From Briefing.com: So that Michigan Sentiment number was the big driver of that Friday sell pressure. The preliminary June consumer sentiment index fell 5 points to 87.2, well shy of the consensus estimate at 93.1. Yet to place that 5% drop properly in context, it's important to note the index rose a sizeable 19% in the two months preceding this June number.
Also note it was a change in the expectations component of the index that drove the slide in the aggregate number. Consumer expectations in June -- that is, their view of the forward outlook -- slipped 8% to 84.2 versus the May reading of 91.4. Now again to provide context, the expectations component had risen a staggering 31% over the prior two months.
So this June data may not constitute a true deterioration in consumer sentiment so much as it represents a simple reversion back towards the mean -- a natural 'coming down' off that post-war optimism.
Looking towards the upcoming week, the corporate earnings calendar remains relatively light although there are a few reports which may draw interest. The 'marquee' report -- all things relative -- comes from semiconductor company Micron Technology (MU) Tuesday after the close.
Yet there are two reports from much smaller companies that will be worth keeping an eye on as well. Namely, Jabil Circuit (JBL) is set to report Wednesday after the close, followed by Solectron (SLR) Thursday night. So why would we care about Jabil Circuit or Solectron? Well, both companies operate in the EMS (Electronics Manufacturing Services) sector which is generally viewed as a cyclical group within the broader technology space.
In a nutshell, the EMS companies do manufacturing work that OEM's (original equipment manufacturers) opt not to perform themselves. As a consequence, the EMS sector is commonly viewed as a leading indicator of the state of technology in a broader sense. The general thought being that if business is picking up for the EMS companies, then OEM's such as Cisco Systems (CSCO), Dell Computer (DELL) and Hewlett-Packard (HPQ) must be anticipating a turn in demand as well. In the specific case of Jabil Circuit, note that Cisco can represent as much as 25% of the companies sales.
As a completely random point of interest, note the Nasdaq finished the week down almost exactly one point. For a more detailed look at upcoming reports, please visit Briefing.com's Earnings Calendar and Economic Calendar. -- Mike Ashbaugh -- Briefing.com
5:03PM Weekly Wrap :
There was plenty of action in the market this week, but in the end, the major indices were little changed. That can be claimed as a victory of sorts for the bulls, yet a weaker than expected consumer sentiment report on Friday served as a wake-up call that this rally won't be sustained if the economic data don't validate the prevalent view of late that the economy is strengthening.
For the most part, though, the market continued to see the economic glass as half full this week, as it was heartened by an expectation that the Federal Reserve will be cutting the fed funds rate yet again - perhaps by as much as 50 basis points - at its June 25 FOMC meeting. To be sure, the Treasury market was heartened by that consideration as it staged a strong rally with the benchmark 10-yr note shedding 25 basis points, lowering its yield to 3.101%.
Given the drop in long-term rates, which will bode well for the mortgage market, it was only fitting that the homebuilders comprised the best-performing S&P industry group. Helping their cause, too, was Lennar Corp.'s(LEN) better than expected earnings results and increased earnings guidance on Wednesday. Other standouts for the week included the broadcast, casino, airline, and agricultural products groups. The laggards of note included the semiconductor, semiconductor equipment, department store, auto parts, and tobacco groups.
Companies that provided some of the key headline material included Motorola (MOT), Texas Instruments (TXN), and Freddie Mac (FRE). The former two companies issued some disappointing guidance for the current quarter; meanwhile, Freddie Mac blindsided the market with news on Monday that it had terminated its President/COO because of serious questions as to the timeliness and completeness of his cooperation and candor with the Board's Audit Committee counsel. FRE also announced the resignation of its CFO that same day, and later in the week, reported that the SEC has commenced a formal investigation. All told, FRE's stock declined 16.0% for the week.
Speaking of the number 16, PeopleSoft's (PSFT) Board of Directors unanimously recommended to shareholders that they reject Oracle's (ORCL) $16 per share cash tender offer. Oracle, of course, took its fair share of shots at PSFT for recommending as much and was more than confident in doing so after it delivered a solid fiscal Q4 (May) earnings report and reassuring guidance after the close on Thursday. By the way, J.D. Edwards (JDEC) filed suit against Oracle in Colorado for "tortiously interfering" with the PeopleSoft merger.
Next week, several earnings reports will be heard out of the brokerage sector and there is a batch of economic releases that will provide some insight on how the post-war economy is doing. For added detail on those items, be sure to read Briefing.com's Story Stock entitled "Looking Ahead."
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 9062.79 9117.12 54.33 0.6 % 9.3 %
Nasdaq 1627.42 1626.49 -0.93 -0.1 % 21.8 %
S&P 500 987.76 988.61 0.85 0.1 % 12.5 %
Rsl2000 453.94 449.71 -4.23 -0.9 % 17.4 %
Close Dow -79.43 at 9117.12, S&P -9.90 at 988.61, Nasdaq -27.13 at 1626.49: Bad things are known to happen on Friday, the 13th and while today's session was not horrible, it was definitely nothing to be happy about either... But first things first...
The day started on a modestly positive note following several economic reports, which included a basically-inline PPI report, which checked in with a reading of -0.3% (consensus -0.2%) and, excluding food and energy, at 0.1% (inline with consensus). The Trade Balance report came in at -42.0 bln (inline with consensus). What broke the camel's back and caused the consequent slide of the market was the lower-than-expected Michigan Sentiment report for June, which came in at 87.2 (consensus 93.1) and reflected a drop in consumer confidence from the prior level of 92.1 due to consumers being worried about their prospects as the unemployment rate rose and payrolls continued to decline...
As a result, investors used the disappointing Michigan Sentiment report as an excuse to book profits, particularly since concerns over the market being overextended have been at the forefront of investors' fears in the midst of the market's sizeable gains over the last couple of months and the overwhelming amount of downgrades based on valuation concerns of late... The decline was spearheaded by influential sectors such as technology, retail, financial, biotech, drug, transportation, paper, and oil services... As a matter of fact, the only leaders to the upside of note were the casino & gaming and the gold sector... Casino & gaming benefited from the news of Mandalay Resort's (MBG 34.01 +3.23) announcement of a regular quarterly dividend and the associated speculation regarding the likelihood of its competitors following suit...
The resilience of the gold sector coincided with a $3.30 increase in the price of gold to $357.20/oz. due to increased demand for the safe-haven metal in the face of the declining equities and the weakening dollar... Elsewhere, the bond market extended its rally, but ended the day off its best levels with the 10-yr note up 15/32, bringing its yield to 3.11%...NYSE Adv/Dec 1165/2126, Nasdaq Adv/Dec 1105/2101
3:47PM Cree provides additional info regarding litigation (CREE) 18.35 -3.86: -- Update -- In response to inquiries, the co provided the following additional information regarding pending litigation (see 9:28 comment): "Over the last few years, Eric Hunter has brought general and vague allegations of wrongdoing to the attention of Cree. These allegations were referred to independent directors of Cree who, after investigating the matter, found no wrongdoing on the part of Cree or its officers. No amendments to any of the Company's filings with the Securities and Exchange Commission were made as a result of any of the allegations made by Eric Hunter." The co also announced that it will be asking a committee of independent directors to investigate any allegations of wrongdoing and to supervise the handling of the litigation.
1:33PM NVIDIA vs ATI: Latest XBox rumor just a rumor -- Pacific Growth (NVDA) 23.40 -2.05: -- Update -- In reaction to rumor that ATI Tech (ATYT 8.43 +0.49, +6%) has been picked for the XBox 2 (see 09:35 comment), Pacific Growth says that the speculation over this has been going on since mid-January, and firm would expect it to continue through the fall. Pac Grow does not expect the final design decision to be made until late 2003. While ATYT and NVDA are in the running, firm believes it is way too early to assume one or the other will win out. Recalling the events that led up to the original XBox design, believes it would be incredibly risky to assume one company or another has an advantage. Pac Grow continues to rate both stocks Over Weight.
1:10PM Varian Semi weak on cautious comments from boutique firm 26.94 -1.80: We are hearing that today's weakness in VSEA -6.3% is being attributed to a morning note by Fector Detweiler, which apparently said the co has not been booking new orders and recently conducted another round of layoffs of hard-to-replace production staff. (Briefing.com has not seen this note, but this is the gist of what traders tell us it contained.)
9:35AM NVIDIA lower on XBox chatter (NVDA) 24.73 -0.72: The Register reports speculation from an Internet oriented gaming website called Spong that Microsoft has booked ATYT for its XBox 2 chipset and not NVDA. While this news may seem like a new development, analysts and industry observers have speculated in ATYT's favor for the unannounced XBox 2 in light of NVDA's somewhat challenging relationship with MSFT during the tenure of the XBox.
9:35AM Adobe Systems (ADBE) 33.69 -2.29: WR Hambrecht upgrades Hold to BUY. Target $37. Firm thinks Q4 and Q1 expectations seem conservative given the rich, upcoming product slate.
9:33AM Intel (INTC) 22.01 -0.12: Deutsche Securities downgrades Buy to HOLD. Target $22 to $22. Cites an uncompelling valuation at 29x their 2004 est as well as a lack of further near-term catalysts.
9:28AM Cree: Brother of Chairman brings $3 bln suit (CREE) 22.21: Announces that suit has been filed by former Cree CEO and current part-time employee. The suit names Neal Hunter, Eric Hunter's brother and current Cree Chairman, and Cree Inc as defendants. The complaint alleges that the defendants have defamed Eric Hunter by making unspecified false statements about him to members of his family and individuals associated with Cree. It also asserts that beginning in August 1995 the defendants violated employment and federal securities laws and have sought to discourage the plaintiffs from pursuing legal remedies or reporting matters to securities regulators. Eric Hunter and his wife seek personally to recover damages in excess of $3 billion for unspecified harm resulting from the alleged conduct of the defendants, as well as an injunction against future harassment.
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So Don the big question is simply at what level do we go long this year? I think there may be a decent buying opportunity in July followed by another even better chance in October.
History has a way of repeating itself.
RtS |
