Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:45 AM EST
S&P 500: +0.70; 1,502.70
NASDAQ 100: -3.00; 1,903.75
Dow: -5.00; 13,170.00
NIKKEI 225: 17,400.41 (04/27)
HANG SENG: -1.01%; 20,318.98 (-207.52)
S&P/ASX 200: +0.23%; 6,166.00 (+14.40)
BSE SENSEX 30: -0.26%; 13,872.37 (-36.21)
FTSE 100: +0.77%; 6,468.00 (+49.30)
CAC 40: +0.70%; 5,972.28 (+41.51)
XETRA-DAX: +0.59%; 7,422.01 (+43.89)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.18%; $66.34 (-$0.12)
Gold: +0.06%; $682.20 (+$0.40)
Natural Gas: +0.47%; $7.87 (+$0.04)
Silver: +0.29%; $13.615 (+$0.04)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Spending Misses Forecasts as Consumers Cut Back
U.S. consumer spending was up only 0.3% in April on a 0.7% rise in personal income, while core inflation was flat. Estimates were for a 0.5% rise in spending on a 0.6% gain in income. Adjusted for inflation, consumer spending was actually 0.2% lower m/m, its biggest drop since Sept. 2005, suggesting higher energy prices may indeed be taking a toll on consumers' willingness to part with their income. James O'Sullivan of UBS Securities said, "Everything points to a much weaker consumer in the second quarter." Flat inflation growth means inflation now stands at 2.1% over the past 12 months, slightly higher than the 2% Fed officials have said would make them happy, but down from 2.4% in February.
Sources: Press release: Personal Income and Outlays [BEA], Bloomberg, Wall Street Journal
Commentary: Consumer Spending Props Up GDP • 'Dead Market Walking': Correction Just Around the Bend • The Market's Methodical Melt Up - It's All About Liquidity
Stocks/ETFs to watch: S&P 500 Index (SPY), Diamonds Trust Series 1 ETF (DIA), iShares Lehman Aggregate Bond (AGG)
Verizon Tops Estimates On 'Across-the-Board Organic Growth'
Verizon Communications reported first-quarter net earnings and sales that topped consensus estimates, despite increased spending on its FiOS network and a one-time loss related to Venezuela's nationalization plan. Net income was $1.5 billion, good for EPS of $0.51, versus EPS of $0.56 in the prior year period. Revenue was $22.58 billion - a 6.4% increase over a year earlier. Including a $0.05 a share loss related to the Venezuelan government's nationalization of telecommunication services, EPS was $0.56 a share. Thomson Financial consensus estimates were for EPS of $0.53 on revenue of $22.49 billion. Costs to build Verizon's fiber optic internet and cable TV FiOS network reduced EPS by an additional $0.11. The company added a net 141,000 new FiOS TV customers in the quarter; Verizon plans to have FiOS available to nine million homes nationally by year's end. Verizon's wireless division added 1.7 million net customers in the quarter, bringing the total to 60.7 million at quarter's end, up 14.5% from last year. According to Chairman and CEO Ivan Seidenberg, "Our results show that across-the-board we have accelerated organic growth in key markets: retail wireless, broadband, data, video and global IP [Internet protocol]."
Sources: Press Release, Bloomberg, MarketWatch, Reuters [check back later today for Verizon's conference call transcript]
Commentary: How Verizon's FiOS Will Change the Face of the Telecom Industry • Worldwide Fiber to the Home: Stakeholders And Shareholders • Cramer's Take on VZ
Stocks/ETFs to watch: Verizon Communications (VZ). Competitors: AT&T (T), Qwest Communications International (Q), Sprint Nextel (S), Comcast (CMCSA), DIRECTV Group (DTV), EchoStar Communications (DISH), Cablevision Systems Corporation (CVC), Time Warner Cable (TWC). ETFs: iShares Dow Jones U.S. Telecom Sector Index (IYZ), Telecom HOLDRS (TTH), Wireless HOLDRS (WMH)
SYSCO: Net Up 15%, But Misses Estimates by a Penny
SYSCO Corp., the largest food distributor in the U.S., reported Q3 net income increased 15% to $217.2 million, or $0.35/share, but fell a penny short of analysts' average EPS estimate. Revenue grew 5.3% to $8.57b, but also missed analysts' forecast ($8.79b). SYSCO is implementing more of a centralized hub warehousing system, which Bloomberg reports a UBS analyst commented on last month: "The lack of coordinated buying has been an impediment. [The central hubs] "should provide virtually pure upside.'' Gross margins improved slightly to 19.06%, from 18.87% in the same period last year. Shares of SYSCO lost 1.1% to $34.32 on Friday and have traded between $26.50 - $37.04 over the past year.
Sources: Press release, Bloomberg
Commentary: Consumer Staples Far Below 50-DMA: Buying Opportunity? • Jim Cramer's Take on SYSCO
Stocks/ETFs to watch: SYSCO Corp. (SYY). ETFs: PowerShares Dynamic Consumer Staples (PSL)
ISE Exchange May Get $2.6 Billion Bid from Deutsche Boerse -- WSJ
The Wall Street Journal Online reports that Deutsche Boerse AG is in advanced discussions to buy International Securities Exchange Inc. [ISE] for $2.6 billion, or about $68/share. Unnamed sources say Boerse CEO Reto Francioni will present his plan to acquire the New York based electronic exchange a board meeting Monday. If the board agrees, the source says, the deal could move ahead quickly. ISE is the largest options market for individual stocks in the U.S. and the #2 U.S. options market overall, behind the CBOE. Stock exchanges globally have been merging and/or expanding, particularly into vehicles like options that have higher profit margins than stocks. Options growth presently outpaces that of stocks. Deutsche Boerse co-owns the Eurex exchange with Swiss SWX group; it is unclear whether the ICE, if acquired, would be managed under the Boerse or the Eurex.
Sources: Wall Street Journal
Commentary: ETF Idea: U.S. Financial Exchanges • International Securities Exchange Flies Under the M&A Radar • A Look At Stock Exchange Stocks
Stocks/ETFs to watch: International Securities Exchange Inc. (ISE). Competitors: CBOT Holdings Inc. (BOT), Chicago Mercantile Exchange Holdings (CME), Nasdaq Stock Market Inc. (NDAQ), NYSE Euronext (NYX), IntercontinentalExchange Inc. (ICE)
RadioShack Q1 Earnings Crush Estimates as Turnaround Continues
RadioShack Corp. reported its Q1 net income went from $8.4 million ($0.06/share) last year to $42.5 million ($0.31/share) this year, significantly ahead of analyst forecasts, as gross margins improved. Revenue was down 14.5% to $992 million. Excluding items, EPS were $0.29; analysts were looking for $0.14/share on revenue of $1.04 billion. Same-store sales and sales from stores open at least one year were down 9.2%. Gross margin was 52%, up from 48.3%. Cash flow was $37 million, vs. $310 cash use last year. CEO Julian Day said he was encouraged by the earnings gain despite previously predicted weak same-store sales. RadioShack launched a cost-cutting restructuring in February including closing stores and merchandise adjustments; the company said reductions in selling and administrative costs and staff cuts will result in savings of $30 million a year. Retail locations as of March 31 were 5,205, down from 6,835 on Dec. 31 2006. CFO Jim Gooch: "While we recognize and we are focused on our top-line sales challenges, particularly in the wireless business, we will continue to bring a disciplined approach to the management of our business, with the goals of improving profitability, strengthening our balance sheet and driving cash flow." Shares, up 65% this year, are up 8.2% in pre-market trading to $30.10.
Sources: Press release, MarketWatch, Wall Street Journal
Commentary: RadioShack Still Faces Plenty of Challenges • RadioShack CEO Day Charges Up the Business - Barron's • RadioShack: Did Moody's Actually Say That? • RadioShack: The Next Kmart?
Stocks/ETFs to watch: RadioShack Corp. (RSH). Competitors: Circuit City Stores Inc. (CC), Best Buy Co. Inc. (BBY)
Conference call transcript: RadioShack Corporation Q1 2006, RadioShack Earnings Conference Call Transcript (later today)
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Today's Market (via Sam Collins, ChangeWave.com)
The economic data released Friday didn't help matters. In addition to the weak GDP numbers that showed an increase of just 1.3%, the Philly Housing Index [HGX] fell by 1.6%, employment costs rose in Q1 by 0.8%, and the University of Michigan's consumer-confidence reading fell slightly in comparison to March's figures.
On Friday, the Dow Industrials gained 15 points to close at 13,122, the S&P 500 fell fractionally to 1,494, and the Nasdaq rose three points to 2,557. Volume on the NYSE was 1.5 billion shares and 2.1 billion traded on the Nasdaq, with breadth negative on both exchanges -- on the New York, decliners bettered gainers by 18-to-13 and the Nasdaq was negative by 18-to-11.
Adding to the market's woes, crude oil (June contract) rose $1.40 to $66.46 a barrel, up $2.35 for the week. And one energy expert said that, before the end of the year, we will likely see crude at "close to $75." The Amex Energy SDPR (XLE) lost 12 cents, closing at $64.13, but still held its highs in a sharp breakout rally. Gold was higher on Friday by $3.80, closing at $681.80 per troy ounce, but was down more than 2% for the week. The Philly Gold and Silver Index [XAU] gained 56 cents and closed at $139.72.
What the markets are saying
As much as I hate to agree with "The Crowd" on Wall Street, I must admit that after a run of over 6% in 21 days, the senior index is looking just a bit long in the tooth. Virtually every internal indicator is overbought, and with just one week left in the Q1 reporting season, there seems little to justify higher prices. Momentum is slowing, too, with the momentum indicator at an extremely overbought level.
Most persuasive of all is the angle of the advance on the charts of the major indexes -- especially the Dow and the S&P 500, the latter of which is closing in on its all-time high of 1,527.46 made on March 24, 2000. So far in April, the S&P is up 5.2%, and up 8.4% from the secondary low of March 13, for the best 31 days since January 2004 (information courtesy Standard & Poor's).
But that doesn't mean that we're due for a big, nasty correction. Instead, look for a mild pullback or even a sideways consolidation, with support at Dow 12,800, S&P 500 1,460 and Nasdaq 2,480.
One of the most reliable indicators of the longer-term direction is the NYSE short-interest ratio. The average over the past 20 years has been 5.4, with readings of 6.0 bullish and below 4.6 bearish. The current ratio is at 7.4, and this coincides with the American Association of Individual Investors' numbers from Thursday. This is telling us that even though it may be time to ring the bell for some trading profits, we had better stick with core positions.
And while last week was all about earnings, today it may be mostly about economics, with the following reports due today: Personal Income and Consumer Spending at 8:30 a.m. along with the PCE deflator (the Fed's favorite measure of inflation), the Chicago Purchasing Managers Index at 9:15 a.m. and Construction Spending at 10 a.m.
If these reports show that growth is waning but inflation is picking up, we could see some heavy selling. But if Personal Income is close to the expected 0.7% vs. 0.6% in February and Personal Spending drops to 0.5% vs. 0.6%, then the focus should turn back to earnings.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Fall to One-Week Low on Concern China, U.S. Growth Will Slow Asian stocks fell to the lowest in more than a week after China curbed bank lending and the U.S. economy expanded at the slowest pace in four years.
• Yen Gains as Investors Reduce Carry Trades After China Acts to Cool Growth The euro declined from record highs against the yen and dollar as technical charts some analysts use to predict direction suggested the gains have been too fast.
• ICICI Shares Slump on Concern India's Biggest Stock Sale May Erode Returns Shares of ICICI Bank Ltd. (IBN), India's most valuable lender, had their biggest drop in three years on concern a planned 200 billion rupee ($4.9 billion) stock sale will cut returns for investors as profit growth slows.
• Billionaire Ananda Krishnan Offers to Buy Rest of Maxis Communications Billionaire T. Ananda Krishnan plans to buy full control of Maxis Communications Bhd., Malaysia's biggest mobile-phone operator, which is valued at $9.6 billion.
• Japan's Finance Minster Says U.S. Economic Slowdown `Isn't Very Serious' Japan's Finance Minister Koji Omi said he isn't concerned about the slowdown in the U.S. economy.
European Headlines (via Bloomberg.com)
• Stocks in Europe Advance, Paced by Telefonica, Skanska, Cable & Wireless European stocks resumed an April rally on speculation takeovers will increase in the telecommunications industry and after analysts lifted their projection for construction company shares.
• Teva, Mylan Plan Bids for Merck KGaA's Generic-Drugs Unit, Five People Say Teva Pharmaceutical Industries Ltd. (TEVA), Actavis Group HF and Apax Partners Worldwide LLP are planning offers for Germany's Merck KGaA's generic-drug unit by today's deadline, five people with knowledge of the bids said.
• Turkish Markets Slide After Army Threatens to Block Presidential Candidate Turkey's lira plunged the most in seven months and bonds and stocks slumped after the military threatened to block the ruling party's presidential candidate because of his support for Islamist causes.
• Eni Agrees to Buy Dominion Resources' Mexican Gulf Assets for $4.8 Billion Eni SpA (E), Italy's largest oil company, agreed to buy Dominion Resources Inc.'s (D) exploration and production assets in the Gulf of Mexico for $4.8 billion, to triple its output from the region.
• European April Business, Consumer Confidence Stays Close to Six-Year High European business and consumer confidence stayed close to a six-year high this month, as resurgent exports and corporate investment help the euro-area economy overcome increased interest rates and a U.S. slowdown.