Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:45 AM ET
S&P 500: -0.75; 1487.25
NASDAQ 100: +2.75; 2003.25
Dow: -11.00; 13523
NIKKEI 225: -2.36%; 17,283.81 (-418.28)
HANG SENG: -2.76%; 22,570.41 (-641.28)
SHANGHAI SE COMPOSITE: -0.03%; 4,345.36 (-1.10)
BSE SENSEX 30: -3.43%; 15,234.57 (-541.74)
FTSE 100: -0.64%; 6,211.40 (-39.80)
CAC 40: -0.58%; 5,642.06 (-32.99)
XETRA-DAX: -0.94%; 7,438.71 (-70.25)
Commodity Futures (Reuters/Jefferies CRB)
Oil: +0.51%; $75.33 (+$0.38)
Gold: -0.47%; $671.90 (-$3.20)
Natural Gas: -0.19%; $5.93 (-$0.01)
Silver: -1.74%; $12.725 (-$0.225)
U.S. Breaking News — see today's Wall Street Breakfast for earlier news
Q2 GDP Grows at a Solid 3.4%
U.S. GDP, the output of goods and services produced by labor and property located in the United States, surged to an annual growth rate of 3.4% in the second quarter, the Commerce Department said today in a preliminary release. GDP for the first quarter was up a much weaker 0.6%. The comprehensive GDP release comes out August 30. Street estimates were for 3.3% annual growth. The increase is the economy's most substantial since Q1 2006, and came despite a sharp reduction in consumer spending -- which rose just 1.3% in Q2 vs. a stronger 3.7% increase in Q1. Consumer spending accounts for approximately 70% of the entire GDP. Residential fixed investment (housing) fell 9.3%, compared to a more severe 16% in Q1 and 17% in Q2 2006. International trade played a role: Exports were up 6.4% while imports fell by 2.6%; in Q1 exports rose only 1.1% while imports were up 3.9%. Business spending was up 8.1% vs. 2.1% in Q1. The Commerce Department emphasized that advance estimates are based on source data that are incomplete and subject to revision. Ellen Zentner of Bank of Tokyo-Mitsubishi UFJ Ltd.: "It was a pretty solid rebound. Exports are rising because world economic growth is racing along and the U.S. dollar is cheap."
Sources: BEA press release, Wall Street Journal, Bloomberg
Commentary: Optimism Takes a Hit as Real Estate Continues to Slump • Chinese Regulators Raise Interest Rates, Limit Credit Creation Growth
Stocks/ETFs to watch: SPY, DIA, AGG
Medtronic to Acquire Kyphon for $3.9B, 32% Premium
Medtronic has entered a merger agreement to acquire Kyphon for $71/share in cash, a 32% premium over Kyphon's $53.68 close Thursday, valuing it at approximately $3.9 billion. The transaction was unanimously approved by the boards of directors of both companies. The deal is expected to close in the first quarter of 2008 -- subject to customary closing conditions and Kyphon shareholder approval -- and be neutral to earnings in the first fiscal year after closing and accretive thereafter. Medtronic will finance the transaction using a combination of cash and debt. Medtronic said it expects the merger to yield "significant revenue, cost and tax synergies." Art Collins, CEO of Medtronic, commented, "We expect our combination with Kyphon to help accelerate the growth of Medtronic’s existing spinal business by extending our product offerings into some of the fastest growing product segments and enabling us to provide physicians with a broader range of therapies for use at all stages of the care continuum." Shares of Kyphon last traded up 27% to $68.25 in the pre-market.
Sources: Press release, Bloomberg, MarketWatch
Commentary: Five Stock Picks from Robert H. Stovall, Managing Director Of Wood Asset Management • Unlucky Number Seven: Sideways Performers Since 2000 - Part Deux
Stocks/ETFs to watch: MDT, KYPH. Competitors: BMET, SYK. ETFs: iShares Dow Jones US Medical Devices (NYSEARCA:IHI), Health Care Select Sector SPDR (NYSEARCA:XLV), iShares Dow Jones US Healthcare (NYSEARCA:IYH)
Ingersoll-Rand Q2 Earnings Fall Net of Unit Sale
Industrial conglomerate Ingersoll-Rand said Friday its second-quarter net income more than tripled on strong international sales and the proceeds of the sale of its Road Development unit to Volvo. Net income was $964.1 million ($3.17/share), up from $313.5 million ($0.95) a year ago. Net of the sale, Q2 EPS were flat at $0.95/share on revenue of $2.22 billion, while net income fell 8.0% to $288M. Analysts had expected $0.95 on $2.76 billion in revenue. IR forecasted third-quarter earnings excluding items of $0.85-0.90/share. Ingersoll breaks down its earnings into three segments: Climate Control Technologies (including Thermo King and Hussmann) posted a 6% revenue gain; Industrial Technologies (Club Car golf carts) revenues were up 12%; and Security Technologies gained 8%. The company is looking to sell its Bobcat machinery unit. "We again offset several soft domestic markets with strong revenue growth from international operations, new product offerings and recurring revenues," CEO Herbert Henkel said. IR forecasts full-year sales of $11.9-12 billion; analysts had been estimating only $11.3 billion. Shares are up 29.5% YTD despite losing 7.5% during the recent marketwide selloff. In pre-market trading, shares are down another 1.3%.
Sources: Press release, Reuters, Bloomberg, MarketWatch
Commentary: JANA Partners Discloses Stake in Alcoa, Ingersoll-Rand • Ingersoll-Rand Trying To Recover From Housing Slowdown
Stocks/ETFs to watch: IR. Competitors: EMR, JCI, TEX
Clear Channel Misses On EPS, Sales
Radio broadcaster Clear Channel Communications Inc., reported adjusted net income of $209 million, good for EPS of $0.42 in its latest quarter. On a non-adjusted basis, net income was $236 million (EPS $0.48). Sales came in at $1.78 billion, up 5.3%, on an increase in radio broadcasting and outdoor ad sales. Clear channel CEO Mark P. Mays noted in the press release: "Our second quarter radio revenues were ahead of the industry, while our outdoor unit continued to post solid growth." Consensus analyst estimates were for adjusted EPS of $0.44 on sales of $1.91 billion. Shares fell 0.60% Thursday during the broad-based U.S. equity selloff.
Sources: Press Release, Bloomberg, Reuters, MarketWatch
Commentary: Clear Channel to Launch Ad-Supported Radio/Cellphone Platform • Major Shareholders to Back Clear Channel Buyout -- WSJ • Clear Channel to Sell Another 201 Radio Stations
Stocks/ETFs to watch: CCU. Competitors: CMLS, CDL, XMSR, SIRI
Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.
Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
Credit market worries, lower crude prices, and a lower-than-expected figure for new home sales resulted in the second-biggest day of selling this year. Even oil giant Exxon Mobil (NYSE:XOM) found it tough going after missing analysts' earnings estimates and then was saddled with the lower close on crude. XOM closed out the day down $5.06 (-5.5%).
Of the Dow 30 only one stock, 3-M (NYSE:MMM), had a gain, and the S&P 500 closed under 1,500 for the first time in a month. Some said they didn't quite understand why the market sold off since the news hadn't changed much, but yesterday's miss on new homes sales was the catalyst because of a major miscalculation -- 890,000 were expected and only 834,000 were reported sold.
The reversal in crude oil prices also contributed to the selling, impacting not only XOM but the entire energy group. Dow Chemical (NYSE:DOW) reported above expectations but closed lower by 5.2%, yet Apple (NASDAQ:AAPL) still shone brightly as it advanced 6.3% on a 73% rise in profits. The Labor Department said that jobless claims dropped by a surprising 2,000 to 301,000, the lowest since the week of May 12, but that didn't appear to impact investors who were more concerned about a possible credit crunch.
At the close, the Dow Industrials fell 312 points to 13,474. The S&P 500 lost 35 at 1,483, and the Nasdaq was off 49 points, closing at 2,599. As might be expected, breadth was decidedly negative at 10/1 down on the Big Board and 5/1 down on the Nasdaq. Trading curbs were applied by the NYSE early in the day, and 2.8 billion shares traded there while 3.5 billion shares were exchanged on the Nasdaq.
September crude oil contracts closed lower by 93 cents at $74.95 a barrel, which doesn't seem like much of a decline but resulted in a reversal from a high of $77.15 earlier in the day. The Amex Energy SPDR (NYSEARCA:XLE) fell $2.43 to $70.72 and as a result completed a reversal and issued a strong sell signal from our internal indicator. Gold (August contracts) dropped $11 to $662.80 per troy ounce for the second consecutive big loss, and the Philadelphia Gold/Silver Index [XAU] lost $6.06 to close at $147.26. Its intraday low of $144.60 was almost exactly on the breakout point made several weeks ago which now acts as support.
What the Markets Are Saying
With just 320 advances versus 2,987 declines on the NYSE and 72% of the volume on the downside, yesterday was one of the most emotional selling days we've had this year. The volatility index on the CBOE [VIX] closed at the highest level since April 2006, and TrimTabs Investment Research estimates the outflow of mutual funds on Tuesday hit $5.5 billion, the second highest since Feb. 27.
With the huge margin interest reported by the NYSE last month, we have to conclude that much of this is due to margin selling, just as the advance to new highs only a week ago (hard to believe it was just a week isn't it?) was partly the result of covering by a record number of short sellers. In other words, the markets are now in the hands of some very emotional investors, so the pendulum will have big swings from overbought to oversold and back again.
If you have good solid stocks with strong earnings, hold on to them. So far, Q2 has shown an increase in earnings of 8% versus an expected 4% and there are more big earnings yet to come.
From a technician's viewpoint, the major indexes (Dow Industrials, S&P 500, the Nasdaq, and the NYSE Composite) broke through the first level of support in just one day, thrusting all of them into oversold territory on the internal market indicators. Each stopped short of getting into the price ranges established from February to April, and each is still above its 200-day moving average. As Tobin Smith of ChangeWave said recently, "It's time to take a deep breath. Remember that we make more money buying on panics than any other time."
Today's Trading Landscape
There are fewer earnings due today but here are some who will report: Agile Software (AGIL), Chevron (NYSE:CVX), Ingersoll-Rand (NYSE:IR) (read above), ITT Corp. (NYSE:ITT), Medco Health (NYSE:MHS) and Veeco Instruments (NASDAQ:VECO). Gross domestic product (GDP) and consumer sentiment data will be reported today; however, the credit markets will again be in focus, and news there will have a direct impact on today's trading.
Asian Headlines (via Bloomberg.com)
• Asian Shares Slide Most in Four Months; Toyota, Samsung, BHP All Tumble Asian stocks fell the most in four months, extending a rout that wiped out $1.3 trillion of global market value yesterday, as investors shun riskier assets because of a deepening U.S. housing recession.
• NTT DoCoMo First-Quarter Profit Falls 25 Percent on Handset Subsidy Costs NTT DoCoMo Inc. (NYSE:DCM), Japan's biggest mobile-phone company, reported lower profit for a fifth straight quarter on costs to pay for its customers' handsets.
• Dollar Rebounds as U.S. Stock-Index Futures Advance Before GDP Report The dollar rebounded against the yen and euro as stock markets stabilized before a report expected to show U.S. economic growth accelerated in the second quarter.
• Toshiba's First-Quarter Profit Rises Fivefold on Chips, EMI Stake Sale Toshiba Corp. (OTCPK:TOSBF), Japan's biggest chipmaker, said first-quarter profit surged fivefold on image sensors and semiconductors used in game consoles and a one-time gain from the sale of a Japanese music venture with EMI Group Plc (OTC:EMIPY).
• ITC First-Quarter Profit Rises 20 Percent to $193 Million, Beats Estimate ITC Ltd., India's biggest tobacco company, said first-quarter profit rose a more-than-expected 20 percent after an increase in cigarette prices offset the impact of a new sales tax.
European Headlines (via Bloomberg.com)
• European Stocks Set for Weekly Drop; Deutsche Bank, Man Group Shares Fall European stocks headed for the biggest weekly decline since March on mounting concern financing difficulties in the credit markets will stifle mergers and acquisitions.
• Cadbury Delays Sale of U.S. Drinks Unit, Citing Volatility in Debt Markets Cadbury Schweppes Plc (NYSE:CSG) became the first company to delay the sale of a unit since ``extreme volatility'' in debt markets this month hampered leveraged buyouts.
• Volkswagen Earnings Climb on Job Cuts, New Models; Annual Forecast Raised Volkswagen AG (OTCPK:VLKAY), Europe's largest carmaker, raised its earnings forecast after second-quarter profit surged 42 percent as German job cuts reduced costs, and new Audi and Skoda models increased sales.
• BG Group Profit Rises 13 Percent, Helped by Natural Gas Deliveries to U.S. BG Group Plc (NYSEMKT:BRG), the U.K.'s third-largest natural-gas producer, said second-quarter profit rose 13 percent, helped by higher shipping volumes and prices of gas delivered to the U.S.