MARKET WRAP
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Lackluster Economic Reports = Losing Markets
Apparently, the economy is not turning around as fast as most of
us had hoped. The Federal Reserve reported in its Beige Book
report that economic activity around the country is slowing or
stagnant. Manufacturing remains weak in most regions. Construction
is finally showing signs of slowing. Labor markets have continued
to ease for the most part. On the plus side, energy production has
increased. The Retail Sales Report confirmed the Federal Reserve’s
statement about "lackluster" consumer spending. Consumers
continued to spend in May, although at a slower pace than the
prior month. We can blame the slightly higher unemployment rate
and higher gas prices for the slowing. Retail sales and food
services rose 0.1% in May, while economists expected a 0.2% rise.
Retail sales had risen 1.4% in April. Although we need a strong
consumer to keep the economy strong, at least these reports will
put some additional pressure on the Federal Reserve to cut
interest rates later this month.
After a directionless morning, the major indices slid downward all
afternoon to the close. A spike in the Nasdaq Market Volatility
Index (VXN) from 54.5 to almost 59 occurred at about 2:30 p.m. ET,
possibly indicating some major put buying on the Nasdaq 100 Index.
The VXN closed at 57.6. The CBOE Market Volatility Index (VIX)
only rose gradually throughout the day from 23 to 24.4.
Selling in the technology sector pulled the Nasdaq Composite down
48.3 points, or 2.2%, to finish the session at 2,121.7. All tech
sectors ended lower, with Internet (DOT, down 4%), software (GSO,
off 3.6%) and networking (NWX, down 4.9%) stocks leading the
slide. Volume backed off 10% from yesterday, with 1.55 billion
shares trading on the Nasdaq Stock Market. Losers beat winners by
20 to 17. Just 109 issues reached new 52-week highs, whereas 51
touching new lows.
The Dow Jones Industrial Average lost 76.8 points, or 0.7%, to
close at 10,871.6. Trading volume on the New York Stock Exchange
was near its average at 1.06 billion shares. Decliners ran almost
neck and neck with advancers at 1561 to 1521. New highs beat new
lows by four to one. In the broad market, the retail (RLX, down
0.6%), oil (OIX, off 0.7%), utility (UTY, down 2.7%), natural gas
(XNG, off 1.8%) and financial (BIX, down 0.5%) sectors receded
while investors nibbled on biotech (BTK and NBI, up 0.5%), gold
(GOX, up 1%), airline (XAL, up 0.4%) and paper (FPP, up 0.5%)
issues.
Speaking of the biotech sector, it did quite well in early June,
but lost those gains in the last few days. Good news from Celera
Genomics (NYSE:CRA +0.60) could not keep the morning rally going
all day. The company announced its purchase of Axys
Pharmaceuticals (NASDAQ:AXPH +0.91) in an all-stock deal that
would be instrumental in supporting and accelerating Celera's
expansion into the drug discovery arena. The deal represents a 35%
premium for Axys' shares. Celera added 1.4 % to $42.35, while Axys
rallied 26.4% to $4.36. Among other stocks in the group, Amgen
(NASDAQ: +0.83) has been making quite a comeback since early
April. The stock is now 16% off of its 52-week high, adding 1.24%
to $67.75. Biogen (NASDAQ:BGEN +0.43) added 0.7% to $65.49 and
Abgenix (NASDAQ:ABGX -0.78) lost 2% to $39.10, having announced a
multi-year collaboration effort late yesterday. The companies will
use Abgenix's XenoMouse technology to generate fully human
monoclonal antibodies against up to 15 antigen targets. Abgenix
will receive research payments and possibly license and royalties
sales by Biogen. Biogen will be responsible for product
development, manufacturing, and commercialization of any products
developed through the collaboration. Tom Dietz, analyst at Pacific
Growth Equities, is projecting that each antibody developed by
Biogen is potentially worth $8 to $10 million in license fees and
milestones to Abgenix prior to commercialization. Dietz rates the
company stock at Strong Buy as the company enters its fifth new
partnership.
After the Bell
Gentex (NASDAQ:GNTX -0.16) warned that its 2Q earnings would be 20
to 22 cents per share instead of the 24 cents analysts currently
expect. According to a company statement, the revisions are due to
weaker shipments of its night vision safety mirrors, a delayed
production start, and higher research and development spending.
The company, which also makes commercial fire protection products,
said it expects unit shipment growth of 10% versus expectations of
15% due to the delay in a mirror program for a new vehicle. After
hitting a new 52-week high on May 31, Gentex shares closed down
0.6% to $28.98 today. Shares have lost an additional $3.13 in
after hours trading at the time of this writing.
Silicon Storage Technology (NASDAQ:SSTI -0.15) also warned that
its 2Q results would miss the current consensus estimate. The
company anticipates between zero and three cents per share, while
analysts anticipated a profit of six cents per share. The company
cited excess inventory and a continuing slowdown in new orders.
Revenue will be between $60 million and $68 million, well below
the expected $90.70 million. Shares closed down 1.4% to $10.67
ahead of the news, and are lower by $1.05 after hours.
Noting weakness in both the U.S. and European markets, Quantum
(NYSE:DSS +0.06) said its 1Q earnings would be in the range of 10
to 12 cents per share. Analysts were expecting a profit of about
17 cents per share. In a separate release, the company said it
would not proceed with its proposed initial public offering of
Snap Appliances shares. "An IPO no longer serves our strategic
objective of expanding our NAS offerings, given the difficulty
that other companies are having in raising sufficient capital
through an IPO and the lowered expectations for valuation," said
Michael Brown, chairman and COE.
Ingram Micro (NYSE:IM -0.11) lowered its 2Q financial targets,
just a week after announcing job cuts and consolidation plans.
Ingram now expects revenue of $5.8 billion to $6 billion and
break-even earnings or a loss of $10 million before taxes and one-
time charges. Still, the company said that demand for its
information technology products has spread to Europe and other
parts of the globe. Ingram Micro shares closed down 0.8% to $14.06
before the after-hour news.
Looking Ahead
Tomorrow morning, look for the Producer Price Index (PPI) to show
no inflation threat. Economists expect overall PPI to have
increased by 0.2% and core producer prices by 0.3% in May. Also
tomorrow, Business Inventories and Initial Jobless Claims are due.
The Consumer Price Index (CPI) on Friday is also not likely to
trigger any inflation worries. Although overall consumer prices
were probably boosted by higher gasoline prices in May, natural
gas and heating oil prices were lower. Bear, Stearns and Company
predicts that the overall CPI rose 0.3% and core CPI increased
0.2%.
Closing ticks for the NYSE (-121) and NASDAQ Stock Market (-181)
are in neutral territory, therefore not providing any guidance for
tomorrow's open. A closing of the indices on the day's lows
should be warning enough. Barring any surprises in the PPI,
abundant earnings warnings will likely continue to put pressure on
the market. I am starting to hope for a retest of the lows,
already! Stay tuned, stay informed, and preserve your capital.
PJ Mitchell
Research Analyst
www.stockbottom.com |
