From Briefing.com: 4:45 pm Weekly Wrap
The stock market was unable to build on the prior week's gains, but it wasn't for a lack of trying. In turn, it wasn't because it lacked catalysts either.
Oil prices slipped another 4.7% to $123.34 per barrel, the financial sector was up as much as 10.6% at its high for the week, earnings news was generally better than expected (or feared in some cases), and Congress, by all accounts, was on the verge of passing a housing bill that the president already said he would sign into law.
The surge in financials early in the week stemmed from a continuing sense of relief that there wasn't another round of dilutive capital raising efforts and the idea that Fannie Mae and Freddie Mac weren't going to be allowed to fail.
Bank of America kicked off the reporting for the financial sector this week and it did so a relatively good note, offering an indication that its intention is to maintain its current dividend. In contrast, Wachovia, Regions Financial, and Fifth Third all cut their dividend, yet none signaled that they would have to raise more capital through a stock offering.
The enthusiasm toward the financial stocks ended in a hurry on Thursday, though, when the sector dropped 6.8% and suffered its largest decline in more than eight years.
The thinking that the sector had gone too far, too, fast, coupled with the return of worries about the sector's financial condition, which followed many reports of large increases to provisions for loan losses, led to the reversal of fortune. From its high on Wednesday to its close on Friday, the sector dropped 9.7%.
From our vantage point, the financial sector pullback should not have been seen as a surprise. The sheer magnitude of its short-term advance made it inevitable.
The pullback in the financials was a major drag on the broader market during the same period. A pickup in concerns about a global economic slowdown, which were fed by weak data out of Europe, the hangover of major earnings disappointments from American Express and Texas Instruments, cautious guidance from Apple, and a horrendous earnings report from Ford kept buying efforts in check.
The troubles for the auto industry came to light further on Friday when it was noted Chrysler Financial will no longer offer leases because it is unable to do so on competitive terms. General Motors, in turn, indicated July sales in the U.S. are expected to be similar to last month, which was accented by a 15% decline.
Notwithstanding the earnings disappointments from select companies, the earnings news outside the financial sector has been better than expected.
According to Bloomberg, second quarter earnings, ex-financial, are tracking to be up 8.6% as opposed to down 18.2% when financials are included. This understanding has provided a rational rallying point and an important source of support for the market, which had gotten overly pessimistic about earnings (as it typically does) ahead of the reporting period.
Of the 248 S&P 500 companies that have reported their results, 72.2% have registered positive surprises, 4.8% have been in line, and 23.0% have missed expectations. Thomson Reuters informs us that over the past eight quarters, 66% of companies beat estimates, 12% matched and 22% missed estimates.
Still, the market is pre-occupied with fears about the consumer. Accordingly, it has been unable to put its full faith in earnings estimates for the back half of the year that call for growth in both the third and fourth quarters -- including financials.
Weak housing data has contributed to those fears. On Thursday the National Association of Realtors reported existing home sales in June slipped to a 10-year low, but lost in that report was the indication that the pace of sales declines is slowing.
The same is true for new home sales, which were reported to be down 0.6% in June from an upwardly revised May number. Strikingly, June new home sales at an annual rate of 530,000 units were right in line with the 3-month average for the March to May period.
The coming week will bring another heavy slate of earnings reports and a key batch of economic data, including the advanced Q2 GDP report and the July employment report.
Although nonfarm payrolls are expected to show another modest decline, Q2 GDP should be a shocker.
There is enough data now, including this week's stronger-than-expected durable orders report, to state conclusively that second quarter real GDP will increase close to a 3.0% annual rate. That's not only above the 2.0% level that stands as the current consensus forecast, it's also a long, long way from a recession.
--Patrick J. O'Hare, Briefing.com
** For interested readers, the S&P 400 Midcap Index, which isn't included in the table below, was down 0.6% for the week and is down 7.3% year-to-date.
Index Started Week Ended Week Change % Change YTD
DJIA 11496.57 11370.69 -125.88 -1.1 % -14.3 %
Nasdaq 2282.78 2310.53 27.75 1.2 % -12.9 %
S&P 500 1260.68 1257.76 -2.92 -0.2 % -14.3 %
Russell 2000 693.08 710.33 17.25 2.5 % -7.3 %
5:23PM Hewlett-Packard announces European Commission approval of EDS acquisition; agrees to settle litigation relating to acquisition (HPQ) 57.94 +1.17 : Co announced that the European Commission has approved without conditions HP's planned acquisition of Electronic Data Systems (EDS). HP and EDS announced on May 13, 2008, that they had signed a definitive agreement under which HP will purchase EDS at a price of $25.00 per share, or an enterprise value of ~$13.9 bln.
2:58PM General Electric announces organizational structure; moves from six to four segments, including two infrastructure segments: (GE) 28.68 -0.03 : Co announced an organizational structure that simplifies the company and aligns businesses for growth and efficiency. Effective immediately, GE moves from six to four segments, including two infrastructure segments: GE Technology Infrastructure - Led by Vice Chairman John Rice, this segment includes Healthcare, Aviation, Transportation and Enterprise Solutions; GE Energy Infrastructure - Led by newly appointed Vice Chairman John Krenicki, this segment includes Energy, Oil & Gas and Water; GE Capital - Led by Vice Chairman Mike Neal, this segment aggregates all the financial service businesses including Commercial Finance, GE Money, industry verticals (GECAS, Energy Financial Services), and Corporate Treasury; NBC Universal- Led by Jeff Zucker this segment is unchanged and will continue to focus on its strategic evolution through globalization and diversification... Immelt also announced that the GE Board of Directors had named Krenicki, 46, a 24-year GE veteran, as a vice chairman of GE.
1:42PM GT Solar comments on LDK relationship; announcement by LDK does not in any way impact GT Solar's backlog (SOLR) 12.23 -2.50 : Co issues statement concerning the announcement by LDK Solar that it has signed a contract to purchase JYT multicrystalline and monocrystalline furnaces. According to the announcement, LDK Solar has been granted the exclusive right by JYT to purchase furnaces for the contract period, which extends through 2010. "This announcement by LDK does not in any way impact GT Solar's backlog, nor do we believe it will have any effect on our internal targets or projections. In fact, LDK Solar's total orders represent less than 20% of our current backlog. Moreover, LDK's furnace orders represent less than eight percent of our current backlog. Additionally, GT Solar has and will continue to diversify its customer base. LDK Solar remains an important customer, and we continue to negotiate with them for future equipment needs related to multicrystalline furnaces and silicon reactors."
DigiTimes: As the market enters the traditional peak season in August, passive component makers expect weaker-than-usual performance due to low demand, market sources have indicated... Japan-based vendors including SNE, Sharp and Pioneer as well as South Korea-based Samsung Electronics and LG Electronics have reduced retail prices for their entry-level Blu-ray Disc players in the US market by an average of 25% to prices less than $300... AUO may delay the ramp-up at its hybrid 7.5-8.5G LCD panel plant if the panel market is weak next year, but the co does not believe that the market will be as bad as others are predicting, according to AUO CEO HB Chen... Samsung Electronics has announced that its capex for memory production will remain static, despite only posting a mild sequential growth in operating margin from the segment for the second quarter... Taiwan ODM/OEM handset makers are positive about the new licensing agreement reached between Nokia and Qualcomm, stating that the new deal may result in more handset orders from Nokia, according to sources from the Taiwan handset industry. TSM could also benefit... Demand for small- to medium-size LCD panels from the handset market is warming up, with major vendor Nokia increasing orders at AUO and TPO Displays, according to industry sources... Due to NVDA did not clearly explaining the details of the faults reported in its notebook GPUs, some channel vendors have demanded graphics card makers issue a recall for desktop-based discrete graphics cards using the same GPU core, according to sources at graphics card makers.
09:37 am Western Digital: . Target $35. Needham downgrades WDC to Buy from Strong Buy and sets target price at $35 saying it is unfortunate when spectacular is not good enough. The firm says this is where Western Digital finds itself following the channel antics of the industry in June. These actions have now infected the September OEM pricing environment. The firm says they have incorrectly believed that the company's product mix (significant retail, leading edge mobile, fewer components, Komag accretion) would be able to compensate for this.
09:36 am Juniper Networks: . Target $25 to $32. BWS Financial upgrades JNPR to Buy from Hold and raises their tgt to $32 from $25 after the co reported better than expected second quarter results. The firm views JNPR shares being able to hit $32 over the next twelve months, as the Company moves to capture additional market share.
09:51 am Juniper Networks (JNPR)
Juniper Networks (JNPR 24.70, +2.13), which provides network infrastructure solutions, posted strong second quarter results across the board. The company saw earnings per share spike 40% higher from the previous year, topping the average analyst estimate. JNPR is trading 9.2% higher.
Compared to last year, revenue rose 32% to $879 million, which was larger than consensus estimate of $852 million. The company benefited from focusing on high performance networks and gaining market share in every product category. At the same time, the company increased its operating margin to 18% from 13% in the previous quarter.
Juniper showed non-GAAP earnings per share of $0.28, or net income of $156.6 million. The results were better than the earnings of $0.27 per share that Wall Street expected.
On its conference call, Juniper gave an upside full year earnings outlook, forecasting $1.14 to $1.17 per share, compared to the $1.13 consensus |
