Wall St. Breakfast's Pre-Market Snapshot:
U.S. Futures As of 9:05 AM ET
S&P 500: +11.50; 1,568.00
NASDAQ 100: +53.00; 2,188.00
Dow: +35; 14,147
NIKKEI 225: +0.56%; 17,159.90 (+94.86)
HANG SENG: +1.65%; 28,228.04 (+457.75)
SHANGHAI SE COMPOSITE: +0.41%; 5,715.89 (+23.14)
BSE SENSEX 30: +4.51%; 18,280.24 (+788.85)
FTSE 100: +0.85%; 6,596.60 (+55.70)
CAC 40: +0.31%; 5,847.51 (+18.11)
XETRA-DAX: +0.30%; 7,998.11 (+23.74)
Commodity Futures (Reuters/Jefferies CRB)
Oil: -0.47%; $78.65 (-$0.37)
Gold: -0.56%; $734.60 (-$4.10)
Natural Gas: +0.22%; $6.86 (+$0.02)
Silver: -0.37%; $13.31 (-$0.05)
U.S. Breaking Newssee today's Wall Street Breakfast for earlier news
AT&T To Buy $2.5B of Wireless Spectrum
AT&T announced early Tuesday its Board of Directors has approved an agreement to purchase $2.5B of wireless spectrum licenses covering 196 million people in the 700 MHz frequency from Aloha Partners, L.P. AT&T will pay in cash and expects the transaction to close with government approvals within six to nine months. AT&T's president of group corporate strategy commented, "Customer demand for mobile services, including voice, data and video, is continually increasing. Aloha's spectrum will enable AT&T to efficiently meet this growing demand and help our customers stay connected to their worlds." AT&T's existing spectrum will be expanded by 12 MHz. AT&T said the spectrum covers many major metropolitan areas, including all of the top-10 in the U.S. and 72 of the top 100 markets. Shares of AT&T were down 0.5% to $41.93 on Monday.
Sources: Press release, MarketWatch
Commentary: Verizon Finally Unveils iPhone Competition, Or "iPhone Equalizer" • Apple Might Bid For Wireless Spectrum -- BW • FCC Spectrum Rules Favor New Entrants Over Incumbents -- Source
Stocks/ETFs to watch: T. Competitors: VZ, S, DT. ETFs: IXP, IYZ, MKH, XLK
Earnings call transcript: AT&T Q2 2007
Molson Coors, SABMiller To Combine U.S. Operations
Beer maker Molson Coors and its British counterpart SABMiller plc announced Tuesday they were combining their U.S. operations. In a challenge to Anheuser-Busch, the U.S.'s largest beer maker by sales, the new venture will go by the name MillerCoors, and is expected to record annual beer sales in its first year of combined operations of 69 million U.S. barrels, good for revenue of about $6.6 billion. Anheuser sold 52 million barrels in the U.S. in the first half of 2007. MillerCoors expects the combination to begin saving it $500 a year in synergies, beginning after the first year of combined operations. SABMiller will control 58% of the joint venture while Molson Coors will control the remaining 42%. All of the companies' U.S. operations will be conducted through MillerCoors going forward. According to Molson Coors V.P. Pete Coors, "This transaction is driven by the profound changes in the U.S. alcohol beverage industry that are confronting both of our companies with new challenges." Molson shares have gained 33% so far in 2007, versus just 5.75% for Anheuser. SAB's U.S. shares are up nearly 17% YTD. MolsonCoors issued a two-for-one split for its shares on October 4.
Sources: Wall Street Journal, AP, TheStreet.com
Commentary: Molson Coors Enjoys Strong Loonie On Tap • Molson Coors vs. PepsiCo: Goldman Prefers Beer • Molson Coors Shares Ride UBS Upgrade Buzz
Stocks/ETFs to watch: Molson Coors Brewing Company (TAP), OTCPK:SBMRY. Competitors: Anheuser-Busch Companies (BUD).
Earnings call transcript: Molson Coors Brewing Q2 2007
Rising Panel Prices Bolster LG.Philips
LG.Philips LCD Co. reported its best results in more than three years Tuesday amid rising prices and strong demand for its liquid crystal displays. The world's number-two panel maker reported a Q3 net profit of 524 billion won ($572 million), having lost 321 billion won a year ago. Sales jumped 43% to 3.953 trillion won, and operating profit soared to 693 billion won from 150 billion won in Q2 and a 382 billion won loss in Q3 2006. Profits fell short of the 557 billion won analysts estimated. LG.Philips said it would invest an additional 2.5 trillion won in a manufacturing facility, and that it will boost its capital spending budget next year from one to three trillion won. However, it forecasted a sequential decline in profit and revenue for Q4, due to capital upgrades, and predicted a mild drop in panel prices and the potential for waning demand. "Some upgrades in manufacturing facilities to expand our capacity will likely cause a drop in earnings in the fourth quarter," CEO Young Soo Kwon said. Analysts forecast the industry's tight demand-supply situation will continue through 2008 because panel makers have slashed capital investments over the past few years. "We see favorable conditions for the LCD market until the first half of next year," said fund manager Chang In-whan. "In the second half of next year, however, the forecast is not that bright, because the LCD industry is probably going to focus on expanding facilities." Kwon also said he expects Philips Electronics to sell down its 32.9% stake in LG.Philips to about 19.9% by year-end, adding that a couple of companies have shown interest in the stake. There has bee speculation that Japan's Matsushita Electric Industrial Co. may be a potential buyer for Philips's stake; Matsushita denies it is in talks.
Sources: Wall Street Journal, Reuters
Commentary: LCD Market Update: Channel Inventories a Concern? • LCD Panel Makers, DRAM Producers Could Be Hit By Matsushita Plant Fire
Stocks/ETFs to watch: LPL. Competitors: AUO, HIT
Toyota Likely to Miss Domestic Sales Target
About two weeks ago, Toyota Motor president Katsuaki Watanabe said he did not want to "lower the flag yet" in Japan for full-year sales, despite trailing every month year-over-year through July. However, on Tuesday, Mr. Watanabe speaking at a news conference said sales will likely miss the company's projection of 1.72 million vehicles. Mr. Watanabe said in spite of the challenging market, Toyota "should be able [to sell] mid-1.6 million vehicles." Commenting on the U.S. market, Mr. Watanabe said industry-wide conditions have worsened due to higher oil prices and subprime mortgage related troubles. Toyota still expects to meet its global sales target of 8.4 million vehicles, +6% y/y, helped by growth in the Middle East, Russia and Southeast Asia. Toyota's ADRs lost 0.3% to $117.36 on Monday. Its ordinary shares fell 1% to ¥6,760 ($115.36) in Tokyo on Tuesday.
Sources: Wall Street Journal
Commentary: U.S. Sept. Auto Sales Down, But Better Than Expected • Japan Trade Surplus Surges on Auto, Steel Demand • Toyota's September Sales May Disappoint
Stocks/ETFs to watch: TM. Competitors: HMC, OTCPK:NSANY, F, GM, DAI. ETFs: EWJ, ADRA
Johnson Controls Guidance Mostly In-Line
Johnson Controls, a diversified industrial company that makes buildings and vehicles more comfortable, safe and sustainable, says it expects fiscal 2008 diluted earnings per share growth of 18% to $2.40 to $2.50 and see sales increasing by 10% to around $38 billion. Analysts had forecast $2.50 on sales of $36.9B. Johnson Controls also reiterated its fiscal Q4 guidance for EPS of $0.77 to $0.78, compared to analysts' average estimate of $0.78. Full year adjusted earnings are expected to be in the range of $2.08 to $2.10. Analysts expect $2.10, on average. In a statement, CEO Stephen A. Roell commented, "Johnson Controls near-term sales growth will be driven by a combination of our participation in growing markets and our ability to increase our market shares." Johnson Controls reports fiscal Q4 and full year results on Oct. 23. The company said its latest forecasts reflect its 3-for-1 stock split on Oct. 2. Shares of Johnson Controls lost 1.2 % to $40.19 on Monday and were last down about 0.4% to $40.01 in thin pre-market trading.
Sources: Press release, MarketWatch
Commentary: Johnson Controls: A Superstar Dividend Payer • Four Energy Efficiency Stocks For a Cool Summer • Johnson Controls: Goldman's Bullish Call Should Generate Buy Interest
Stocks/ETFs to watch: JCI. Competitors: LEA, XIDE
Earnings call transcript: Johnson Controls F3Q07
Thornburg Mortgage Warns of Higher Q3 Losses
Jumbo mortgage provider Thornburg Mortgage increased its estimates of how much of its assets it sold during the quarter, increasing as well projected losses on the sales. Thornburg now estimates it sold $22 billion in assets during Q3, vs. an earlier estimate of $20.4 billion. Projected losses on the sales were raised to $1.1 billion from $863 million. The company also said it expects to take a $286 million writedown the value of its mortgage portfolio, vs. a previous estimate of $262 million. However, Thornburg said it believes it has enough reserves to cover any future losses on its portfolio, adding that it has not seen material deterioration in the credit performance of its loan portfolio since July 31. "The global dislocation of the mortgage finance and credit markets this past summer has had a greater impact on our balance sheet than we initially estimated. However, we have begun to see a modest improvement in financing conditions since August," President Larry Goldstone said. Shares are down 7.1% to $12.50 in pre-market trading.
Sources: AP, Wall Street Journal
Commentary: Thornburg: Looking for Value Among Mortgage REIT Preferred Stock • Thornburg Mortgage Hit With Margin Calls; Shares Plunge 47%
Stocks/ETFs to watch: TMA
St. Joe’s Cuts Workforce and Dividend
St. Joe Company, Florida's largest private landowner, announced Monday it will cut 75% of its workforce, sell 100,000 acres of land, and stop paying its dividend. The company said it will partner with "leisure, hospitality and lifestyle brands" to develop and operate the land it owns, to make up for the laying off or transferring at least 760 employees. Though these types of announcements are barely shocking amid the housing market's worst slump in 16 years, St. Joe's is considered a well-run, well-financed firm, and its difficulties illustrate the severe challenges in Florida real estate. "If Joe is having to do this, the pain in the residential companies is likely worse in my mind," said Christopher Haley, an analyst at Wachovia Securities. The company said as a result of the restructuring, it will save about $10 million in 2008, $18 million in 2009 and $20 million in later years. Shares of St. Joe finished down 0.32%, to $34.04 in Monday's session.
Sources: Bloomberg, WSJ
Commentary: St. Joe To Cease Building Homes in Florida As National Housing Market Goes From Bad to Worse • St. Joe's Defense: Weak At Best
Stocks/ETFs to watch: JOE. Competitors: AVTR. LEN. ETFs: XHB, ITB
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Today's Market (via Sam Collins, ChangeWave.com)
Recap of Yesterday's Action
With volume that approached just half of a normal trading day, as well as little news, it seemed like everyone was just going through the motions until the "first-string team" came back on the field. Without them returning to play yesterday, the day's focus turned to the path of least resistance -- the technology stocks.
Even before the opening, it looked like a big day for techs could happen when German software maker SAP AG (NYSE:SAP) announced the takeover of Business Objects (BOBJ). Then BOBJ met expectations by opening almost eight points higher. However, tech's biggest players did quite well, too: Google (NASDAQ:GOOG) scored with a $15.57 gain hitting an all-time high at close to $610, Apple (NASDAQ:AAPL) hit a new high at almost $168, and Research in Motion (RIMM) continued its recent impressive run by gaining another $4 to close at $117.65. Topping it off for an almost perfect day for the big tech team, the world's largest PC maker, Hewlett Packard (NYSE:HPQ), dashed to a new closing high of $52.03, up $1.13.
The Dow Industrials closed at 14,044 down 22, the S&P 500 was off five at 1,553, and the Nasdaq gained seven on the tech surge to close at 2,787. The Big Board traded just over 851 million shares and the Nasdaq did 1.5 billion. On the NYSE breadth was negative at two shares down for every one up, and on the Nasdaq breadth was positive at 4-to-3.
The other big story yesterday occurred in the futures pits where sellers held the day. The November crude oil contract closed well under $80, as it was pummeled for a loss of $2.67 and closed at $78.65. Yesterday's fall breaks a quadruple bottom for crude and sets it up for a further decline to about $75 and possibly even lower. The Amex Energy SPDR (NYSEARCA:XLE) lost 71 cents and closed at $74.40, almost exactly on its immediate support at the 20-day moving average. The next support for the XLE is at the conjunction of the 50- and 100-day averages at about $70.60. The December gold contract fell by $8.50 to $738.70 per troy ounce and has support at $730. The Philadelphia Gold/Silver Index [XAU] lost $2.72 at $168.56. Its next support is at last Thursday's reversal low at $163.50.
Here some stats on last week's performance: The Dow Industrial Average rose 1.2%, reaching an all-time high. Its 7.3% advance over the last four weeks is its best run since November 2002. The S&P 500 moved past the previous high made in July gaining 2%. The Nasdaq hit its highest point since February 2001, led by the techs and was up 2.9% for the week. Small caps helped the Russell 2000 surge by 4.9%. But volume on the Big Board totaled just 6.3 billion shares last week, down from the previous week and 23% lower than a year ago.
What the Markets Are Saying
Yesterday the focus was on the technology sector – it was a continuation of last week when the big movers were in techs and the small caps. Even though the broader-based indexes, the S&P 500 and the NYSE Composite, did break into new highs, it was the Russell 2000 Small Caps that ran twice as fast as the senior averages.
I've become a more cautious bull as a result of declining volume, weak sentiment numbers, and overbought internal indicators. Now we see most of the buying focused on the most speculative, high P/E multiple stocks. This buying emphasis usually occurs toward the end of a move and not at the beginning. So, like the seasoned baseball umpire, I'll have to continue to "call 'em da way I sees 'em" and I still see a minor pullback coming before the next major move higher.
Today's Trading Landscape
Today the first major company to report Q3 earnings will hit the tape: Aloca (NYSE:AA). It will be accompanied by California Pizza Kitchen, Cantel Medical, Oxford Industries and Mosaic.
The minutes from then Federal Open Market Committee's [FOMC] Sept. 18 meeting will get scrutinized today, and that will no doubt provide some interesting commentary that could even impact both the bond and stock markets--stay tuned. Standard and Poor's chief economist said that he expects the Fed to lower fed funds by another 25 basis points by December. But starting today with the first of the Q3 earnings, the market's focus will probably shift from interest rates to earnings.
Asian Headlines (via Bloomberg.com)
• Asian Stocks Climb to Records as Honda Motor, Bharti Airtel Advance Asian stocks rose, driving indexes in eight countries to records. Honda Motor Co. led Japan's exporters higher after the yen reached a two-month low against the dollar.
• China Shenhua Shares Surge on First Day After Sale Attracts $354 Billion China Shenhua Energy Co., the world's second-biggest coal seller, almost doubled on its first day of trading in Shanghai after investors applied for a record 2.66 trillion yuan ($354 billion) of stock.
• LG.Philips Posts Biggest Profit in Three Years as Flat-Panel Prices Climb LG.Philips LCD Co. (NYSE:LPL), the world's second-largest maker of liquid-crystal displays, reported its biggest profit in more than three years after a shortage drove up prices of computer screens.
• Ford, Mazda to Spend More Than $500 Million on New Car Factory in Thailand Ford Motor Co. (NYSE:F), the second-largest U.S. carmaker, and its Japanese affiliate Mazda Motor Corp. will spend more than $500 million to set up a plant in Thailand to expand in Southeast Asia.
European Headlines (via Bloomberg.com)
• European Stocks Advance, Paced by Northern Rock, Hagemeyer, Burren Energy European stocks climbed after takeover offers for Hagemeyer NV, Burren Energy Plc and U.K. retailer Carpetright Plc added to evidence that mergers and acquisitions are rebounding from an August slump.
• Northern Rock's Government Guarantee Is Extended to Post-Bailout Deposits Northern Rock Plc, the U.K. mortgage lender bailed out last month by the Bank of England, said the government will now guarantee all customer deposits until financial markets become less volatile.
• Sonepar Plans to Buy Hagemeyer for $3.5 Billion to Trump Rexel in Switches Sonepar SA offered to buy Hagemeyer NV for 2.51 billion euros ($3.5 billion) to become the world's largest distributor of electrical sockets and switches.