February 28, 2007
No two ways about it – yesterday was an ugly day on Wall Street. A tremendous amount of down volume overwhelmed even the computer that calculates the Dow Jones Industrial Average from 2 to 3 o’clock. When Dow Jones finally got the problem fixed, the reported Industrial Average dropped over 150 points in sixty seconds and over 200 points over the course of a few minutes, dropping off almost 550 points at one juncture.
But let’s put this sell-off in perspective. First of all, from the lows of last July, we had been living in never-never land. The Dow had been without a one-day 2 percent correction in about 150 sessions. The S&P 500? You have to go back about 1000 sessions. This is like living in Michigan and pretending it never snows. But when it snows, you shovel out, and go about your business,
Yesterday, the major overages lost between 3.3 and 3.9 percent. That’s not a blizzard. Let’s call it a 4 to 6 incher. It’s inconvenient, but you have to expect it to happen a couple of times every year.
What triggered the selloff? A 9 percent decline in Chinese stocks? That’s a market that has more than doubled in the last year. A 9 percent decline is not to be unexpected. That is an extrenmely volatile market. And, by the way, Chinese stocks gained back 4 percent overnight.
Over the past ten years, according to Birinyi and Associates, days with the kind of negative breath we saw yesterday resulted in a decline of 3.37% on average. Seventy-three percent of the time, the next trading day finished higher, with an average gain of 1.19 percent.
Lots of stuff to sway the market today. Bernanke testifies to Congress. At 8:30 4th quarter GDP is expected to be revised downward from 3.5% to 2.2%, and January New Home Sales figures at 10 o’clock are expected to drop to an annualized 1.08 million units.
This is one of those mornings when considering fair value is critical in reading the futures, because on their >
February 27, 2007
It’s been a long, long time since we’ve had a good old-fashioned “correction” in stock prices in the U.S., which is generally defined as a 10% pullback. While it may or may not come to a stock market near you soon, there was a nearly 9 percent pullback in Chinese stocks overnight, and that will get us off to a fairly ugly start this morning.
The problem in China? Oh, the same old thing. The Chinese Congress starts a new session next week, and the rumor is that they might legislate a 20% capital gains tax, or find some other way kill economic growth. To lose money is human. To lose a lot of money may require government intervention.
Broadcaster CBS didn’t lose money last quarter, making 60 cents per share versus the expected 47 cents. They also announced a dividend hike and a share buyback.
One potentially big announcement came minutes ago from Freddie Mac. They have announced a significant, apparently sensible and certainly long overdue tightening in the types low-documentation and sub-prime mortgages that they will buy in the future. This could well put a big crimp in the marketing of overly-aggressive mortgage loans.
Later today we’ll get the Durable Goods Report, a February Consumer Confidence number and the January Existing Home Sales Report, and they better be good ones, because we’ll start the morning is a significant hole.
February 26, 2007
It will be a light day for earnings and economic news, although locally we will have DTE Energy check in with their 4th quarter report.
However, stocks will open higher this morning, thanks to another wave of corporate buyout news, either real or prospective. The real deal of the day is the largest domestic leveraged buyout in history as TXU Corp is going private thanks to a consortium of hedge funds.
The prospective LBO involves Dow Chemical. A published report in London has Dow potentially going private at 60 dollars per share. Dow closed at $43.45 on Friday. Look for Dow to open about 10% higher this morning.
Top that all off with a story in the London Times speculating that DaimlerChrysler may take a minority position in General Motors as payment for offloading the Chrysler Group. If you’re a Detroiter, read one message here: lots of potential local job cuts.
February 16, 2007
We haven’t had much in the way of economic data this week, but we’ll be making up for that today. In just about twelve minutes the January Housing starts are expected to decline to an annualized rate of 1.6 million units. But the bigger news will be the release of the January Producer Price Index. In light of yesterday’s inflation debate between Ben Bernanke and Barney Frank, we’ll see if wholesale prices rose or not. The overall rate is expected to have fallen a half percent, with the core rate rising just 2 tenths of one percent.
If that’s not enough - and it never is – the University of Michigan’s preliminary number on February Consumer Confidence will be announced at 10 o’clock. Expect a slight decline to a level of 96.5.
Microsoft may see some pressure today after yesterday’s warning from Steve Ballmer that Vista sales will not be as strong as everyone expects.
Coke and Pepsi both received an upgrade this morning from Goldman Sachs.
February 15, 2007
Ben Bernanke said all the right things to the Senate Banking Committee yesterday, even if he wasn’t always asked the best of questions. Stock prices applauded his stay-the-course message and his patient tone, and we can expect an encore performance, at least from Mr. Bernanke, in front of the House Financial Services Committee this morning.
The Dow Jones Industrials, Utilities and Transport Index all closed at record highs yesterday. DaimlerChrysler stock picked up over 8 percent on the day after the big restructuring announcement yesterday and the stock looks to open even higher this morning.
We’ll see what’s going on our East at noon when we’ll get the Philly Fed Survey. Expect a reading of 4.1 versus last month’s 8.3.
A couple of stocks with less-than-wonderful earnings reports this morning. Baker Hughes and Biogen each missed estimates and will see shares under some selling pressure.
February 14, 2007
The big restructuring announcement from Chrysler is due today. One out of every 8 Chrysler workers in the U.S. are reportedly going to be headed for, as they say, “new career opportunities.” However, if you are a DaimlerChrysler shareholder, here’s a little good news; the stock is looking to open about 5 percent higher this morning. Daimler has leaked word that “no options are being excluded” if Chrysler operations don’t turn around. Meaning, of course, that the Chrysler unit may eventually be spun off or sold.
Ben Bernanke’s comments to the Senate Banking Committee may swing stock prices around quite a bit later today. But in the meantime, there are a little raft of earnings reports out this morning and they are pretty good. Better than expected results are reported by Office Depot, P.F. Chang’s and Coca-Cola. Applied Materials announced better than expected results and raised guidance for the rest of the year. AMAT was up over 7% after hours last night.
February 13, 2007
The Dow Jones Industrial Index futures are bubbling higher this morning on a buyout rumor. The prospective target is Alcoa. According to the London Times, two firms, BHP Billiton and Rio Tinto are each considering making independent bids for Alcoa. The value of any such deal could top 40 billion dollars. Alcoa shares are trading higher in Europe this morning, and could open over 10% higher in the first half hour.
Another stock that will open sharply higher this morning will be General Motors. GM received another broker upgrade this morning, and could open close to 37 dollars per share. The downside is that Ford shares are being downgraded by the same broker.
Stocks in Hong Kong pulled back sharply, but Japanese stocks are at a six-year high. European markets are higher, and that’s where we’re headed as well.
February 12, 2007
Stock prices took a full step backward on Friday after a couple of Federal Reserve governors did some saber-rattling about inflation. Later this week, we’ll probably get more Fed-induced gyrations as Chairman Bernanke will spend Wednesday and Thursday on Capitol Hill chatting it up with the Senate Banking Committee and the House Financial Services Committee.
As for today, there’s not a lot on the schedule. We’ll get earnings from Loews Corp. and Yum Brands. But we’ll have to wait till Wednesday for any significant economic data.
Shares of Bristol-Myers will be under some pressure this morning. A story in the London Times overnight says that the takeover talks between Bristol and Sanofi-Aventis are over. Sanofi-Aventis stocks look to open about 50 cents per share higher.
Four Seasons is going private at 82 dollars per share. That’s almost a couple dollars lower than the Friday price.
February 9, 2007
Here’s something you don’t hear everyday … all Big 3 automakers are getting brokerage house upgrades this morning. Deutsche Bank is upgrading Ford and General Motors from a hold to a buy on the theory that Ford and GM will be able to get a break on health care costs through upcoming negotiations with the UAW.
Daimler Chrysler also upgraded to buy at Citigroup in anticipation of their latest restructuring plan which is expected to be disclosed next week. One restructuring plan is itself being restructured. Alcatel-Lucent says that it will now eliminate 12,500 jobs due to weak
results. That’s almost a third more than the originally planned job loss.
The first publicly-traded hedge fund in the U.S. starts trading today as Fortress came out at 18 ½ dollars per share. The IPO was way-oversubscribed, so there should be a lot of initial buying interest in Fortress.
February 8, 2007
There‘s not much of major consequence on the agenda today, although a bunch of retailers are out with January sales reports. Costco is blaming fewer sales days in January for their problems. Same store sales were up only 2 percent, versus a 3 percent estimate. Walmart had a slightly better January, with a 2.2 percent increase, versus an expected 1.8 percent. For February, Walmart again foresees a one-to-two percent sales increase.
McDonalds reported worldwide sales in January up 4.9% versus the expected 3.9%.
The big upside surprise of the day was announced last night as Disney blew away estimates. Strong DVD sales and higher Tv ratings took the credit, as Disney shares should open about a dollar higher this morning.
The Bank of England and he European Central Bank each held interest rates steady today.
February 7, 2007
Stock prices wavered back and forth around the flat line yesterday and finally settled just about unchanged for the second day in a row.
But today, as they say, is another day. And it looks like it will be a good day, at least in the early going for the NASDAQ.
Last night, after the close of trading, Cisco Systems reported a 40% increase in profit on a 27% increase in sales. They beat earnings estimates by two cents per share and predicted a current quarter revenue pop of 19 to 20 percent. That news sent Cisco stock about 5% higher in after-hours trading.
News Corp. beat estimates by a penny this morning. After the close of trading today we’ll hear from Disney.
The big economic number of the day will roll in about 8 minutes with the preliminary reading on 4th quarter productivity. Expect about a 2 percent annualized increase in productivity and a 2 ½ percent increase in labor costs. For stock prices, the higher the productivity the better, the lower than labor costs the better.
February 6, 2007
This cold snap is really pumping up oil prices. Light sweet crude, which traded under 50 dollars per barrel intra-day just a couple of weeks ago, is just 17 cents from 60 dollars per barrel this morning, so look for gasoline prices to follow suit not too long from now.
Fed Chairman Ben Bernanke and a couple of Fed Presidents are running around trying to stay warm by giving speeches today. And, Treasury Secretary Paulson will talk to Congress about the President’s budget proposal. And all that hot air may catch the attention of traders as the day unwinds.
However, there are a few stocks that will get attention right off the bat. Tyco beat estimates by a penny, Emerson beat estimates by 2 cents and Avon beat by three cents this morning. National Semiconductor lowered its futures earnings estimates last night and at least two brokers are downgrading the stock this morning.
Cisco Systems will report in after the close of trading this afternoon.
February 5, 2007
As is not uncommon for a Monday, we’re running amok in merger news this morning.
In the big deal of the morning, State Street is buying Investors Financial Services for 4 ½ billion dollars. Triad Hospitals in going private and a Simon Properties unit is looking to buy Mills Corp.
Light sweet crude is up a bit again at $59.24 per barrel so far today. Oil is still lower for the year, but we’re now about 18% higher than the intra-day bottom we saw just a couple of weeks ago.
Walmart says that January same store sales rose 2.2 percent. That’s better than earlier estimates, but on a year-over-year basis, it’s the slowest sales increase in 25 years.
Japanese stocks were of 1 percent overnight, most other overseas markets are a little lower and looks like our stock prices may take a little breather at the open this morning.
February 2, 2007
Not too many years ago, the monthly Employment Report contained the most closely followed data on Wall Street. Traders worried that not enough jobs were being created, and that the economy would suffer. Well, those fears have been pretty much put to bed over the past 5 or 6 years. Now, the shoe is sliding over to the other foot.
The labor market is tightening, and the fear now is that rising wages may stoke inflation, which, of course, is not good for stock prices. At 8:30 the Labor Department is expected to announce gains in the average hourly wage of 3 tenths of a percent, creation of 145,000 new jobs and a continuation of the 4 ½ percent unemployment rate.
Amazon shares will be under pressure this morning on worries about operating margins. Electronic Arts stock is almost 5 % higher in Europe after their earnings report last night.
February 1, 2007
Ben Bernanke and his bunch said all the right things yesterday, stock prices responded immediately, and it looks like the rally will spill over into the early trade today.
Dell Computer shares will be among those rising this morning. Dell’s CEO is stepping down and founder and Chairman Michael Dell is stepping back up into that CEO role. We’ll see if Mr. Dell can figure out how to retrieve the mojo that the corporate Dell has lost over the past couple of years.
Comcast missed the earnings estimate of 24 cents by 6 cents this morning. But don’t feel too bad for dear Comcast. Income tripled from last year and Comcast will split their stock 3 for 2. About 15 minutes ago, ExxonMobil announced earnings of $1.69 per share versus the $1.51 estimate.
For the ninth time in ten tries, Google beat estimates last night, and beat them handily. However, traders are worried about future margin compression and pulled the shares lower after-hours by about 1 ½ percent.
The January ISM Index, which is a measure of manufacturing sector strength will be announced at 10 o’clock. Expect a very slight improvement from January to a level of 51.8.
Overseas markets are higher across the board this morning, and that’s where we’re headed as well. Adjusted for fair value, the S&P futures are up a little more than 2 points, the Dow futures are up about 32, and the NASDAQ futures are 4 ½ points above fair value.
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