Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:45 AM EST
S&P 500: -0.80; 1,524.70
NASDAQ 100: -0.25; 1,910.00
Dow: -3.00; 13,555.00
NIKKEI 225: -0.05%; 17,696.97 (-8.15)
HANG SENG: 20,798.97; 05/23
S&P/ASX 200: -1.20%; 6,279.10 (-76.00)
BSE SENSEX 30: -1.01%; 14,218.11 (-145.15)
FTSE 100: -0.37%; 6,592.20 (-24.20)
CAC 40: -0.85%; 6,068.45 (-51.75)
XETRA-DAX: -0.33%; 7,710.19 (-25.69)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.56%; $65.40 (-$0.37)
Gold: -0.23%; $661.10 (-$1.50)
Natural Gas: -0.54%; $7.72 (-$0.04)
Silver: -0.11%; $13.09 (-$0.015)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Durable Goods Up a Surprising 0.6%, Unemployment Claims Up Slightly
The Commerce Department reported Thursday new durable goods orders increased 0.6% in April, surprising economists who were looking for no change. It also revised March growth to 5% from a previous 4.3%. Weak areas included civilian airplanes (-10.7%), transportation goods (-1.3%), and machinery (-1.7%), while strong growth areas included primary metals (4.3%) and electrical equipment (3.8%). Shipments of semiconductors jumped a huge 46%, boosting overall shipments in April 1.9%, ahead of March's 1.3% gain. Separately, the Labor Department announced first-time applications for unemployment benefits rose by 15,000 to a seasonally adjusted 311,000, the first weekly increase in a month and a half. The four-week average now stands at 302,750 -- down 3,500 -- its lowest since February 2006. Year over year, initial claims are down about 3.4%.
Sources: Durable Goods press release (.pdf), Initial Claims press release, MarketWatch I, II
Commentary: Equities After the Pause: An Historical Perspective • The Yield Curve Returns To Normalization • Market Reprieve Still Looks Likely • Sell in May Indeed?
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
Mylan Posts $71M Loss, Missing Estimates -- Shares Drop
Drugmaker Mylan Laboratories said it lost $71.3 million ($0.31/share) in FQ4, vs. a $57.7 million profit a year ago, but that its adjusted profit of $0.47/share (ex-acquisition costs) beat its previous forecast. Analysts were calling for a higher $0.55/share, but the company said analyst estimates included revenue from Mylan's generic copy of Pfizer's Norvasc hypertension drug. The drug, known as amlodipine, was launched on March 23, but Mylan deferred revenue recognition because of accounting rules; it said revenue from the drug would have been up to $90 million in Q4. Total revenue was up 53% to $484 million, bolstered by generic versions of J&J's Duragesic pain patch and Ditropan XL bladder treatment. On May 12, Mylan announced it would buy German drugmaker Merck KGaA's generics unit for $6.7 billion (more than its own market cap), making it the #3 global generic drugmaker. Analysts have cautioned that the deal, to be completed in the second half of 2007, may be too big for Mylan to handle: The merger will double Mylan's staff and more than triple its product portfolio. Mylan will need to raise about $5-$5.5B, of which Merck supports about $2-$2.5B, suggesting it will need to undertake a large scale equity issuance. In a May 14 note, CIBC said: "Prior to Merck, MYL shares had seemed to have finally found their mojo, riding on the back of strong new product momentum that had diminished generic Duragesic EPS risk. This deal will have more than its fair share of doubters as financing risk appears to dwarf usual stuff like integration." Shares are down 7.4% to $18.75 in pre-market trading.
Sources: Press release, Reuters, Bloomberg
Commentary: Mylan Labs Acquiring Merck KGaA's Generics Unit for $6.7 Billion • Mylan Can Breathe Easy on Norvasc • Pfizer's Petition for Rehearing in Norvasc Case Denied
Stocks/ETFs to watch: Mylan Laboratories Inc. (NASDAQ:MYL). Competitors: Teva Pharmaceutical Industries (NASDAQ:TEVA), Barr Pharmaceuticals Inc. (BRL), Watson Pharmaceuticals Inc. (WPI), Pharmaceutical Resources Inc. (NYSE:PRX). ETFs: HealthShares Cardiology (HRD), SPDR Pharmaceuticals (NYSEARCA:XPH), HOLDRS Pharmaceutical (NYSEARCA:PPH)
AnnTaylor's Q1 Profit Down, In-line with Estimates, Reiterates FY Guidance
AnnTaylor Stores reported Q1 net income fell 19% to $31.5 million, or $0.46/share, on sales growth of 4% to $580.3m, matching the Street's consensus estimate. The Company cited higher discounts on merchandise to clear inventory at Loft, its largest chain, for the drop in profit. AnnTaylor said it "shares some of the current concerns regarding potential macroeconomic softening," but is confident in its ability to achieve its previously issued FY EPS guidance of $2.15 - $2.25. Analysts expect $2.18/share, on average. Shares of AnnTaylor were unchanged at $36.65 in thin pre-market trading. Same-store-sales for locations open more than a year fell 3.3%: -9.0% at Loft, +0.9% at Ann Taylor. The Loft division is expected to "be back on track" for the second half of the year. Full year same-store-sales are forecast in the low-single-digit range. AnnTaylor repurchased 4.2 million shares during the quarter, at an approximate cost of $163m.
Sources: Press release, Bloomberg, MarketWatch
Commentary: April Same-Store Sales Roundup • March Same-Store Sales Roundup • AnnTaylor: Weak Q4 Earnings, Strong Outlook
Stocks/ETFs to watch: AnnTaylor Stores Corp. (NYSE:ANN). Competitors: Chico's FAS Inc. (NYSE:CHS), Talbots Inc. (NYSE:TLB), Guess? Inc. (NYSE:GES), Liz Claiborne Inc. (LIZ), Gap Inc. (NYSE:GPS)
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
There was lots of good news yesterday including more merger-and-acquisition goodies, a solid earnings report from a key retailer, and even rising supplies of both crude oil and gasoline.
Before the opening, Target (NYSE:TGT) beat analysts' estimates by 4 cents, which energized the retail group, but the real news centered around the aborted Alcan (NYSE:AL)-Alcoa (NYSE:AA) deal. Alcan rejected Alcoa's buyout offer, and now the rumor is that several other parties may be interested in AL. One report even has it that AL may turn the table and go after AA.
There were some other significant deals -- Crescent Real Estate Equities (CEI) agreed to be bought by Morgan Stanley (NYSE:MS) and Payless ShoeSource (NYSE:PSS) announced that it would buy Stride Rite (SRR).
The markets reacted to all of this excitement with steady buying until former Fed chief Alan Greenspan showed up to spoil the party by opining that the recent boom in Chinese stocks would lead to a "dramatic contraction at some point." That occurred at about 2 p.m., when the Dow was up about 60 points, and it was this remark that triggered mild selling for the next two hours.
At the close Wednesday, the Dow Jones Industrial Average was off 14 points to end at 13,526, the S&P 500 again failed to establish a new closing high and was lower by almost two points at 1,522, and the Nasdaq lost 11 at 2,577. Volume on the NYSE totaled 1.6 billion shares and 2 billion traded on the Nasdaq; decliners exceeded advancers on both exchanges by about 19-to-13.
Despite the rise in both crude oil and gasoline inventories, both futures contracts closed higher. This was attributed to the rise of tension in the Middle East and a forecast of a more-intense hurricane season than last year. Crude (July contract) gained 26 cents and closed at $65.77 a barrel and June gasoline rose by 41 cents to $2.31.
The Amex Energy SPDR (NYSEARCA:XLE) rose 20 cents, closing at $68, but was well off of its high of the day. Had it closed lower, it would have executed a reversal. Gold (June contract) continued its rally by closing at $662.60 per troy ounce, up $2.70, and the Philly Gold and Silver Index [XAU] was up $2.18 to close at $138.
What the Markets Are Saying
Despite Mr. Greenspan's warnings about Chinese markets, the U.S. stock market and the world markets are very strong. However, in the past three sessions a new closing high in the S&P 500 has been elusive, and as we approach the long weekend, it is doubtful that the high will be made this week.
Momentum is lagging, the sentiment indicators are somewhat overbought, and the angle of the advance is steep enough to be unsustainable for a long period of time. And so, it may be that the time is now right for a minor pullback. But don't expect it to last too long, since there is still a lot of capital waiting in the wings that will undoubtedly grab for bargains when they appear.
After a modest hesitation, look for the old S&P highs (both closing and absolute) to be demolished as the S&P charges ahead this summer, as investors ignore the advice to "sell in May and go away."
Today's Trading Landscape
There are several economic reports of interest on the docket today, including initial jobless claims, durable goods orders, and new home sales. Earnings reports are expected from AnnTaylor Stores (ANN) (read above), Barnes & Noble (NYSE:BKS), Brown Shoe (BWS), Cost Plus (NASDAQ:CPWM), DEB Shops (DEBS), Foot Locker (NYSE:FL), The Gap (GPS), Mylan Labs (MYL), Network Appliance (NASDAQ:NTAP), Stein Mart (NASDAQ:SMRT), Toll Brothers (NYSE:TOL) and Toro (TORO), among others. Mr. Greenspan's comments about Chinese markets are causing selling in Asia and Europe, and this could impact our markets.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Drop, Ending Three-Day Advance, on Greenspan's China Warning Asian stocks fell for the first time in four days after former Federal Reserve Chairman Alan Greenspan warned that Chinese equities face a ``dramatic contraction.''
• Japan's Exports to U.S. Fall for First Time in Two Years, Slowing Growth Japan's exports to the U.S. fell for the first time in two years as the world's largest economy slowed. Shipments to Asia and Europe grew.
• Taiwan's Economic Growth Accelerates to 4.2 Percent on Exports to China Taiwan's economic growth accelerated in the first quarter, buoyed by increased Chinese demand for the island's electronic exports.
• Qantas May Spin Off Units, Return Cash to Shareholders After Failed Buyout Qantas Airways Ltd. Chief Executive Officer Geoff Dixon said the airline may spin off some units or return cash to investors after the failure of a A$11.1 billion ($9.1 billion) buyout he supported.
• Temasek May Join Singapore Bid for China Eastern Air, Morgan Stanley Says Temasek Holdings Pte, a Singapore state-owned investment company with $85 billion of assets, may join its unit Singapore Airlines Ltd. to bid for a stake in China Eastern Airlines Corp. (NYSE:CEA), Morgan Stanley said.
European Headlines (via Bloomberg.com)
• European Stocks Drop After Greenspan's Remarks on China; BHP, Volvo Fall European stocks declined for the first time in three days after former Federal Reserve Chairman Alan Greenspan said shares in China, the world's fastest growing major economy, could face a ``dramatic contraction.''
• German Business Confidence Held at Second-Highest Level on Record in May German business confidence stayed near a record in May, suggesting Europe's largest economy will keep growing at the fastest pace since the turn of the decade.
• Air France Earnings Jump Sixfold on Passenger Demand, KLM Merger Savings Air France-KLM Group (AKH), Europe's biggest airline, said fourth-quarter earnings rose sixfold on an increase in passenger traffic and cost savings from combining the carriers. The company forecast higher profit this year.
• Richemont Profit Rises 21 Percent on Sales of Mont Blanc Watches in Asia Cie. Financiere Richemont AG, the world's second-biggest luxury-goods company, increased second- half profit by 21 percent as Asian shoppers paid as much as $25,000 for Panerai and Mont Blanc watches.
• Cable & Wireless Profit Doubles, Topping Estimates, on International Sales Cable & Wireless Plc, the U.K.'s second-biggest phone company, said full-year profit more than doubled, beating analyst estimates, because of gains at the company's U.K. and international businesses.