Equities Update: Mixed Feelings Ahead of Earnings Season

4:17 PM, Oct 7, 2009 --

• NYSE up 12.97 (0.2%) to 6,912.65.
• DJIA down 5.7 (0.1%) to 9,726.
• S&P 500 up 2.9 (0.3%) to 1,058.
• Nasdaq up 6.8 (0.3%) to 2,110.

GLOBAL SENTIMENT

• Hang Seng up 2.07%
• Nikkei up 1.11%
• FTSE down 0.57%

UPSIDE MOVERS

(+) RPRX says Androxal restores normal sperm counts while increasing testosterone in hypogonadal men.

(+) COST reports Q4 EPS of $0.85.

(+) KO upgraded by Deutsche Bank.

(+) VICL says TransVax CMV vaccine elicits long-term immune response in trial.

(+) FDO reports Q4 EPS of $0.43.

(+) AVNR get notice of allowance on Zenvia patent.

(+) HELE Q2 results better than expected.

(+) STEC collaboration with IBM sets storage performance council record.

DOWNSIDE MOVERS

(-) LINE to offer 6 mln shares.

(-) AAI to offer $75 mln in notes, 9 mln shares.

(-) GRS gets $100 mln bought deal financing.

(-) SNN downgraded at UBS.

MARKET DIRECTION

Stocks end narrowly mixed as investors take a breather after a two-day rally that helped the Dow post the best back-to-back gains in three months, and wait for a flood of new earnings reports to provide some measure of the economy's strength.

The Dow has gained 244 points over the past two days, and all 30 stocks on the index posted gains for the fifth time this year. The resurgence comes after back-to-back weekly declines, also the first of its kind since July. Investors were buoyed by signs of that the global economy is recovering, signaled by Australia's central bank, which raised interest rates.

Crude oil closed down 1.8% at $69.57 a barrel. Oil was up 0.80% ahead of the report.

The federal Energy Information Administration reported a drop of 1 million barrels in crude inventories, on a 4.5% decline in imports. Analysts had expected a modest increase in crude. Gasoline inventories rose by 2.9 million barrels in the week ended Oct. 2, the EIA reported. Analysts polled by Platts had expected an increase of 1.3 million. Distillate inventories, which include diesel and heating oil, rose by 700,000 barrels, the EIA said.

The Washington-based American Petroleum Institute said late yesterday in its weekly report that crude inventories fell by 254,000 barrels and distillates declined by 2.9 million barrels for the week ended Oct. 2. Motor gasoline stockpiles, meanwhile, rose by 544,000 barrels.

Costco Wholesale Corp (COST) beat analyst expectations on a lower Q4 profit, suggesting the retail sector is seeing some improvement.

In the tech space, Amazon.com Inc (AMZN) is set to introduce Kindle, its wireless electronic reader, in more than 100 countries, including China and most of Europe. AT&T Inc (T) will open its third-generation wireless network to third-party Internet voice applications on Apple Inc's (AAPL) iPhone, clearing the way for services such as Skype.

French media giant Vivendi SA (VIV) would like to sell its 20% stake in NBC Universal, but at the right price, Bloomberg reported on Tuesday. General Electric (GE) owns 80% of NBC Universal and, under terms of an agreement, would have the right of first refusal to pick up the other 20% should Vivendi exercise its option to sell the stake this year.

Financial stocks have been among the leaders in the two-day rally, after Goldman Sachs upgraded the sector on Monday. Bank of America Corp's (BAC) board has narrowed the list of company candidates to replace retiring Chief Executive Kenneth Lewis to the bank's chief risk officer and its consumer and small-business banking chief, the Wall Street Journal reported. Citigroup Inc (C) is weighing the sale of its Phibro commodities unit, a source familiar with the matter said.

Comments

[David White:]

AA beat after hours too. Generally the day looked about as good as it could. However, Q3 earnings are still being predicted to be a 25% decline from last year. They were a 27% decline overal in Q2. Even if Q3 earnings mostly beat, we will still see lower overall earnings than a year ago. This means stocks are still trading at multiples which are too high. A retracement is in order. We are unlikely to see a huge surprise because commodity stocks (energy and materials) are expected to come in about 60% below last year. For example, we all know about the approx. 40% fall in the price of iron ore. It is not hard to believe that this has had a more than 40% negative impact on earnings for the miners involved. MOS and MON are two notable misses with already substantially lowered expectations in this category already. GDP will likely be positive this quarter though. We likely have a better ratio of exports to imports this Q3 over last year's Q3. "Buy American" has taken hold to some extent.

My own inclination is that the retracement will continue. Estimates for earnings may be far too low (easy to beat), but stocks are already approx. 20% over fair value. It will be hard for the markets to keep going up, even in the face fo good earnings. There are the bulls, but the Put/Call Open Interest on the SPY is over 2 (i.e. bears are rampant too).

Oct 07 05:44 PM

[David White:]

Some pundits have put forth the theory that Family Dollar Stores (FDO) and Costco (COST) doing great means the recession is still with us. Certainly FDO and COST did do well today.

Oct 07 05:54 PM

[robert.b.fe...:]

With Pig weed having a larger than expected impact on agriculture in the southern U.S. and drought in much of the west severely impacting agriculture there especially in CA we are likely to see the cost of produce rise. This could mean even more pressure on consumer discretionary spending so I would expect discounters like FDO and COST to do well going forward. Especially if team Obama's energy assessment is off the mark (That never happens) and this winter is more severe than they are expecting ( Two ski areas opened this week the earliest ever).

Oct 07 06:50 PM

[tripleblack:]

I'm with David White on his opinion about retracement, I see a 10% correction before we shake out the dust, and I like robert's pigweed prognosticating method, it appeals to this old Georgia boy (and besides, I have been projecting a cold winter myself, despite the UN and their weather models).

I just pulled back into cash and a goodly chunk of silver, and not much else.

We'll see soon enough, of couse.

Oct 07 10:06 PM

[ebworthen:]

Increased earnings based on firing career employees and reduced inventories do not spell recovery.

Asset reflation precedes inflation and bubbles popping.

If you are a day trader you can play the bubble.

If you are a retiree or regular investor and get in front of this train you will be hurt.

The FED and the banks and hedge fund managers are counting on you standing on the railroad tracks with your pennies lined up with earplugs in and your back to the train.

The jump in commodities tells us that many investors do not want to stand on the rails with their pennies; many have been there, done that.

Fool me once shame on you, fool me twice - shame on me.

Oct 07 10:22 PM

[marketman54:]

When companies get to set their own earnings estimates and predict their own future with their own crystal ball it's easy to beat whatever it is they want to beat!!!!!

AA is still 33% below earnings for the same quarter from the previous year, IS THAT GOOD? Hell no!!!!!!

At some point you cannot reduce your payroll, cut your inventories, close facilities......you have to sell something!!!!!

As these numbers continue to come in at levels 20% to 50% less than the previous year for the next few quarters, maybe even through the end of 2011, when will the balloon prices of the market pop?

WHAT IS THE STRAW THAT WILL BREAK THE CAMELS BACK?

I fear the same as many of you. There is nothing here that justifies a 3000 point rise in the market and a major correction must take place.

If you own a small business or if you are lucky enough to still have your business you truely know what is happening on main street.

The numbers don't add up folks. If there are 20 plus million people out of work, NOT INCLUDING the self employed and part time then how can our economy be getting better when you take out 14% of the labor force. Add to that the cut in spending all the rest of America has taken because of fear.

These people are not spending and if our GDP is based 70% on consumer spending then how can the market move so much???

THERE CANNOT BE THAT MUCH GROWTH!!!

Oct 08 04:42 AM