Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:45 AM EST
S&P 500: -5.80; 1,497.00
NASDAQ 100: -8.75; 1,897.25
Dow: -49.00; 13,120.00
NIKKEI 225: -0.17%; 17,400.41 (-28.76)
HANG SENG: -0.68%; 20,526.50 (-140.79)
S&P/ASX 200: -0.98%; 6,151.60 (-60.60)
BSE SENSEX 30: -2.25%; 13,908.58 (-320.30)
FTSE 100: -0.43%; 6,441.80 (-27.60)
CAC 40: -0.38%; 5,922.09 (-22.35)
XETRA-DAX: -0.10%; 7,379.70 (-7.32)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.20%; $64.93 (-$0.13)
Gold: -0.03%; $677.80 (-$0.20)
Natural Gas: -0.49%; $7.56 (-$0.04)
Silver: +0.07%; $13.465 (+$0.01)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
GDP Drops While Inflation Flares
The economy failed to keep up with a roaring stock market, according to GDP figures released by the Commerce Department. Real GDP increased at an annual rate of just 1.3%, down from 2.5% in Q4 2006, 0.5% lower than economist forecasts of 1.8%, and its weakest growth level since Q1 2003. Increase areas included personal consumer spending (3.8%) and local government spending, while weak areas included residential fixed investment (down 17%), federal spending, and weak exports. The GDP price index was up 4%, led by higher energy costs -- its highest since 1991. Core consumer prices, which exclude food and energy costs, increased at a more modest 2.2%. Personal incomes were up 9% annualized, boosted by bonuses; real disposable income was up 4.5%, down from 5.3%. Separately, the Labor Department reported employment costs rose 0.8% in Q1, down slightly from a 0.9% rise in Q4 2006; economist forecasts were for a 0.9% gain. Wages and salaries gained 1.1% while benefits were up only 0.1%. Over the past year, employment costs are up 3.5% vs. 2.8% a year earlier -- their fastest growth rate in two years. Mike Moran of Daiwa Securities says the rise is a concern for the Fed, indicating unemployment is low enough to start influencing wages. The dollar fell 0.5% to $1.3671 euro; futures on the benchmark S&P 500 Index were down 6.5 points (0.3%) to 1496.
Sources: BEA Press Release, Dept. of Labor Press Release, MarketWatch I, II, Bloomberg
Commentary: Conflicting Data Points: Growth and Employment • A Rant on the Dollar's Fall: Blame it on the Fed? • US and Global Markets: Going Their Separate Ways
Stocks/ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)
Alltel Barely Misses Estimates; Key Metrics Show Improvement
Wireless services provider Alltel Corporation reported this morning that both its net earnings and revenue came up just short of consensus estimates for 1Q07. Alltel reported profit of $230.1 million, good for EPS $0.64, versus EPS of $0.77 a year ago. Revenue rose to $2.08 billion from $1.84 billion a year earlier. Thomson Financial consensus estimates were for EPS of $0.66 on $2.1 billion in revenue. The company also reported improvements to several key metrics in the quarter: it added 867,000 customers, up 8% on a YoY basis; post-pay churn was 1.33% and total churn was 1.77% fifth, both lows for the company and the fifth consecutive quarter churn has decreased; average revenue per wireless customer increased 2% YoY, while data revenue per customer was higher by 64% YoY; and equity free cash flow from current businesses grew 36%. Alltel didn't provide forward guidance in its press release. The stock closed higher by $1.24, or 2%, to $62.88 yesterday, before earnings were reported.
Sources: Press Release, MarketWatch, Reuters, TheStreet.com [check back later today for Alltel's conference call transcript]
Commentary: Alltell Courting Potential Buyers • Alltel Still A Pricey Buy • Are We Approaching An APRU Price War?
Stocks/ETFs to watch: Alltel Corp. (AT). Competitors: AT&T Inc. (T), Sprint Nextel Corp. (S), Verizon Communications Inc. (VZ), Vodafone (VOD). ETFs: Vanguard Telecom Services ETF (VOX), Telecom HOLDRs (TTH), PowerShares Dynamic Telecom & Wireless (PTE)
Matsushita FY Net Up 41%, but Guidance Disappoints
Matsushita Electric Industrial reported fiscal year (ended Mar.) net income rose 41% to ¥217.19 billion ($1.8b), on sales growth of 2.4% to ¥9.1 trillion ($76.8b). It credited cost cutting, a weak yen, and strength in certain electronics such as TVs and cameras, for overcoming intensifying global competition and higher materials costs. Guidance of consolidated operating profit of ¥500b ($4.2b) in the current fiscal year ending next March, which would be its highest in 22 years, was lower than analysts' forecast of ¥517.2b. Sales are expected to increase 2% to ¥9.25t during this fiscal. The company plans to repurchase ¥100b ($844m) of its common stock, or up to 50 million shares (2% of shares outstanding) from May until next March. Matsushita's ADRs lost 0.7% to $19.62 yesterday. Its ordinary shares closed 0.2% lower to ¥2,325 ($19.54 ADR equiv. at ¥119/$1), ahead of its earnings release. The Tokyo Stock Exchange is closed Monday and Thur.-Friday for the Golden Week holiday.
Sources: MarketWatch, Reuters
Commentary: Japanese Tech Stock Weekly Summary • Japan: Best and Worst Performing ADRs Weekly and YTD • JVC Shares Rise on Buyout Speculation
Stocks/ETFs to watch: Matsushita Electric Industrial (MC). Competitors: Sony (SNE), Sharp (OTCPK:SHCAY), Canon (CAJ), Philips Electronics (PHG). ETFs: BLDRS Asia 50 ADR Index (ADRA)
Ingersoll-Rand's Numbers on Weak Housing Market, Hit Estimates
Ingersoll-Rand said Q1 earnings dropped 14% to $217 million ($0.70/share) on weak U.S. markets and higher commodity costs. Revenue was up 6% to $2.67 billion. Earnings and revenue were both in line with Thomson Financial estimates. The company gave Q2 guidance of $0.93-$0.98/share and full-year guidance of 'record earnings' of $3.45-3.55. The company said weak U.S. home construction depressed demand for its Bobcat machines; revenue from its compact vehicle segment were down slightly, and profits slid 18%. The company said strong international growth (18%) helped offset weak domestic revenue, which was down slightly. Ingersoll said it expects to spend $2 billion this year on share repurchases and acquisitions. Shares are up 4.5% over the past 12 months, lagging both the broad market and other diversified industrial companies.
Sources: Press release, MarketWatch, Reuters
Commentary: Ingersoll Rand's Recent 8-K: When Less Is More • Ingersoll-Rand Trying To Recover From Housing Slowdown • Volvo Buys Ingersoll Rand Road Construction Equipment Unit for $1.3B in Cash
Stocks/ETFs to watch: Ingersoll-Rand Co. Ltd. (IR). Competitors: Emerson Electric Company (EMR), Johnson Controls Inc. (JCI), Terex Corp. (TEX)
Infineon's Loss Narrows, But Misses Estimates; Shares Trading Lower
Infineon Technologies reported a smaller Q2 net loss of €11 million ($15m), or -€0.01/share, compared to -€26m (-€0.03/share) last year, but still missed analysts' average estimate of €0.05/share. Revenues declined 2% to €1.96b, also falling short of analysts' forecast (€2b). This was its eighth quarterly loss in nine, but MarketWatch reports Goldman Sachs told clients: "The positive takeaway in this earnings report is that the company is now profitable on an operational basis and outlook for the company suggests continued improvements." Infineon took a restructuring charge of €54m. It expects to break even (ex-Qimonda and before interest and tax) this fiscal year. Ordinary shares of Infineon trading in Frankfurt were last down 2% to €11.70. Infineon's ADRs gained 2.2% to $16.33 yesterday, renewing a 52-week high -- its highest close since July 2002. Regarding an expected divestiture of memory-chip maker Qimonda, in which it owns an 86% stake, CEO Wolfgang Ziebart said there is "no need" to sell shares "at the moment." Qimonda accounts for around half of Infineon's revenues. Qimonda reported earlier this week, returning to profitability with earnings of €57m (vs. -€9m) on sales of €984m (+6%).
Sources: Press release, Bloomberg, MarketWatch
Commentary: Infineon Shares Up on Report of Buyout Interest • Infineon Chips to Be Used in Nokia's New Entry Level Phones • Infineon Technologies Earnings Conference Call Transcript (later today)
Stocks/ETFs to watch: Infineon Technologies AG (IFX), Qimonda AG (QI). Competitors: STMicroelectronics NV (STM), Texas Instruments (TXN), Micron (MU), Fairchild Semiconductor Intl. (FCS), International Rectifier (IRF), Broadcom (BRCM)
Western Digital Beats on Both EPS and Revenue Despite 'Soft Seasonal Demand'
Hard Drive maker Western Digital Corp. reported earnings after the close, beating the Street on both EPS and revenue. Western earned $121 million, good for EPS of $0.53 cents a share, versus $0.45 a share in the same period last year. Revenue came in at $1.4 billion, rising from $1.13 billion a year ago. Thomson First Call had forecast EPS of $0.47 cents on revenue of $1.35 billion. During the quarter, Western Digital also managed to pay off $19 million in outstanding debt and repurchase 1.5 million shares of common stock. The company's press release said that although "the industry saw seasonally softer demand and pricing in the March quarter... we were able to adjust to those challenges and post solid financial results, generate cash and grow in several of our newer markets." In other news, former Western employee Tim Leyden will rejoin the hard disk-drive maker as its new CFO. Shares rose $0.50, or nearly 3%, to $18.64 in after-hours action.
Sources: Western Digital F3Q07 (Qtr End 3/30/07) Earnings Call Transcript, Press Release, TheStreet.com, Reuters, AP
Commentary: Bad News from Seagate Technology Presents Opportunity in Western Digital • Western Digital: Time to Step in and Buy, Says Hambrecht • CRAMER'S TAKE ON WDC »
Stocks/ETFs to watch: Western Digital Corp. (WDC). Competitors: Seagate Technology (STX), Fujitsu Ltd. [ADR] (OTCPK:FJTSY), Hitachi (HIT)
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Today's Market (via Sam Collins, ChangeWave.com)
All told, it was the technology sector that carried the day yesterday, with Apple's (AAPL) almost-unbelievable 88% hike in FY Q2 earnings that was announced after Wednesday's close serving as the impetus. The techs were helped along by Xilinx (XLNX), which also beat estimates and closed up 98 cents.
At the closing bell, the Dow Industrials had gained 16 points to end the day at 13,106, the S&P 500 lost just over a point at 1,494, and the Nasdaq gained seven at 2,554. Volume on the NYSE totaled 1.7 billion shares and 2.4 billion traded on the Nasdaq, but breadth was just slightly behind on the New York and just slightly ahead on the Nasdaq.
In the futures pits, gasoline ran to its highest price since August, but crude oil (June contract) closed lower by 78 cents at $65.06 a barrel while the Amex Energy SPDR (XLE) gained 7 cents at $64.25.
Meanwhile, gold continued to take a beating, with the June contract dropping $9.40 to $678 per troy ounce. This breaks an upward channel trend that started early last month. The next support for June gold is at $660-$672. The Philly Gold and Silver Index [XAU] fell $3.44 to $139.16, with the next support at $138.23 -- the 200-day moving average. A close below that could take the XAU to the bottom of its trading triangle at just under $130.
What the markets are saying
Yesterday's performance should give near-term pause to the bulls. After a day of extraordinary earnings, the market yawned, as shown by the breakeven breadth. And the two broader-based indexes, the S&P 500 and the NYSE Composite, closed lower. So, after a run of 800 points over a period of just four weeks, with gains in 18 of the last 20 sessions, we may get a well-deserved time-out.
But that said, the sentiment numbers aren't all that bad, and the American Association of Individual Investors' public numbers are at almost breakeven between bulls and bears (39% vs. 38%).
We have one more week to go with the Q1 earnings rush, and if the trend there continues, maybe we'll just tread water for a bit. But if we do get a correction, I suspect it will be mild, with support numbers looking like Dow Industrials at 12,800, S&P 500 at 1,460 and the Nasdaq at 2,480.
Todays trading landscape
Economics may take the front seat to earnings today, as some major reports due. The Gross Domestic Product for Q1 is slated to come in this morning. And even though the consensus is +1.8%, anything above 1% will probably not hurt the market. The Employment Cost Index arrives before the bell as well.
At 10 a.m., the Consumer Sentiment numbers for April will be released. These numbers take both sides of the economic equation -- growth and inflation -- into account, and could have a real impact if expectations don't meet reality.
As for today's earnings calendar, look for reports from Alltel (AT), Chevron (CVX), Coventry Health (CVH) and Goodyear Tire (GT), among others. In particular, watch for the reaction of the market to both good and bad news. If good news is treated badly, then watch out below, since the market is already acting like it wants to correct.
Microsoft reported earnings that were 4 cents above estimates after yesterday's closing bell, and Mr. Softie traded more than $1 higher in the aftermarket to $30.27 -- this should help the tech sector's opening today.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Decline, Led by Japanese Banks; BHP Slides on Metals Prices Asian stocks fell, set for the first weekly drop this month, after Japanese government reports showed industrial output unexpectedly fell and electrical parts inventories rose in the region's biggest economy.
• DoCoMo Fourth-Quarter Net Falls 43 Percent on Costs to Subsidize Handsets NTT DoCoMo Inc. (DCM), Japan's biggest mobile-phone operator, reported fourth-quarter profit fell 43 percent after costs increased for handset subsidies to prevent users from defecting to KDDI Corp. and Softbank Corp. (OTCPK:SFTBF)
• South Korea's March Factory Production Unexpectedly Declines 0.4 Percent South Korea's industrial output unexpectedly slid in March as production of mobile phones, computers and cars dropped.
European Headlines (via Bloomberg.com)
• Dollar Weakens to All-Time Low Against Euro as U.S. Economic Growth Slows The dollar dropped to an all-time low against the euro after a government report showed the U.S. economy grew last quarter less than forecast.
• Moberg, Ahold Chief for Four Years, to Leave Supermarket Company in July Royal Ahold NV (AHO) Chief Executive Officer Anders Moberg, hired four years ago to restore investor confidence after an accounting scandal, plans to leave the Dutch supermarket owner a year early.
• Statoil Agrees to Purchase North American Oil Sands for About $2 Billion Statoil ASA (STO), Norway's biggest oil company, agreed to buy a Canadian oil-sands developer for $2 billion to replace dwindling production from the North Sea to Venezuela.