From Briefing.com: 4:30 pm Weekly Wrap
The major averages finished the week lower, as investors digested some disappointing earnings results and ongoing concerns about the economy and the health of the sub-prime mortgage lending, following the market’s recent strong gains.
Corporate financials took center stage in the past week, with second quarter earnings season now in full swing.
Overall, the reports have been moderately good, but not outstanding, with large multinational companies faring the best because of foreign exposure as well as substantial share buybacks.
Twelve Dow components highlighted the lengthy earnings calendar, which also included reports from other luminaries such as Yahoo! (YHOO), eBay (EBAY), Google (GOOG), Abbott Laboratories (ABT), Harley-Davidson (HOG), and Southwest Airlines (LUV).
Also reporting during the week were a host of financial companies, including KeyCorp (KEY), Merrill Lynch (MER), JPMorgan Chase (JPM), Washington Mutual (WM), Citigroup (C), Bank of America (BAC), and Wachovia (WB). Despite some better than expected results, however, lingering concerns about sub-prime lending held the sector back.
Both the Dow Jones Industrial average and the broader S&P 500 index closed at record levels on Thursday, led by strong gains in the Technology sector. Strength in the semiconductor sub-group, in particular, was weakened by a disappointing report from Intel (INTC) mid week, but reinvigorated by IBM (IBM), which posted better than expected results, to lead the sector.
The markets reversed course on Friday, however, as lackluster results from blue chips Caterpillar (CAT) and Google unnerved investors. An inline report from Microsoft (MSFT), following several strong quarters that exceeded analysts’ estimates, also weighed on sentiment and prompted shares to retrace their gains.
The flurry of earnings news during the week was also accompanied by Fed Chairman Ben Bernake’s semiannual report to Congress, in which he warned that weakness in the housing market could hurt economic growth. Ongoing concerns about the housing market and the health of sub-prime loans has been a major concern in recent weeks, and continues to act as a headwind for the market.
In terms of economic data, the June core PPI rose 3%, according to a report from the Labor Department. That was slightly higher than the 0.2% gain economists were expecting, and raised some inflationary concerns. The core CPI was up 0.2% last month, in line with expectations.
Meanwhile, Housing Starts rose last month, but Building Permits tumbled. June Housing Starts were reported at a 1.467 million annual rate, just above the 1.450 million rate that was expected. Housing permits plunged 7.5% in June to just a 1.406 million annual rate, versus the consensus estimate of a 1.490 million rate, reflecting the bleak outlook for the housing market.
--Richard Jahnke, Briefing.com
Index Started Week Ended Week Change % Change YTD
DJIA 13907.25 13851.08 -56.17 -0.4 % 11.1 %
Nasdaq 2707.00 2687.60 -19.40 -0.7 % 11.3 %
S&P 500 1552.50 1534.10 -18.40 -1.2 % 8.2 %
Russell 2000 855.77 835.93 -19.84 -2.3 % 6.1 %
4:20 pm : Stocks closed off their lows of the day but some large scale earnings disappointments and more subprime mentions kept sellers in charge of the action from start to finish. For the first time in about a month, the Dow, S&P 500, and Nasdaq closed out the week with losses. Broad-based weakness today knocked them down 1.1%, 1.2%, and 1.2%, respectively.
A day after the Dow finally closed above 14,000, logging its 32nd record finish this year and 8th victory in 10 sessions, it wasn't overly surprising to see some on Wall Street sense the market was a bit overbought. Throw in a huge earnings miss from the index's second best performer this year, however, and blue-chip valuations became even more vulnerable.
Caterpillar (CAT 83.20 -3.78) badly missed analysts' expectations, paced the Dow's decliners (-4.4%) with a 30-point contribution to the downside, and blamed the housing correction for most of the weakness in all of its North American markets. Homebuilders (-3.6%) were already tacking more losses onto their year-to-date lagging 31% performance after KB Home (KBH 35.03 -1.29) said it doesn't see a bottom in housing until the end of 2008.
Before Caterpillar upset the apple cart, market sentiment was already bearish as disappointing quarterly reports from two tech bellwethers left investors again wondering if the sector's growth prospects are overly optimistic. For just the second time as a public company, Google (GOOG 520.12 -28.47) missed analysts' expectations while the typically dependable Microsoft (MSFT 31.16 -0.35) broke a long string of upside surprises with an inline Q4 report. When two of the Nasdaq's three largest stocks by market cap post disappointing results, it's easy to see why the tech-heavy Composite faced such an uphill battle Friday.
From a leadership standpoint, the Financial sector was also in focus. Citigroup (C 50.73 -0.40) and Wachovia (WB 49.98 -1.63) posting record results, Capital One (COF 77.66 +2.15) enjoying a 36% jump in Q2 profits, and the 10-year yield slipping to as low as 4.97% early on helped the influential sector actually open to the upside.
However, the way in which Treasury yields tumbled acted as more of an offset to the welcome drop in borrowing costs. Bonds caught a flight-to-quality bid amid renewed talks of Australian hedge-fund troubles and reports that Standard & Poor's cut ratings on European collateralized debt obligations (CDOs). Even though St. Louis Fed President Poole said that subprime problems are isolated and have not spread to banks, the damage was already done leaving market bulls no chance whatsoever to lift the Dow and S&P 500 back into record territory.
As an aside, volume today was much heavier than usual due to double witching options expiration. That lent even more conviction on the part of the naysayers struggling to have their overbought arguments heard of late. BTK -1.0% DJ30 -149.33 DJTA -1.6% DJUA -1.7% DOT -1.0% NASDAQ -32.44 NQ100 -0.8% R2K -1.8% SOX -1.2% SP400 -1.0% SP500 -18.98 XOI -1.4% NASDAQ Dec/Adv/Vol 2222/801/2.15 bln NYSE Dec/Adv/Vol 2531/749/1.98 bln
3:09PM M-Wave enters into definitive agreement for the sale of its existing business (MWAV) 2.25 +0.08 : Co announces it entered into a definitive Asset Purchase Agreement with M-Wave International for the sale of the co's current business operations. The Purchaser is a company formed by Joseph Turek, the Company's Chairman and Chief Operating Officer and Robert Duke, the Company's President of its Electro-Mechanical Group division. Turek and Duke together currently own approx 19% of the Company's outstanding common stock. As consideration for the acquisition, the Purchaser will deliver to the Company 300,000 shares of the Company's common stock that are currently owned by Mr. Turek. In addition, if the net working capital of the sold business exceeds $770,000 at the closing of the acquisition, the Purchaser will be required to deliver to the Company additional shares of the Company's common stock, which shares will be valued at $3.00 per share for such purpose.
09:36 am Western Digital: WR Hambrecht upgrades Hold to Buy. Target $27. WR Hambrecht upgrades WDC to Buy from Hold with a $27 tgt saying they are encouraged by building PC demand worldwide on a host of notebook upgrades by every major PC OEM for the back-to-school and holiday season and at the opportunities to grow WD's branded, mobile, and CE units the next two quarters as well.
09:33 am ATMI: First Albany upgrades Neutral to Buy. First Albany upgrades ATMI to Buy from Neutral saying they believe,the co is entering a seasonally strong second half. Firm expects seasonally strong unit growth in 3Q and 4Q to drive strong revenue growth for ATMI. The firm says near-term manufacturing issues are behind the co. They expect the company to issue above-consensus 3Q guidance.
Broadcom (BRCM 33.99) reported a 68% drop in second quarter earnings, hurt by higher research and development costs and some softness in the mobile and wireless segment. However, the Irvine, CA-based company offered an improved outlook for the third quarter and announced a strategic alliance with Verizon Communications (VZ 42.26), sending shares higher.
Shares of Broadcom, which are up about 5% since the beginning of the year, were indicated roughly 2% higher in early trading.
For the second quarter, Broadcom posted net earnings of $34.3 million, or $0.06 per share, down from $106.1 million, or $0.18 per share, a year earlier. That was two cents below analysts' estimate of $0.08 per share. Revenue for the period grew 4.6% year/year to $897.9 million, just short of the consensus estimate of $900.6 million.
Broadcom expects the increasing diversity of its customer base and end-market exposure, along with significant new product momentum, to drive sequential revenue growth in the third quarter. The company projected revenue in a range of $915 to $940 million, versus the consensus estimate of $952.45 million.
Meanwhile, the company also said it has entered into a strategic alliance with Verizon as a commercial solution to litigation with Qualcomm (QCOM 43.88), helping to improve its near-term outlook.
--Richard Jahnke, Briefing.com |
