MARKET TALK: Recession May Be Just The Ticket For Credit
Edited by Thomas Granahan
Of DOW JONES NEWSWIRES
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MARKET TALK can be found using code N/DJMT
10:31 (Dow Jones) What seems bad for the economy may be good for corporate
credit, says Moody's. The sharp slowdown in companies' capital spending may
increase recession risks, but it will ultimately bode well for corporate
credit quality, the rating agency says, noting that a falloff in capital
goods spending put the brakes on corporate debt growth during the early '90s
recession and helped spark a run-up in profits a couple years later. With
yearly growth in non-defense capital goods orders falling from 10.3% in 4Q
2000 to -17.2% in 2Q 2001, Moody's predicts a similar firming of corporate
debt. (RTB)
10:15 (Dow Jones) The textile industry is weaving itself into serious
trouble, according to some analysts. "Textiles is one of the most troubled
industries in the United States," says Richard Hastings, sector analyst at
Global Credit Services Inc. Susan Ding, associate director at Standard &
Poor's, said that credit problems are hurting many companies within the
industry. "Liquidity is tight," she said. "A lot of the companies are
restructuring credit facilities because of covenant issues," she said. (KW)
10:08 (Dow Jones) Momentum still weak for large- and mid-cap names, which
continue to post negative returns for the year, says Deutsche Banc's Ed
Yardeni. Year-to-date gain for small-caps widens to 3.9%. Consumer cyclicals
and basic materials the only two sectors recording YTD gains across the cap
spectrum, though large-cap basic materials shares are flirting with loss, he
says. Energy, utilities and technology posting losses. (TG)
9:53 (Dow Jones) Telecom junk-bond benchmarks Level 3 Communications (LVLT)
and McLeodUSA (MCLD) have opened down following downgrades Friday afternoon
of the two credits. Level 3's 9.125% notes due 2008 were at 54.5 after
trading as high as 57.5 Friday, while McLeodUSA's 11.375% notes due 2009
fell to 56.7 from 59. (RTB)
9:44 (Dow Jones) Operating earnings for the S&P 500 in 2Q should be about
$11.60 a share, says UBS Warburg's Ed Kerschner, below the firm's estimate
of $12.60 and down 21% year-over-year. Cuts 2001 S&P 500 EPS view to $49
from $53, and 2002 view to $59 from $61, but year-end 2002 S&P 500 normal
value remains 1835, he says. Second-quarter tech earnings down 65%, vs. 8%
for non-tech. (TG)
9:32 (Dow Jones) Nymex crude futures are seen opening 5-10 cents a barrel
lower on technical factors. Trading seen choppy in absence of news on market
fundamentals. Sept. crude, down 14c at $26.88 overnight, has support at
$26.05-$26.20; resistance is seen at $26.90-$27.15. (MXF)
9:24 (Dow Jones) Merrill's Rich Bernstein last month felt global
earnings-estimate revisions may have been bottoming, but wanted another
month to be sure. Now he is sure: they're not bottoming. In fact, after this
month's implosion, they're at the most bearish point of this cycle. So now
he suggests investors look for high-quality companies with no foreign
exposure. Among some of those he likes: Fifth Third (FITB), Comerica (CMA),
Lowe's (LOW), Albertson's (ABS), May Department Stores (MAY), and T. Rowe
Price (TROW). (TG)
9:13 (Dow Jones) The bear market in stocks has erased most of the valuation
problems in tech, right? Not quite. According to Kent Engelke, of Anderson &
Strudwick, the 83-member S&P 500 Technology Index is trading at 111 times
earnings. (TG)
8:58 (Dow Jones) Divorces are always hardest on the kids. In this case,
though, the kid is a 8 3/4-inch, 14-ounce, blue-eye Doughboy who is arguably
the most famous marketing character ever. The FTC may make General Mills
(GIS) give up the Doughboy entirely as part of its $10.5 billion buy of
Pillsbury from Diageo (DEO), or it may make General Mills sell more products
to International Multifoods (IMC) and split use of the 36-year-old cultural
icon. In February, General Mills agreed to sell some Pillsbury dessert and
flour products to International Multifoods to ease regulatory concerns. For
more info on the Doughboy, you can visit the official Web site at
www.doughboy.com. (GS)
8:50 (Dow Jones) Three months after upgrading Lehman Brothers (LEH) to
market outperformer, the time has come for some profit taking, according
Goldman Sachs. Analyst Richard Strauss downgraded the stock to market
performer, saying the stock, which has outperformed its peers in the last
three months, is no longer "exceedingly inexpensive." What's more, the stock
is selling at 65% of the S&P 500's multiple, slightly above its historical
average, which suggests a trading top during a bear market cycle. (CWM)
8:39 (Dow Jones) A flurry of important economic data are due to be reported
this week. Personal income and consumer for June, the index of consumer
confidence in July, and the Chicago PMI are due out on Tuesday. The NAPM and
auto sales for July will be released Wednesday. Initial jobless claims for
the week ended July 28 on Thursday, and the full employment report for July
is due to be released on Friday. (JM)
8:35 (Dow Jones) Lehman says momentum at McKesson (MCK) starting to pick up.
Meetings with management last week leave firm more confident in direction
and the team in place to steer company in that direction. Lehman says
current estimates and target will prove to be conservative. Reiterates
strong buy, $44 target and 2002 EPS view of $1.34. (TG)
8:30 (Dow Jones) The week should start with a whimper, though there are some
big deals to consider. GE Capital is buying Heller Financial, (HF) for $5.3
billion, and Lincoln National's (LNC) reinsurance business will be sold off
for about $2 billion. Another big week for data, particularly Friday, and
tomorrow brings Chicago PMI, consumer confidence, and spending and income
numbers. Stock futures edging up. (TG)
(END) DOW JONES NEWS 07-30-01
10:32 AM
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