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WJR May 2008 Reports

 
 
Gross Domestic Product is the broadest measure of the health of the domestic economy. The classic definition of a “recession” is two consecutive quarters of negative Gross Domestic Product.  Now that just about everyone in the country seems to have been convinced that the economy is in a significant recession, it may be time to check in with the facts.  We haven’t seen one quarter of negative GDP in recent memory, and in  just about 5 minutes, we’ll get the second of three estimates of just what Gross Domestic Product was in the first quarter of 2008.  The latest estimate of GDP is a positive nine-tenths of a percent.
 
Earnings reports of the morning show a tale of two retailers heading in opposite directions.  Costco reported 67 cents in earnings, beating estimates by 2 cents per share.  The flip side goes to Sears Holdings, which lost 53 cents per share versus an expected 15 cent profit.
 
Overseas markets are mostly higher.  Japan, in fact, was up over 3 percent overnight.  We’ll really take our early direction from that GDP number at 8:30 and the oil inventory data also on the way this morning.  The futures have been relatively flat all morning.
 
Adjusted for fair value, S&P 500 futures are flat, the Dow futures are down 2, and the NASDAQ futures are now about 4 points above fair value.
 
 
Since there’s not a lot going on this morning, how about a little trivia – Last Friday, the last trading day before Memorial Day, the S&P 500 index stood at 1,376.  The Friday before Memorial Day of 2000 – eight years ago – the S&P 500 stood at 1,378.  So in 8 years, we’re down 2 points.
 
It’s a short week that’s pretty much devoid of big economic data until tomorrow.  So, expect stock prices to continue to inversely follow the price of oil.  And just as a big drop in oil prices helped stocks yesterday, we’re getting a little boost this morning as light sweet crude is off another 2 bucks per barrel.
 
The sole economic number on the agenda is the April Durable Goods Report.  We’re expecting a decline of about 1½ percent, which would be about 2 percent lower than the March number.
 
Earnings reports from a bunch of specialty retailers are on the way, as well as speeches by a couple of Federal Reserve Regional Presidents.
 
Asia was lower, Europe is higher. Adjusted for fair value, S&P 500 futures are up about 3 points, the Dow futures are up about 26 and the NASDAQ futures are now about 4 points above fair value.
 
 
It’s the start of a short week for the domestic financial markets.  But unfortunately, it looks like we’ll be picking up right about where we left off last week.
 
Shares of General Motors and American Axle should move in different directions this morning after a major broker upgraded American Axle and downgraded GM.
 
Also locally, Borders Group may be an interesting stock to watch.  They’ll report earnings and are possibly the target of an acquisition bid by Barnes & Noble.
 
The May Consumer Confidence reading comes from the Conference Board at 10 o’clock.  It’s expected to decline to 60 from April’s 62.3.  We’ll also get the April New Home Sales Report at 10’oclock.
 
In front of all that, stock prices will continue to be led around by the nose by the price of oil.  A reported attack on a Nigerian pipeline has the price of light sweet crude up almost a dollar this morning, and that’s not ideal for stock prices.
 
Asian markets were higher overnight, but Europe is lower.  We’re pointing a little lower, but we’re off our lows of the morning.  Adjusted for fair value, S&P 500 futures are down about 3½ points, the Dow futures are down about 20 and the NASDAQ futures are now about 2 points below fair value.
 
 
We’re in the late innings of earnings season, but we’ll be hearing from a bunch of well-known names today. 
 
Hewlett-Packard, Kohl’s, Penney and Nordstrom all report today.  Kicking things off overnight was Sony.  Much better than expected earnings from Sony gave the Tokyo market a nearly one-percent shot in the arm.  Sony shares were up over 8 percent.
 
There’s one little mid-week deal to talk about, although it’s a big deal if you are a shareholder in CNet.  CBS is buying internet company CNet for 1.8 billion dollars.  That’s $11.50 a share and is a nearly 50% premium from CNet’s roughly 8 dollar closing price yesterday.
 
At 10 o’clock, the Philadelphia Fed Survey is expected to show improvement, but only from a reading of minus 26 to minus 19.
 
It looks like Carl Icahn is moving forward to challenge the Board at Yahoo. Yahoo stock moved up another 2 percent yesterday.
 
Outside of Japan, there’s not a lot of movement in overseas markets.  We should head modestly higher at 9:30. Right now, adjusted for fair value, S&P 500 futures are up 3points, the Dow futures are up about 21 and the NASDAQ futures are now about 2½ points above fair value.
 
 
After blowing a potential deal with Microsoft, Yahoo Board members should have anticipated some trouble from disgruntled shareholders.  But they probably didn’t count on Carl Icahn being one of those shareholders.  Icahn is reportedly accumulating up to 50 million shares of Yahoo and will no doubt make his presence known in the next Yahoo Board of Directors election if not sooner.
 
The big news of this day is twofold.  Oil inventory data comes out this morning, but more importantly, at 8:30 the April Consumer Price Index is expected to have risen three-tenths of one percent, matching March’s increase.
 
On the earnings front, Deere either matched estimates or missed by a penny, depending on which estimate you use.  No matter, Deere stock is about 5% lower in the pre-market.  Freddie Mac, on the other hand, lost money, but lost a lot less than people expected.  A loss of 66 cents beat the estimate of a loss of a dollar fifty-seven.  Freddie Mac shares should trade higher this morning, in spite of plans to raised 5 ½ billion of new capital.
 
Absent a pleasant surprise in CPI at 8:30, stock should start a bit lower. Right now, adjusted for fair value, S&P 500 futures are down about a point and a half, the Dow futures are down 34 and the NASDAQ futures are now about 3 points below fair value.
 
 
It used to belong to Ross Perot.  It used to belong to General Motors.  This morning, Electronic Data Systems belongs to Hewlett-Packard.  Hewlett will shell out 25 dollars per share, or about $14 billion for EDS.  In conjunction with the acquisition, HP revised their quarterly and full year earnings guidance.
 
A couple of companies are out with good earnings news this morning.  Liz Claiborne simply blew away a 10 cent estimate with 28 cents per share of profit.  More importantly to the overall market, Walmart beat their 75 cent estimate by a penny per share.  However, Walmart, perhaps being characteristically conservative, estimates that the current quarter will bring a profit of only 78 to 81 cents versus the Street estimate of 81 cents.
 
We haven’t heard from Ben Bernanke in a couple of weeks, but he will begin a speech to an Atlanta Fed conference just a couple of minutes from now.  About ten minutes after Bernanke starts talking, the April Retail Sales report is expected to reflect a decline of 2 tenths of one percent.
 
Japan and Hong Kong were higher overnight.  China and most of Europe are a little lower.   Right now, adjusted for fair value, S&P 500 futures are down about 2½ points, the Dow futures are down 33 and the NASDAQ futures are now about 6 points below fair value.
 
 
The first quarter earnings season is getting a little long in the tooth, so this may be a week we return to the economic fundamentals.  We’ll get April Retail Sales tomorrow and then inflation and Consumer Sentiment data later in the week.
 
Today should be relatively quiet, although earnings reports from sprint Nextel and MBIA may stir things up a bit.  Both are out with worse than expected news. Nextel reported a 505 million dollar loss.  Their shares are off about 4 percent pre-market. MBIA shares are off over 10% in the pre-market on the news of a quarterly loss of 2.4 billion.
 
Blackberry users are all stirred up today, and that may make Research in Motion an interesting stock to watch.  The new Blackberry 3G Smartphone will be unveiled today.  It won’t be available until summer.  However, it will reportedly challenge the iphone with GPS capability, Wi-fi capability and a 2 megapixel camera with a 5 times zoom.  Oh yeah, it also handles email.
 
Stocks did not trade in Hong Kong and South Korea overnight, but the majority of major overseas markets are a bit higher.
 
Our futures are at mildly higher levels but are well off their highs of an hour or so ago. Right now, adjusted for fair value, S&P 500 futures are up about 3 points, the Dow futures are up 28 but the NASDAQ futures are now about ½ point below fair value.
 
 
We’re facing a one-two punch in the market this morning.  And looking ahead, a third punch may be waiting on Monday when MBIA reports quarterly earnings, or lack thereof.  But, first problems first. 
 
Last night after the close of trading, the big insurer AIG reported a loss of 7.8 billion dollars and announced plans to raise 12 ½ billion for those willing to put up the cash.  Standard & Poors and Fitch immediately cut their credit ratings on AIG.  AIG’s analyst conference call starts at 8:30 and it should be interesting.  Citigroup will also chat with analysts today.
 
But let’s not forget about punch two – futures on a barrel of light sweet crude oil is over $125 per barrel this morning as gasoline in some markets tops 4 bucks per gallon.  Mix those two bits of news and what you get Hong Kong down 1 ½ percent, Japan down 2 percent and most European markets off by similar amounts.
 
Our futures have been weak all morning long, but at least they haven’t fallen much in the last hour or so.. Right now, adjusted for fair value, S&P 500 futures are down almost 15 points, the Dow futures are down 128 and the NASDAQ futures are about 18½ points below fair value.
 
 
If you think it’s just the domestic automakers that are feeling an economic pinch, think again.  Toyota said this morning that although full year profits for fiscal ’08 rose 4 ½ percent, the fourth quarter ended in March saw a 28% decrease in profit.  Toyota says that the next fiscal year won’t offer much upside.  Full year profits for the March ’09 fiscal year are expected to decline 27 percent.
 
Retailers are reporting their April sales figures this morning.  Gap and Limited same store sales are lower. But, although the specialty and many high-end retailers are reporting declines, it looks like everybody decided that lunch at McDonald’s and a trip to Costco or Walmart was the thing to do.. Walmart and Costco reported much better than expected same store sales, even excluding gasoline.
 
April retail results were helped a bit by the Early Easter, allowing one more Sunday of sales in April.  But clearly, it’s a discounters’ market.
 
The Bank of England and the European Central Bank decided to hold interest rates steady this morning.
 
Most overseas markets were evidently paying attention when we took a 200 point dive yesterday.  Most are lower, but we’ll likely head higher at 9:30.
 
Adjusted for fair value, S&P 500 futures are up 6 points, the Dow futures are up 54, and the NASDAQ futures are almost 9 points above fair value.
 
 
Stock prices rallied out of a sizable hole yesterday on the hope that the late day earnings reports would be good ones – and they were.  Some comforting words during a Fannie Mae conference call didn’t hurt either.
 
But back to the earnings news, after the market closed, Cisco Systems reported 38 cents per share of profit, which beat estimates by two cents.  Better still was Disney.  Mickey Mouse made 58 cents per share versus the expected 41 cents as just about all segments of the Disney Empire were doing well.  In retrospect, it sure looks like the shareholders who were pushing for change at the top of Disney a few years ago were onto something, as Bob Iger has really turned the ship around.
 
Oil services firms Devon Energy and Transocean are both out with better-than-expected results as well, both beating their numbers by more than 10 percent.
 
At 8:30 we’ll get the monthly productivity and labor cost data.
 
Japan and Europe are higher, but most Asian markets were lower.  We’ll be digging out of a bit of a hole at 9:30 as well. Adjusted for fair value, S&P 500 futures are down about 2 points, the Dow futures are down 16, and the NASDAQ futures are about 6 points below fair value.
 
 
Sometimes a company will warn that results will be horrible, just to surprise the market with a report that’s just lousy, instead of horrible.  No so this morning with investment firm UBS.  Their report is just about as horrible as advertised.  5,500 jobs will go away, as UBS reported a loss of 11 billion dollars on a writedown of 19 billion.  They are in talks to sell their  22 billion dollar subprime book, now written down to 15 billion, to Blackrock for 15 billion, as UBS is walking away from the root of the problem.  Their reward will be a stock price that should open about 4 percent lower.
 
Not to be outdone, the big mortgage company Fannie Mae looks to open more than 10 percent lower.  Fannie Mae lost $2.57 during the quarter versus an expected loss of only 81 cents.   They will cut the dividend to a dollar from a dollar-fourty.  Fannie will also raise 6 billion in new capital.
 
Merrill Lynch is indicated lower on word of a government inquiry into some failed security auctions.  Let just say it will not be a good day for the financials.
 
Bright side?  Teva Pharmacueticals met estimates on better than expected revenue.
 
Japan was closed, Hong Kong was higher, Chine lower, Europe is lower and we’ll start in a hole as well.  Adjusted for fair value, S&P 500 futures are down about 6½ points, the Dow futures are down 52, and the NASDAQ futures are about 7 points below fair value.
 
 
Happy Cinco de Mayo!  But let’s put a hold on the margaritas until at least 4 o’clock – we have some work to do on the market today.
 
The initial party pooper of the morning will be the stock of Yahoo.  Back at the end of January, Yahoo stock closed just above 19 dollars per share.  Then Microsoft said that the stock was worth 31 bucks.  Yahoo said “mas.”  Microsoft said 33 bucks.  Yahoo said “mas.”  Over the weekend, Microsoft said “No mas.”  With Microsoft walking away, look for the lawyers to walk in with a bucket full of lawsuits for the Yahoo Board from disgruntled shareholders.  Yahoo stock will likely open at least 15 to 20% lower this morning.  Microsoft is indicated about 5% higher.
 
The first quarter earnings season is getting a little long in the tooth.  Looking back at what we’ve seen so far, outside of the financials stocks, the consumer stocks and the media, there’s not much to suggest recession is underway.  First quarter earnings so far, excluding financials and consumer stocks are up almost 12 percent year-over-year.
 
According to a report in the Wall Street journal, Deutsche Telekom is reportedly thinking about making a bid to acquire Sprint Nextel. 
 
The overseas markets that are open today are slightly lower. Adjusted for fair value, S&P 500 futures are down almost 6 points, the Dow futures are down 39, and the NASDAQ futures are about 3 points below fair value.
 
 
It’s the first Friday of the month.  That means a couple of things.  First off, there’s probably a fish fry at a Knights of Columbus Hall someplace but equally importantly, at 8:30, we’ll find out what the Jobs Report has to tell us about the state of the domestic workforce.
 
The consensus, which is seldom correct, but never in doubt, says that 85,000 non-farm jobs were lost in March and the domestic Unemployment Rate rose from 5.1 percent to 5.2 percent. 
 
Out with earnings this morning, Viacom generated much more revenue than expected, which resulted in earnings of 44 cents per share, versus the estimate of 41 cents.  Duke Energy also reported a good quarter.  Operating earnings were 35 cents per share.  That beat estimates by a nickel.
 
A lot of people are still in the dumps about the stock market. But don’t look now – this morning we’re sitting above 13,000 of the Dow Jones Industrial Average for the first time since January.  The Dow is now down 1.9 percent for the year.  The Dow rose almost 1½ percent yesterday alone. YesterdayThe Nikkei in Japan is also over 14,000 for the first time in a couple of months.
 
Speaking of which, Asian markets were up about 2 percent, although Chinese markets were closed.  Europe is, for the most part, about one percent higher. Adjusted for fair value, S&P 500 futures are up almost 4 points, the Dow futures are up 18, but the NASDAQ futures are almost 2 points below fair value.

May 1, 2008

Every May Day we bring it up, and every May Day we ‘diss it.  The old saying is “sell in May and go away.”  And like most old sayings, it contains some historical validity, but is not necessarily a rule to be blindly followed.  The six months of November through April are traditionally the strongest for stock prices.  Well that certainly hasn’t held true this year.  And while blindly selling your stocks on May Day and taking the summer off may look good in retrospect, be careful.  This year, like all years, is different, and so likely will be market behavior.
 
Exxon Mobil just reported a year over revenue increase of over 40%.  Earnings, however, are not up to expectations, although Exxon made almost 11 billion dollars last quarter.  Earnings of $2.03 per share constitute an 11 cent miss.
 
Cigna missed their number by a penny.  Comcast matched estimates, Tyco raised guidance and Kodak’s losses weren’t as bad as expected.
 
The average 30 year fixed rate mortgage got more expensive again last week, despite declining short term rates.  6.16 percent is up 5 basis points.  The average 30 year jumbo, if you can get one, was 7.35 percent.
 
Not much happening in Europe this morning, as markets are closed for May Day.  England is higher, and we’re looking a little higher as well. Adjusted for fair value, S&P 500 futures are up just a point, the Dow futures are up 18 points, and the NASDAQ futures are about 6 points above fair value.
WJR June 2008 Reports
WJR April 2008 Reports

Daily Reports @ WJR

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