Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:52 AM EST
S&P 500: -2.50; 1,495.30
NASDAQ 100: -4.50; 1,921.00
Dow: -16.00; 13,380.00
NIKKEI 225: -1.20%; 17,849.28 (-216.83)
HANG SENG: -0.45%; 21,705.56 (-98.01)
S&P/ASX 200: -1.97%; 6,184.20 (-124.40)
BSE SENSEX 30: -0.48%; 14,431.06 (-70.02)
FTSE 100: -0.87%; 6,502.30 (-57.00)
CAC 40: -0.72%; 5,910.75 (-42.61)
XETRA-DAX: -1.22%; 7,764.67 (-95.85)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.87%; $67.18 (-$0.59)
Gold: +0.09%; $645.90 (+$0.60)
Natural Gas: -1.41%; $6.78 (-$0.10)
Silver: -0.25%; $12.37 (-$0.031)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Durable Goods Orders Fall More Than Expected
Durable goods orders fell 2.8% in May, the first drop in four months, according to data released by the Commerce Department. Investment goods fell 3%, as businesses reduced capital spending. Civilian aircraft orders were off almost 23% m/m, while capital goods orders fell 8.3%. Motor vehicles, communications equipment, and computer/related products posted gains. Economists had called for a milder 1% drop, and said the news may call the Fed's forecast for a gradually improving economy into question. Nariman Behravesh of Global Insight: "It's clear that businesses are still somewhat risk averse and that they are being cautious in light of the softness in the economy. Capital spending is not moving forward with the strength we had hoped." Excluding the volatile transportation sector, orders dropped 1%.
Sources: Press release (.pdf), MarketWatch, Bloomberg
Commentary: The Fed Model and Scaling the Wall of Worry • The Federal Reserve Should Cut Rates • At Risk of Another Great Depression
Stocks/ETFs to watch: S&P 500 Index (NYSEARCA:SPY), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Lehman Aggregate Bond (NYSEARCA:AGG)
Bain Capital Takes Out Guitar Center For 26% Premium
Musical instrument retail chain Guitar Center announced Wednesday it would be acquired by affiliates of private equity firm Bain Capital Partners. The price is $63 a share for a total of $1.9 billion, plus the assumption of approximately $200 in debt, bringing the total buyout price to $2.1 billion. The price represents a 26% premium to Tuesday's closing price of just $50.06. Shares jumped $9.74, or 19.46%, to $59.80 in pre-market action as of 08:19 a.m. EST. The deal will likely close during the fourth quarter and is subject to a vote by the company's shareholders. Chairman and CEO Marty Albertson believes "this transaction delivers outstanding value for our stockholders, and is a strong validation of the Company’s accomplishments over the years as well as our future growth prospects."
Sources: Press Release, Reuters, AP, MarketWatch, Bloomberg
Commentary: Guitar Center: Benefit From the Rumor Mill • Seven Retail Companies to Avoid (GTRC, CPWM, TSN, JBX, PSS, HDI, TSA)
Stocks/ETFs to watch: Guitar Center, Inc. (GTRC)
ConAgra Trading Higher on Q4 Earnings Beat, Guidance
ConAgra reported fiscal Q4 net income more than tripled to $192 million, or $0.39/share, boosted by "extraordinary" gains from energy trading and fertilizer operations. EPS of $0.38 from continuing operations beat analysts' average estimate of $0.31. ConAgra shares were last up around 3.3% to $26.40 in thin pre-market trading. During the quarter, revenues rose 13% to $3.33b, also topping analysts' forecast ($2.83b). ConAgra's consumer foods segment, which accounted for more than half of its total sales, was hurt by a recall of its peanut butter earlier this year. It resulted in a $0.02 negative impact to EPS, while rival J.M. Smucker recorded a 19% rise in net income. In its earnings release, ConAgra called the Street's consensus estimate for fiscal 2008 diluted EPS of $1.48 "appropriate." Shares of ConAgra gained 1.4% to $25.56 on Tuesday.
Sources: Press release, Bloomberg, MarketWatch, Reuters
Commentary: ConAgra Expecting Higher 2007 Earnings • Stock Portfolio to Weather a Volatility Shock • Consumer Staples Far Below 50-DMA: Buying Opportunity?
Stocks/ETFs to watch: ConAgra Foods Inc. (NYSE:CAG). Competitors: Kraft Foods Inc. (KFT), Unilever plc (NYSE:UL), Tyson Foods Inc. (NYSE:TSN), The J. M. Smucker Company (NYSE:SJM), Groupe Danone (DA), Smithfield Foods Inc. (NYSE:SFD), General Mills Inc. (NYSE:GIS), Campbell Soup Co. (NYSE:CPB)
Related: ConAgra Q4FY07 Q&A [pdf]
Cardinal Health Forecasts '07 EPS at Top End, Reiterates '08 Guidance
Cardinal Health says it expects fiscal 2007 adjusted EPS at the "top end" of the $3.32 to $3.40 range it announced April 27. Analysts on average were expecting $3.40. It reiterated its 2008 adjusted EPS forecast of $3.95 to $4.15, compared to analysts' expectation of $4.11. Shares of Cardinal gained as much as 1.3% intra-day, but closed down 0.2% to $69.43 in normal trading Tuesday. Cardinal said its 2008 forecast includes the dilutive impact of its recent acquisition of VIASYS Healthcare, which is expected to close this week. In a press release, Cardinal listed long-term (FY'08 - FY'10) financial goals including: Revenue +8-10%, Operating Earnings +10-13% and EPS +12-16%. It plans to return up to 50% of operating cash flow via share repurchases and dividends. Cardinal reports Q4 earnings August 9. Its fiscal year 2008 begins July 1.
Sources: Press release, Reuters
Commentary: Cardinal Health: Litigation, Sale and Acquisition Leave 2007 EPS Unchanged • Cardinal Health to Buy VIASYS Healthcare for $1.5B, 35% Premium • Biotech Buyout Frenzy Continues
Stocks/ETFs to watch: Cardinal Health Inc. (NYSE:CAH). Competitors: McKesson Corp. (NYSE:MCK), AmerisourceBergen Corp. (NYSE:ABC). ETFs: Health Care Select Sector SPDR (NYSEARCA:XLV)
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Despite assurances by several firms and a U.S. House financial panel chair that the subprime-mortgage problem and its impact on hedge funds was an overreaction, there was still talk that it might be "just the tip of the iceberg" yesterday. And it was this skepticism, coupled with a new-home sales report showing that sales tumbled for the fourth time in five months and that home prices made their 17th-consecutive monthly drop, that drove stock prices into the minus column for the third day in a row.
Just like on Monday, stocks were up at noon Tuesday, but after the housing report showing that May's sales had fallen by 1.8%, the selling continued through the close. The report wasn't all that bad and, in fact, was better-than-expected.
However, downward revisions of reports from the last three months led to conclusions that the housing decline is probably not over. And another report based on the S&P/Case-Shiller index showed that home prices in the year ending in April fell by 2.7% -- the largest decline since September 1991.
At the close Tuesday, the Dow Industrials had dropped 14 points to 13,338, the S&P 500 lost five at 1,493, and the Nasdaq fell by three to end at 2,574. Volume on the NYSE totaled 1.7 billion shares and 2 billion traded on the Nasdaq. Breadth was negative on both exchanges -- 20-to-11 on the New York and 16-to-13 on the Nasdaq.
Crude oil (August contract) lost a hefty $1.41 and closed at $67.77 per barrel resulting from an end to a strike in Nigeria, and the Amex Energy SPDR (NYSEARCA:XLE) lost $1.40 at $67.91, its lowest close in two weeks. Support on the XLE is at a series of lows at $66.80. But with yesterday's lower close, crude is threatening to close below $67.55 and test the support at $64.
The August gold contract fell $9.40 to close at a five-month low of $645.30 per troy ounce, and the Philly Gold and Silver Index [XAU] had an equally nasty day by losing $3.50 to close at $132.72, its lowest price since March 15.
What the Markets Are Saying
The Dow Industrial Average closed below its 50-day moving average yesterday for the first time since March 16. And for the second day in a row, both the S&P 500 and the other broader-based index, the NYSE Composite, closed below their 50-day moving averages. As a result, we must now look to the June lows for the next support, and that would be Dow 13,207 and S&P 1,487.
If these lows fail to hold, then the near-term trend will turn negative and we will have to look next to the April breakouts at Dow 12,800 and S&P 1,460. So what are the chances of the current support levels holding? Not very good, since volatility (a measure of investor fear/uncertainty), as measured by the Chicago Board Options Exchange's Volatility Index [VIX], is at its highest since the February-March numbers.
Today's Trading Landscape
May durable goods numbers will be reported today (read above), as well as earnings from Bed Bath & Beyond (NASDAQ:BBBY), ConAgra Foods (CAG) (read above), GenCorp (GY), Herman Miller (NASDAQ:MLHR), McCormick (NYSE:MKC), Paychex (NASDAQ:PAYX), Red Hat (NYSE:RHT), Standard Microsystems (NASDAQ:SMSC) and Timberland (NYSE:TBL).
Oracle (NASDAQ:ORCL) beat analysts' estimates by 2 cents in an earnings report issued after yesterday's close with a 23% increase in profits, and that could help the tech stocks today.
Asian Headlines (via Bloomberg.com)
• Asian Shares Slide on Commodity Prices, U.S. Home Sales; BHP, Toyota Drop Asian stocks fell to the lowest in two weeks after commodity prices dropped and on concern a U.S. housing slump will curb growth in the region's biggest export market.
• China's Industrial-Company Profits Swell, Hamper Efforts to Cool Economy China's industrial-company profits swelled 42.1 percent in the first five months from a year earlier, hampering government efforts to cool investment in the world's fastest-growing major economy.
• Hong Kong Dollar Link to Survive, Withstand Speculators, Greenwood Say Hong Kong's currency link to the U.S. dollar can withstand an attack from speculators and last at least another decade, said John Greenwood, architect of the 23- year-old peg and an adviser to the city's monetary authority.
• New Zealand Central Bank May Sell Currency, Warns Against `One-Way' Bets New Zealand's central bank said it may continue to sell its dollar, trading near a 22-year high, and investors should be ``cautious'' about expecting the currency to rally further.
• HSBC Chairman Green Says Spinning Off Asia Operations Would be `Nonsense' HSBC Holdings Plc (HBC) Chairman Stephen Green ruled out spinning off the bank's Asian operations.
European Headlines (via Bloomberg.com)
• European Stocks Drop for Fifth Day; Deutsche Bank, Northern Rock, Axa Fall European stocks fell for a fifth day after U.K. mortgage lender Northern Rock Plc said higher interest rates are cutting into profit and a European Central Bank member signaled further increases in borrowing costs.
• Northern Rock Shares Fall; U.K. Mortgage Bank Says Profit Misses Estimates Northern Rock Plc shares fell the most in six years after the U.K.'s fourth-largest mortgage lender said profit will probably miss analysts' estimates because of rising interest rates.
• EU Blocks Ryanair's $2 Billion Bid for Aer Lingus, First Veto Since 2004 European Union regulators blocked Ryanair Holdings Plc's (NASDAQ:RYAAY) 1.48 billion-euro ($2 billion) bid for Aer Lingus Plc, the first merger veto since 2004, because the takeover would allow the airline to dominate 35 routes.
• Aeroflot Pulls Out of Bidding for Alitalia, Citing Lack of Information OAO Aeroflot, eastern Europe's largest airline, abandoned a bid for the Italian government's stake in Alitalia SpA, saying it was denied ``critical information'' about the company.
• Norway's Central Bank Raises Benchmark Rate for the 11th Time in Two Years Norway's central bank raised its benchmark interest rate for the 11th time in two years and said rates will be lifted more than previously forecast as widespread labor shortages threaten to boost wage growth and fuel inflation.