Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 8:31 AM ET
S&P 500: -1.00; 1,564.25
NASDAQ 100: -0.50; 2,166.25
Dow: +7; 14,093
NIKKEI 225: -0.73%; 17,331.17 (-127.81)
HANG SENG: -1.01%; 28,838.37 (-294.65)
SHANGHAI SE COMPOSITE: -0.17%; 5,903.26 (-9.97)
BSE SENSEX 30: 18,419.04 -395.03 -2.10%
FTSE 100: -0.76%; 6,673.70 (-50.80)
CAC 40: -1.18%; 5,793.58 (-69.25)
XETRA-DAX: -0.51%; 7,992.86 (-40.83)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.19%; $82.92 (-$0.16)
Gold: -0.61%; $752.10 (-$4.60)
Natural Gas: -1.41%; $6.78 (-$0.10)
Silver: -0.89%; $13.86 (-$0.125)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
GE Q3 Earnings In-line; Plans $5.7B Q4 Buyback
General Electric reported a 14% increase in third-quarter net income to $5.54 billion, or $0.54 ($0.50 on a continuing operations basis), on 12% higher revenues to $42.53B. Analysts were expecting $0.50, on sales of $42.42B. GE's Q4 EPS guidance of $0.67 to $0.69 (+18% to 21% y/y) is within Street expectations of $0.68. GE said it recorded organic revenue growth of 8% and international growth of 15%. Total orders rose 20% to $24B and backlog increased 43% to $19B. In a statement, CEO Jeff Immelt said, "GE delivered a solid quarter in spite of extreme volatility in the financial services market and some one-time items in our industrial businesses." Mr. Immelt added, "Our outlook for the remainder of the year is strong. We have a better set of financial services businesses and a successful turnaround at NBC Universal, and we will have earnings acceleration in Infrastructure." GE said it bought back $6.3B of its common stock during Q3 and expects to repurchase $5.7B worth during Q4. GE's earnings conference call is at 8:30 A.M. (check later for GE's earnings call transcript). Shares of General Electric lost 0.5% to $41.60 on Thursday and were last down 0.75% to $41.29 in thin pre-market trading.
Commentary: A Preview of Q3 Earnings: Alcoa Kicks Things Off • GE Reiterates Earnings Guidance • GE May Sell NBC After Olympics -- FT
Stocks to watch: GE. Competitors: C, PHG, SI. ETFs: IYJ, XLI, EXI, DHS, PRFN
Shakeup at Citigroup
In a major shakeup at the U.S.'s number-one bank by market cap, Citigroup announced it will combine two of its leading units, Citi Markets & Banking and Citi Alternative Investments under the single moniker Institutional Clients Group. The new unit will be headed by Vikram Pandit, formerly of Morgan Stanley, effective immediately. Pandit believes the two units being combined are a natural fit: "These are interrelated businesses, and they have the same clients, they need the same infrastructure, and our view is that if they run on an integrated basis we can accelerate the growth." One of the current heads of the Investment banking unit, Thomas Maheras, is being replaced by Citi insider James Forese. With Citi announcing last week it expects to post a 60% decline in earnings when it reports Monday, October 15, CEO Chuck Prince felt obligated to try and alleviate the growing concerns of Citi shareholders, many of which have extended to his own ability to manage the giant banker. Citi shares are down 13.25% YTD; they are down 1.8% in pre-market trading (as of 7:16 a.m. ET) after gaining 2.2% in composite trading Thursday.
Commentary: What Is Citi's Chuck Prince Doing?! • Citibank Earnings Preview • Too Late for a Citigroup Breakup?
Stocks to watch: C. Competitors: BAC, JPM.
Earnings call transcript: Citigroup Q2 2007
Centex to Take $1B Impairment Charge
Number-one U.S. homebuilder Centex said Friday it will take almost $1 billion in charges for its fiscal Q2, saying the housing market continues to be "extremely difficult." Orders for the quarter will drop 13% to 5,953 units, while sales will fall 14% to 7,350 units, the company said in a preliminary earnings announcement . "These adjustments reflect the market's further deterioration over the quarter and the significant effects of the mortgage-market disruptions," CEO Timothy Eller said (see FQ1 earnings call transcript). The $1 billion charge includes an $850M impairment on its land inventory and a $65M goodwill impairment. On Thursday, Moody's cut Centex's investment grade debt to junk status, along with that of Lennar and Pulte Homes. It said it foresees extremely weak industry conditions through at least 2009, "with any sector recovery likely to be listless for some time after that." It said Centex has had a hard time unloading excess inventory, faces rapidly declining home deliveries and revenue generation, and has close to a seven-year lot supply. In an Oct. 1 note, Citigroup told investors, "While we don’t expect any of the builders to move much lower over the near term, we expect the larger-cap builders and those with the strongest balance sheets to benefit most from any near-term bounce -– much as they did coming out of the 1990 trough." Centex shares are down 3.2% to $28.50 in pre-market activity.
Commentary: Another Absurd Homebuilder Rally • Citigroup Upgrades Four Homebuilders In Attempt To Call Bottom • A Bullish Call On Philly’s Housing Sector Index
Stocks to watch: CTX. Competitors: DHI, LEN, PHM, TOL
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
A funny thing happened after the major indices ploughed into record-high territory, but it wasn't "ha ha" funny, especially if you happened to be long a list of technology stocks. After an early morning rise, propelled by bullish results from Wal-Mart (NYSE:WMT) and a new UAW contract for General Motors (NYSE:GM) workers, things got a bit ugly as technology stocks took a sudden dive on higher-than-normal volume.
Some traders said that the sell-off was due to negative comments from JP Morgan (NYSE:JPM) about the Chinese internet stock Baidu (NASDAQ:BIDU), while others blamed a quote from a European Central Bank official who said that the Euro zone interest rates would have to rise in order to combat inflation. Still others concluded that there has been a rush to tech stocks that has resulted in a temporary bubble that had to burst.
Whatever the reason the markets, and especially the technology stocks, took a real beating as the leaders of that group -- such as Apple Inc. (NASDAQ:AAPL), Research-In-Motion (RIMM), Amazon (NASDAQ:AMZN), and VMware (NYSE:VMW) -- took it on the chin for losses that, in some cases, exceeded more than 5% from their intraday highs.
At the close, the Dow Jones Industrial Average fell 64 points to 14,015 after making a new intraday high at 14,198. The S&P 500 closed at 1,554, down eight points, after a high at 1,576. The Nasdaq fell to 2,772, down 39 points, following a high at 2,758.
On the NYSE, volume totaled 1.5 billion shares and the Nasdaq traded 2.6 billion -- a dramatic pick-up for the Nasdaq after days of averaging 1.7 to 1.9 billion. Breadth was negative on the Big Board at 5-to-3 and negative 5-to-2 on Nasdaq.
Crude oil (November contract) gained $1.78 a barrel at $83.08, and the Amex Energy SPDR (NYSEARCA:XLE) lost 21 cents to close at $76.56. Gold (December contract) gained $10.70 per troy ounce closing at $756.70, and the Philadelphia Gold/Silver Index [XAU] gained 22 cents to $176.68.
What the Markets Are Saying
After the spectacular run that took the Dow Jones Industrial Average up 7.3% from its Sept. 10 low, and the Nasdaq up 17% from its Aug. 16 low, no one should have been surprised by yesterday afternoon's violent sell-off.
I've been warning for days that the volume did not support such a dramatic rise and that the sentiment indicators were grossly overbought. Again on Thursday morning, the Association of Individual Investors [AAII] reported that its members were more than 2-to-1 bullish for the seventh weekly increase.
Yesterday morning's rush to buy the techs propelled the indices to new all-time highs before reality set in, driving them not only to minuses but minuses on daily reversals and sell signals from our own internal Collins Bollinger Reversal [CBR] indicator.
This series of reversals will more than likely initially drive the indices to their first support line. For the Dow that is 13,740, for the S&P 500 it is 1,540, and for the Nasdaq 2,720. But if the selling picks up and the supports are violated, then we could spend the remainder of October and part of November back into the trading zone of SPX 1,490 to 1,540.
Today's Trading Landscape
Other than General Electric (NYSE:GE) (read above), there are no significant earnings due today. The economic reports for the week end with September retail sales (the consensus expects 0.2%, excluding autos at 0.3%), the Producer Price Index (the consensus expects 0.4%, core 0.2%), and August business inventories (the consensus expects 0.3%).
Oracle (NASDAQ:ORCL) has made an offer to buy BEA Systems (BEAS) for $17 per share in cash. However, the focus today will be the impact of GE's earnings, which came in at 50 cents a share to meet analysts' expectations, as well as a follow through from yesterday's tech sell-off.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Fall on Concern China to Raise Interest Rates to Cool Growth Asian stocks fell on speculation China will raise interest rates as soon as today to cool the economy, and after Sony Corp.'s (NYSE:SNE) mobile-phone unit reported its first profit decline in two years.
• China's Trade Surplus Swells 56 Percent, Adding Pressure for Stronger Yuan China's trade surplus jumped 56 percent in September to $23.9 billion, adding pressure on the central bank to increase borrowing costs and let the yuan strengthen faster to prevent the economy overheating.
• India's Industrial Production Soars 10.7 Percent, Exceeding Expectations India's industrial production growth exceeded expectations in August, accelerating for the first time in five months, as record investment in factories, roads and power plants boosted demand for cement and steel.
• Reliance to Expand Overseas, Build a Global Business, Mukesh Ambani Says Reliance Industries Ltd., India's biggest company, will expand overseas to build a oil, gas and chemicals global business.
• Samsung Electronics Reports Surprise Profit Increase on LCD Display Sales Samsung Electronics Co., the world's second-largest chipmaker, posted its first profit gain in four quarters after earnings from semiconductors, liquid-crystal displays and mobile phones beat analysts' estimates.
European Headlines (via Bloomberg.com)
• Branson's Virgin Is Negotiating to Acquire Northern Rock, Two People Say Virgin Group Ltd., U.K. billionaire Richard Branson's holding company, is in talks to take over Northern Rock Plc (OTC:NHRKF), two people with knowledge of the matter said.
• E.ON to Boost Nuclear, Hydro Generation in $6.2 Billion Norway Asset Swap E.ON AG, Germany's largest utility, will swap 4.4 billion euros ($6.2 billion) of assets with Norway's state power company to gain a greater share in nuclear reactors and hydropower plants.