May 31, 2007
It is the last day of May, so for one last time, let’s thank all of the so-called market experts who told us to “sell in May and go away.” The S&P 500, which broke its seven-year old record yesterday, is up, not counting dividends, over 3 percent on the month. The Dow Jones Industrials is up over 4 percent. It’s just one more example of how the so-called conventional wisdom may be conventional, but is often not very smart.
If you’re an A.G. Edwards brokerage client, look for a new name on the top of your statements soon. Wachovia is paying a 16 percent premium in cash and stock to acquire A.G. Edwards. The combination should result in the nation’s second biggest broker with over 15,000 salesmen on staff, if they all stick around.
In about ten minutes we’ll get the government’s second guess at first quarter Gross Domestic Product, and they are expected to reduce that guess to eight-tenths of a percent from 1.3 percent.
The FTSE in London is up about a half-percent, but most other major markets overseas are up 1 to 2 percent after our rally yesterday, and absent a GDP surprise at 8:30, we’ll be off and running again at 9:30. Adjusted for fair value, the S&P futures are up more than 3 points, the Dow futures are up 29, and the NASDAQ futures are about 6 points above fair value.
May 30, 2007
You may recall February 27th. That morning, we woke up to news that the Chinese government was taking steps to cool their explosive stock market. The Chinese market fell over 9 percent that day, and the Dow Jones Industrial Average responded by dropping 400 points. Over the following few weeks, the Chinese government backed off, and the markets rebounded quickly.
This overnight, the Chinese tripled the tax on securities trades in China, again aiming to cool their market. Mission accomplished for a day, anyway. The Shanghai index was off 6 ½ percent overnight and is giving other markets an excuse, no matter how trivial, to sell off a bit.
Later today, we’ll get the minutes from the last Federal Reserve Open Market Committee meeting. We’ll also get a normally little noticed number that may loom a bit bigger than normal. The Mortgage Bankers Association will release its weekly refinance index. In spite of falling home equity and rising rates, cash out refinancing hasn’t really slowed that much. We’ll see if that trend continues.
May 29, 2007
Hopefully you had a nice rest this past Holiday weekend. However, if you’re involved in private equity, it probably just meant that you had one extra day with no phone calls to distract you from the deals you were cooking up.
This morning the futures are pointing higher as another bunch of buyouts appear to be in the works. Apartment owner Archstone and technology retailer CDW are said to be on the verge of going private. Avaya is also reportedly looking for bidders.
There’s also a new bid from the Royal Bank of Scotland for ABN-AMRO that would trump the existing bid from Barclay’s. The RBS bid, however, assumes that the LaSalle unit comes along, rather than the current plan of selling that unit to Bank of America.
At 10 o’clock the Conference Board is expected to announce an uptick in May Consumer Confidence to a level of 105 from April’s 104.
May 25, 2007
It will be a short day for the bond market and stock trading volume will tail off this afternoon as traders get an early start on a long Holiday weekend.
But, it just wouldn’t seem right if we left the week behind without another big takeover. Coca-Cola is buying Glaceau, the maker of Vitamin Water in a 4 billion dollar deal.
At 10 o’clock, we’re expecting the report on April Existing Home Sales to come in about flat at an annualized rate of 6.12 million homes.
And a little more not-so-good news as you fill up the tank for the long weekend – there’s another Valero oil refinery outage and the price of light sweet crude is edging close to 65 dollars per barrel once again.
May 23, 2007
Once upon a time, merger and acquisition news developed late in the week, matured over the weekend and was announced on Monday. Well, Monday is only 24 hours long, and is clearly not big enough to hold all the M&A that’s in the pipeline now. Today, Payless Shoes is buying Stride Rite, A Morgan Stanley entity is buying Crescent Real Estate Equities and BHP Billiton is reportedly ready to trump Alcoa’s bid for Alcan.
On the earnings front, Medtronic checked in last night with an revenue and earnings beat, and Medtronic stock is looking to open 3 or 4 percent higher this morning. Analog Devices is looking to be the loser of the morning, on a 14% decline in profit and a lowered projection for the current quarter.
You may soon be able to charge your mortgage to your credit card. American Express has reportedly cut a deal with two major mortgage banks to allow the ultimate in putting off until tomorrow what should be paid today.
Oil and gasoline inventory data is due at 10:30 this morning.
A little late selling dropped us below record territory on the S&P 500 yesterday. But, we may well open in record territory this morning, on all the merger and acquisition news.
At this point, adjusted for fair value, the S&P futures are up about 2½ points, the Dow futures are up 28, and the NASDAQ futures are a point and a half above fair value.
May 22, 2007
Economic data will be hard to come by until later in the week and although there are a handful of earnings reports scheduled for release today, there’s nothing that’s likely to spark a big move in either direction for stocks.
In the wake of yesterday’s announcement that the Chinese government is making a 3 billion dollar investment in Blackstone, Treasury Secretary Paulsen’s talks with Chinese government officials in Washington will attract added attention today. What’s the big deal, you say? Well, China’s 3 billion dollar investment is just a fraction of the 1.2 trillion they have to invest. You do the math.
By the way, the Dow Jones Industrials are up about 10 percent on the year. The Chinese stock market is up over 50%.
Light sweet crude is a tad lower this morning, but is still more than 66 bucks per barrel.
May 21, 2007
You can always count on Monday for some merger and acquisition news, and here we go again. It looks like wireless provider Alltel has agreed to sell out in a transaction involving Texas Pacific Group and Goldman Sachs. That’s about a 27 billion dollar deal, but it’s possible that other bidders may yet emerge.
A couple of smaller deals have been announced or rumored this morning. So far, we’ve had a five -billion dollar or higher deal announced on 27 of the year’s 96 trading days. Money is available, it’s relatively cheap, and more and more companies are going private for a variety of reasons, including an understandable desire to avoid the burdensome costs of Sarbanes-Oxley compliance. That money merry-go round will end someday. But in the meantime, it’s taking stock prices into record territory. The S&P 500 opens this morning less than 5 points off an all-time high.
And speaking of private equity, soon to become publicly-traded private equity, China will invest 3 billion dollars in Blackstone in connection with Blackstone’s upcoming IPO. Shades of things to come.
Lowe’s missed the Street’s earnings estimate and revenue estimate for the quarter gone by. However, they raised their guidance for next quarter.
May 18, 2007
The Dow Jones Industrial Average which has now been up 29 of the last 35 sessions, is 8 percent higher on the year. The small-cap Russell 2000 is up, as well, but at less than half that rate. So, out-performance of big stocks over small, which has been widely, and wrongly, predicted for each of the lat five years, may finally be starting to happen.
Earnings season is pretty much wrapped up, and the only economic report due is the U of M Consumer Confidence Index, which is expected to slip just a bit from last month.
Intel may float a little higher in the early going, on a broker upgrade. And, over at Citigroup, they have taken Verizon off the “sell” list. They had a target price on Verizon of 33. That’s where the stock was last August. But now that the stock is at $42, their calling it a “buy” with a target price of 48 bucks.
General Electric is reportedly close to selling its plastics division for 11 billion dollars, but the stock is not showing much reaction pre-market.
Asia was mostly lower overnight, as China effectively raised interest rates, but European markets are mostly higher, and that’s where we should start as well.
At this point, adjusted for fair value, the S&P futures are up more than 4 ½ points, the Dow futures are up 33, and the NASDAQ futures are more than 8 points above fair value.
May 16, 2007
One big earnings report is in this morning as Deere reported $2,72 of earnings versus the expected $2.41. Deere shares should rise on that news as should a couple of other familiar names. Word is that Eddie Lampert, otherwise known as the mastermind of the Sears/Kmart combination, has taken a 15 million share stake in Citigroup.
Berkshire Hathaway has just about doubled its stake in Johnson & Johnson, news of which should push J&J higher this morning. Bausch & Lomb stock will rise about 10 percent at the open, as they will be going private.
On the downside, Applied Materials beat estimates, but was very cautious about the rest of the year. That stock traded about 5% lower in Europe this morning.
At 8:30, we’ll get the latest reading on the homebuilding industry. April Housing Starts are expected to have fallen to an annualized rate of 1.48 million units from March’s 1.52 million. This report is a double-edged sword for equity prices. A strong number would help alleviate gloom and doom about housing. However, a weak number would feed hopes for an interest rate cut.
Overseas markets are little changed in overnight tradingThe futures have been higher all morning, and have continued to strengthen. At this point, it looks like the Dow will open at another record high. Adjusted for fair value, the S&P futures are up 4 points, the Dow futures are up 34, and the NASDAQ futures are almost 6 points above fair value.
May 11, 2007
Sometimes, it’s all in the presentation. You may remember that about a month ago, Alan Greenspan sent shivers through the stock market when he surmised that the U.S. economy had a 1 in three chance of slipping into recession. Well, this morning, speaking in Singapore, Mr. Greenspan evidently tried to Greenspin his view into something positive. He said that the odds of avoiding a recession are 2 to 1. Now we’ll wait and see how good stock traders are at basic arithmetic.
Earnings season is pretty much over. Now that we’ve digested another round of better-than-expected earnings reports, economic reports will take center stage today and next week.
At 8:30, we’ll get the April Retail Sales Report. But more importantly, the April PPI, which measures inflation at the wholesale level, is expected to have risen six-tenths of one percent, after a one percent rise last month. The core rate is expected to be two-tenths of one percent. Given the Fed’s reiteration of their anti-inflation tilt, the lower those numbers, the better.
May 10, 2007
The big retailers report their April sales today and so far, we have some big surprises, and I don’t mean that in a good way. Big Daddy Walmart reported a 3 ½ percent decrease in same store sales. That was a full 2 percent lower than expected. JC Penney reported that sales decreased 4 percent more than expected. Nordstrom and Federated also missed. Apparel retailers appear to be faring the worst. Aeropostale sales were down over 14%, which is about 13 percent lower than expected. The lone retailer reporting better than expected comps? Costco reported a 7 percent increase, versus the 6.3 expectation.
The Federal Reserve Open Market Committee held interest rates steady yesterday, to absolutely no one’s surprise. However, The Bank of England raised short term interest rates a quarter percent this morning, to 5 ½ percent. While that move was expected, it’s not helping stock prices. Neither is a rise in light sweet crude oil, which is up almost 40 cents per barrel.
Major overseas markets are generally lower, but not by a lot. It looks like we’ll start solidly lower at 9:30. At this point, the S&P futures are down more than 6 points, the Dow futures are down about 50, and the NASDAQ futures are about 8 ½ points below fair value.
May 9, 2007
Back on March 30th, we talked about the stock on Dendreon. The prior day, an FDA advisory committee had given the green light to Dendreon’s proposed prostate cancer drug. The stock, which had been a 5 dollar stock, opened on March 30th at over 18 bucks. About a week later, the stock hit 25. Well, this morning, we find out that the FDA has requested additional information about the drug. The stock of Dendreon, which closed at 17.74 yesterday, is expected to open trading today at about 6 dollars per share. Live by the sword, die by the sword.
Disney beat estimates last night, but lowered their forecast. Cisco also had better than expected results, but should open 5 percent or so lower on a weaker sales projection. Home builder Toll Brothers is, surprise, surprise, surprise, out with another warning.
On the plus side, Barr Labs made 73 cents versus the expected 60 cents and IBM was upgraded by a major investment house.
It’s federal Reserve Open Market Committee decision day. Recent history tells us that no matter how the market opens, it should be fairly flat by 2:15 when the Committee will announce no change in interest rates. However, it does look like we’ll start a little lower. At this point, the S&P futures are down about 3 points, the Dow futures are down about 14, and the NASDAQ futures, on the downbeat Cisco forecast, are about 10 points below fair value.
May 8, 2007
It’s always fun to look for interesting market trivia to talk about. Today’s important lesson is to remember that that’s all it is – trivia. Don’t read any predictive value into what the financial talking heads spew out on radio or TV.
Case in point - Just seven trading days ago, I mentioned that the Dow Jones Industrials had risen 18 out of 20 sessions. But when I mentioned that the last time that happened was 1929, some listeners called to say “Oh my gosh! 1929? The market’s bound to crash!” Well, how about this -- after yesterday, the Dow is now up 24 out of 27 sessions - the last time that happened was 1927. So, the market obviously has 2 more years to go up, right? Be careful, history does not always repeat, although it does indeed have a tendency to rhyme.
By the way, JP Morgan, as of this morning, has changed their position on the stock market to overweight for the first time in over 2 years. Thanks for that timely call.
AK Steel should rise over 20% at the open on a buyout bid from Arcelor Mittal.
Tyco beat estimates. Warner Music and Marsh & McLennan missed. Later today we’ll hear from Disney and Cisco.
We’ll see some selling at the open in anticipation of the Fed meeting tomorrow. At this point, the S&P futures are down about 4 ½ points, the Dow futures are down almost 50, and the NASDAQ futures are8 ½ points below fair value.
May 7, 2007
The markets Monday mantra of merger, merger, merger in being chanted again this Monday morning. Alcan stock is expected to open about 25% higher at 9:30 on a hostile cash-and-stock bid from Alcoa. That would be a few dollars per share higher than Alcoa’s 33 billion dollar offer.
Elsewhere, BAE Systems is offering 3 ½ billion for Armor Holdings.
Stock markets in China and Thailand were closed overnight for a holiday. The rest of Asia had a very good day of trading, based on hopes for a U.S. interest rate cut, after the weaker-than-expected jobs data last Friday. The Nikkei in Japan was over 1 ½ percent higher.
That potential interest rate cut, if it’s coming, is probably not coming soon. But we’ll find out more about that when the Federal Reserve Open Market Committee meets Wednesday. The European Central Bank and the Bank of England will set their short term rates on Thursday.
May 4, 2007
Normally the pre-market chatter on the First Friday of the month is all about the 8:30 am Unemployment Report, while Monday is usually the day of merger news. Well, it’s a double header this morning as a couple of big potential takeover are driving the futures.
Speculation the Microsoft may be interested in adding Yahoo! to its quiver in its developing battle with Google. That could be about a 50 billion dollar proposition. Yahoo is trading about 20% higher in the pre-market.
There is also word that Reuters has received an unsolicited bid from an unnamed company for an untold amount of money. In the U.K., Reuters stock is also about 20 percent higher this morning.
Not to be forgotten, the April Jobs Report is expected to reflect creation of about 100,000 new non-farm jobs, and a slight tick up in the Unemployment Rate to 4.5 percent.
The Japanese market was closed overnight, but the rest of the major markets are nicely higher at this hour.
May 3, 2007
If you own General Motors stock, and were trying to figure out how to spend yesterday’s $1.14 per share price appreciation – well – don’t worry about most of it. GM stock looks to give back half or more of that gain at the open this morning. Overall, on an operating basis, GM made 17 cents per share. Problem is, the Street was expecting 87 cents. For many, many quarters as the housing bubble developed, GMAC’s profits helped offset the car business losses. GM sold off 51% of GMAC, but now the remaining 49% has become a giant drag on profits. Problems in the sub-prime mortgage business at the Rescap unit of GMAC resulted in big losses versus big profits a year ago. So that worm has turned. Let’s just say that for the U.S. operations, selling more cars at a decent margin and a favorable contract will the UAW will be the profit generator needed in the future.
CBS also missed estimates this morning, reporting 28 cents per share, versus the expected 33 cents.
At 8:30 we’ll get the weekly jobless claims and 1st quarter productivity statistics, but the big number of the week will be tomorrow’s April Jobs report.
Asian markets were generally higher overnight, with Hong Kong up almost 1 ½ percent. European markets are mixed and it appears that we’ll be going nowhere fast at 9:30.
May 2, 2007
It will be a relatively quiet day for economic news. At 10 o’clock, the March Factory Orders report is expected to reflect a 2 percent increase, which would be a step in the right direction from February’s 1 percent gain.
Newspaper stocks will again be pretty interesting to watch today, after Rupert Murdoch’s offer to buy Dow Jones yesterday. The sale may not happen, because Dow Jones is effectively controlled by one family. However, the offer will certainly, rightly or wrongly, influence the price of a number of other newspaper publishers.
Time Warner checked in with earnings at were two cents ahead of expectations. Cigna also beat estimates. Mastercard is looking to open 6% higher after an excellent earning report this morning.
According to outplacement firm Challenger, Grey and Christmas, layoff announcements accelerated 44 percent from March to April and increased 18% from a year ago. If you think that those are all manufacturing jobs, think again. A big chunk of that is thanks to the 17,000 jobs that are going bye-bye at Citigroup.
May 1, 2007
As we’ve all heard way too often, “Sell in May and go away.” Yes, the stock market does, over the long haul, do better between November and May than over the summer months. However, be careful. If you sold your stocks last May 1st, you looked really smart for about three weeks and then pretty stupid for the next five months.
First off, the big three will march out their April sales figures today, and they’re not expected to be particularly good. All are expected to be lower than last year as the switch from trucks to cars continues and incentives bite into dollar volume. On the whole, domestic sales are expected to be 10 lower. One analyst estimates that Ford sales could be off as much as 22 percent.
But if you think that’s bad, how about this: Liz Claiborne made 22 cents last quarter versus the anticipated 60 cents and dramatically lowered their full year outlook. Look for Liz Claiborne stock to open between 20 to 25 percent lower at 9:30.
Procter & Gamble met expectations and raised guidance, but not quite as high as Wall Street estimates. ADP beat estimates, but Circuit City missed and warned that their flat panel TV sales have,
well, flattened out.
At 10 o’clock, we’ll get an indication of how the manufacturing sector is doing. The April ISM Index is expected to come in at 51, which is just about unchanged from last month’s 50.9. Anything over 50 indicates expansion.
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