coming from Johnson & Johnson and IBM. It was revealed this week that Johnson & Johnson (JNJ) was in advanced talks with Guidant Corp. (GDT) to purchase the company. The board of directors of each company will be meeting over the weekend to work out the final approval of the deal and it is expected to fetch $75.00 per share for shareholders of Guidant. The purchase of Guidant would help Johnson & Johnson in the fast growing market of defibrillators, pacemakers and should help their coronary stent business. The deal would be the largest in the 118 year history of Johnson & Johnson.
As I had written about last week International Business Machines (IBM) announced that they were selling their PC division to China’s largest PC marker Lenovo Group (LNVGY) for $1.75 billion. IBM would still maintain an 18.9% stake in Lenovo. Once the deal is completed it would make Lenovo the third largest PC maker behind Dell (DELL) and Hewlett-Packard (HPQ). Lenovo said that they would move their headquarters from China to New York City. The move allows IBM to further enhance its higher margin businesses.
Proctor & Gamble (PG) confirmed that it was comfortable with analyst earnings estimates for the company’s second quarter of $0.71 to $0.72 per share and 2004 earnings of between $2.25 and $2.35 per share. The company also reaffirmed its long term sales growth target of 4% to 6%. Chairman, President and CEO A.G. Lafley said “We’re confident we have the strategies, brands, innovation pipeline and new market opportunities to sustain our strong growth.” Proctor & Gamble has 16 brands that have sales of a billion dollars and another 10 that have sales over one-half billion in sales.
Another consumer product company was in the news this week. Colgate-Palmolive (CL) announced that they would cut their work force by 12% or approximately 4,440 employees. The move is expected to save the company $250 million to $300 million after taxes annually by the fourth year. The company also reaffirmed its fourth quarter 2004 and full year 2005 guidance.
In economic news oil continued its decline from all time highs above $50.00 per barrel a short time ago, by closing the week lower at $40.70. This despite word from OPEC that it would cut production by 1 million barrels a day. Some energy analysts are suggesting that oil prices could drop lower in coming weeks.
Final Non-farm productivity for the third quarter came in below economist estimates of 2.0%. The released number showed that productivity grew at 1.8%. Productivity gains have been strong in past months. This has allowed companies to raise wages and limit hiring while not having to raise prices.
A large than anticipated rise in the November Producers Price Index, which measures inflation, had traders concerned. But after reviewing the core rate which excludes energy and food, trader’s fears of run away inflation were subdued. The PPI for November rose 0.5% after October’s sharp rise. Economist had expected an increase of just 0.1%. Year over year the PPI is up 5.0%, which is the largest increase in 15 years.
Next week, the Federal Open Market Committee will be meeting on Tuesday and after the release of this week PPI numbers the Federal Reserve will more than likely continue their policy of raising interest rates. I would anticipate the Federal Reserve to raise the Fed Funds rate another 25 basis points bringing the rate to 2.25% from this the low earlier this year of 1.0%.
Bond yields were oddly lower this week even with the streets anticipation that rates will be raised next week. The 5 year Treasury note closed at 3.51% and the 10 year note closed yielding 4.13%. The 30 year bonds yield was also lower closing at 4.81%.
Next week Wall Street will be watching the FOMC meeting on Tuesday. Additional economic news due to be released next week are Retail Sales which could effect retail stocks and the Consumer Price Index or CPI. Companies that are releasing earnings are; Oracle (ORCL), Bed Bath & Beyond (BBBY), Best Buy (BBY), Biomet (BMET), FedEx (FDX), and Nike (NKE)
Friday, December 03, 2004
Weekly Market Report 12-03-2004
Major Retailers Disappoint
By Rick Paler
The much anticipated holiday retail season has kicked off. The season which began on the Friday after Thanksgiving is vastly watched by Wall Street. This is due to the fact that strength in sales over the holiday weekend might give indications on how profitable the overall holiday season will be to retail stores. Many retail stores depend on the holiday season, and a poor sales season can make the difference between posting a profit or loss for the year.
Analysts are expecting a very strong holiday sales season. According to ShopperTrak retail sales jumped 10.8% on the Friday after Thanksgiving versus last year. Visa USA also reported that their credit card holders increased charging by over 14%, while debit card usage increased 20.3%. This gave traders a reason to celebrate, since the initial figures confirmed that the holiday sales season was off to a fast start. On Monday the numbers were in and were being interrupted by the analysts.
The seemingly strong start on Friday was interrupted on Monday when several major retailers reported disappointing sales. The largest disappointment came from the likes of Wal-Mart Stores (WMT) when they announced that November same-store sales would rise just 0.7%.
A sharp drop in the price of crude oil helped to cancel out negative sales announcement and rallied the market to post positive gains for the week. Oil started the week over $50.00 per barrel and by weeks end had dropped 13% to $42.54 per barrel. Some energy analysts are now stating that oil prices could drop further. Cheaper energy cost translates to lower production cost for corporations thereby improving their bottom line. It helps consumers also, since they have more money to spend on other items rather than energy and gasoline bills.
Overall news this week was light. Corporate news was focused on the retail sector; technology stocks received a boost from Intel (INTC) and IBM (IBM), while economic news was mixed.
Shares of Wal-Mart Stores (WMT) were hit hard on Monday, when they reported that their November same-store sales would rise just 0.7%. Wall Street had expected sales growth between 2% to 4%. Sales at Wal-Mart stores increased a miserable 0.3% and Sam’s Club sales increased 2.5%. In response to the slower sales officials at the company said that it would cut prices on popular Christmas items and heavily advertise the cuts to lure shoppers back. The company also said that it estimates December same-store sales to increase only 1% - 3%.
The TJX Companies (TJX) announced that November same store sales were up 2%, while overall sales at the company were up over 10%. President and CEO, Edmond English “we will be flowing fresh gift assortments to our off-price stores at great values right up until the Christmas holiday, a strategy that we believe will serve us well again this year.”
American Eagle Outfitters Inc. (AEOS) projected their November same-store sales to increase 22.7%. This tops analyst estimates of only 17% sales growth. Citing their strong November results the company forecast earnings of $1.08 to $1.10 per share for the fourth quarter. Wall Street had expected earning for the fourth quarter of $1.05 per share.
The NASDAQ market hit multi-year highs as the index hit the highest level since July 2001. Fueling the advance this week was Intel (INTC). The company released a very upbeat midyear update. Citing strong demand for the company’s microprocessors the company upped their fourth quarter guidance sharply. The company now expects revenues of $9.3 billion to $9.5 billion. Analysts had expected fourth quarter revenues of $8.8 billion. A spokesman also said that gross margins should be in the upper half of their prior guidance and that they expected their inventories to decline by several hundred million dollars.
International Business Machines (IBM) the maker of the first personal computer back in 1981 is putting their PC division up for sale according to the New York Times. According to the report the company is in negotiations with China’s largest PC maker Lenovo Group Ltd. (LNVGY) and another unnamed company. The division is expected to sell for between $1 billion and $2 billion.
This week the National Association of Securities Dealers (NASD) fined 29 brokerage firms. The fines were similar to the ones leaved against Morgan Stanley (MWD) earlier this year. The companies involved were supposed to keep the records of their brokers updated through the filing of Form U4 and U5. The U4 form reports any regulatory actions against the broker, customer complaints, settlements, and criminal charges and convictions. Form U5 reports when a broker is no longer employed by the company. Merrill Lynch (MER) and American Express Financial Advisors (AXP) were two of the companies fined. In addition to the fine, Merrill Lynch and Wachovia Corp. (WB) were prohibited from registering new brokers for five days.
Economic news this week was mixed. The Non-farm payrolls and Consumer Confidence disappointed, when both missed prior estimates. Non-farm payrolls for November came in well below what economist had expected. Economist had expected payrolls to climb by 200,000 and only 112,000 new jobs were created. The slow growth in jobs could lead to moderation in the economic growth.
Consumer Confidence also came in below estimates. The Index reading fell to 90.5 versus the consensus of 96.0. Lower consumer confidence could curtail holiday spending.
The Personal Income and Consumption data was strong for October and the GDP numbers for the third quarter were revised upwards. The revised GDP came in at 3.9% up from the prior 3.7%. Economists now estimate that the fourth quarter GDP growth will come in at 4.0%, which bodes well for the economy and stocks.
Bond yields continue to rise in anticipation of the Federal Reserve raising interest rates at their next meeting and the continued weakness in the dollar. Yields were higher for the week and for the month of November. The 5 year Treasury note closed yielding 3.59% versus last months 3.32%. The 10 yr Treasury note ended the week at 4.25% up from 4.07% the month before. The 30 year Treasury bond closed at 4.92% compared to 4.82% a month ago. A continued rise in interest rates could pressure stocks in coming months.
Since one way of valuing stocks is to compare the earnings yield of stocks to the yield on bonds.
Next week Wall Street will continue to watch retail sales, energy prices and the dollar. Overall, given the current market conditions I believe that the market is fairly valued at these current levels. Given that, I believe that December has the potential to post positive gains for the month. A positive return for the month of December could keep the spark alive in this rally going into next year.
By Rick Paler
The much anticipated holiday retail season has kicked off. The season which began on the Friday after Thanksgiving is vastly watched by Wall Street. This is due to the fact that strength in sales over the holiday weekend might give indications on how profitable the overall holiday season will be to retail stores. Many retail stores depend on the holiday season, and a poor sales season can make the difference between posting a profit or loss for the year.
Analysts are expecting a very strong holiday sales season. According to ShopperTrak retail sales jumped 10.8% on the Friday after Thanksgiving versus last year. Visa USA also reported that their credit card holders increased charging by over 14%, while debit card usage increased 20.3%. This gave traders a reason to celebrate, since the initial figures confirmed that the holiday sales season was off to a fast start. On Monday the numbers were in and were being interrupted by the analysts.
The seemingly strong start on Friday was interrupted on Monday when several major retailers reported disappointing sales. The largest disappointment came from the likes of Wal-Mart Stores (WMT) when they announced that November same-store sales would rise just 0.7%.
A sharp drop in the price of crude oil helped to cancel out negative sales announcement and rallied the market to post positive gains for the week. Oil started the week over $50.00 per barrel and by weeks end had dropped 13% to $42.54 per barrel. Some energy analysts are now stating that oil prices could drop further. Cheaper energy cost translates to lower production cost for corporations thereby improving their bottom line. It helps consumers also, since they have more money to spend on other items rather than energy and gasoline bills.
Overall news this week was light. Corporate news was focused on the retail sector; technology stocks received a boost from Intel (INTC) and IBM (IBM), while economic news was mixed.
Shares of Wal-Mart Stores (WMT) were hit hard on Monday, when they reported that their November same-store sales would rise just 0.7%. Wall Street had expected sales growth between 2% to 4%. Sales at Wal-Mart stores increased a miserable 0.3% and Sam’s Club sales increased 2.5%. In response to the slower sales officials at the company said that it would cut prices on popular Christmas items and heavily advertise the cuts to lure shoppers back. The company also said that it estimates December same-store sales to increase only 1% - 3%.
The TJX Companies (TJX) announced that November same store sales were up 2%, while overall sales at the company were up over 10%. President and CEO, Edmond English “we will be flowing fresh gift assortments to our off-price stores at great values right up until the Christmas holiday, a strategy that we believe will serve us well again this year.”
American Eagle Outfitters Inc. (AEOS) projected their November same-store sales to increase 22.7%. This tops analyst estimates of only 17% sales growth. Citing their strong November results the company forecast earnings of $1.08 to $1.10 per share for the fourth quarter. Wall Street had expected earning for the fourth quarter of $1.05 per share.
The NASDAQ market hit multi-year highs as the index hit the highest level since July 2001. Fueling the advance this week was Intel (INTC). The company released a very upbeat midyear update. Citing strong demand for the company’s microprocessors the company upped their fourth quarter guidance sharply. The company now expects revenues of $9.3 billion to $9.5 billion. Analysts had expected fourth quarter revenues of $8.8 billion. A spokesman also said that gross margins should be in the upper half of their prior guidance and that they expected their inventories to decline by several hundred million dollars.
International Business Machines (IBM) the maker of the first personal computer back in 1981 is putting their PC division up for sale according to the New York Times. According to the report the company is in negotiations with China’s largest PC maker Lenovo Group Ltd. (LNVGY) and another unnamed company. The division is expected to sell for between $1 billion and $2 billion.
This week the National Association of Securities Dealers (NASD) fined 29 brokerage firms. The fines were similar to the ones leaved against Morgan Stanley (MWD) earlier this year. The companies involved were supposed to keep the records of their brokers updated through the filing of Form U4 and U5. The U4 form reports any regulatory actions against the broker, customer complaints, settlements, and criminal charges and convictions. Form U5 reports when a broker is no longer employed by the company. Merrill Lynch (MER) and American Express Financial Advisors (AXP) were two of the companies fined. In addition to the fine, Merrill Lynch and Wachovia Corp. (WB) were prohibited from registering new brokers for five days.
Economic news this week was mixed. The Non-farm payrolls and Consumer Confidence disappointed, when both missed prior estimates. Non-farm payrolls for November came in well below what economist had expected. Economist had expected payrolls to climb by 200,000 and only 112,000 new jobs were created. The slow growth in jobs could lead to moderation in the economic growth.
Consumer Confidence also came in below estimates. The Index reading fell to 90.5 versus the consensus of 96.0. Lower consumer confidence could curtail holiday spending.
The Personal Income and Consumption data was strong for October and the GDP numbers for the third quarter were revised upwards. The revised GDP came in at 3.9% up from the prior 3.7%. Economists now estimate that the fourth quarter GDP growth will come in at 4.0%, which bodes well for the economy and stocks.
Bond yields continue to rise in anticipation of the Federal Reserve raising interest rates at their next meeting and the continued weakness in the dollar. Yields were higher for the week and for the month of November. The 5 year Treasury note closed yielding 3.59% versus last months 3.32%. The 10 yr Treasury note ended the week at 4.25% up from 4.07% the month before. The 30 year Treasury bond closed at 4.92% compared to 4.82% a month ago. A continued rise in interest rates could pressure stocks in coming months.
Since one way of valuing stocks is to compare the earnings yield of stocks to the yield on bonds.
Next week Wall Street will continue to watch retail sales, energy prices and the dollar. Overall, given the current market conditions I believe that the market is fairly valued at these current levels. Given that, I believe that December has the potential to post positive gains for the month. A positive return for the month of December could keep the spark alive in this rally going into next year.
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