Failed Rebound

123jump.com Staff
18 May, 2006
New York City

Market averages made a feeble attempt to rise in the mid-morning session. In the final trading hour averages came under selling pressure triggered by sell programs and rising skepticism in the trading community. Dow and S&P 500 are down 5% and Nasdaq is down 8% in the last eight trading days. Natural gas closed below $6 mBTU, a six month low. Several retailing companies released earnings. Sears rose 15%. Foot Locker, Children''''s Place, New York & Co and Limited reported earnings.

[R]4:15PM Rebound in market averages failed to take a hold.[/R]

-Dow closed down 77.32 points, Nasdaq down 15.48 and S&P 500 down 8.51.
-Yield on 10-year bond closed at 5.08% and 30-year bond at 5.19%.
-Crude oil closed up 76 cents to $69.45 per barrel and natural gas at $5.997 mBTU.
-Gold closed down $10.90 to $680.90 per ounce.

-Asian markets closed lower by 2% or more led by a 6.7% sell-off in India.
-European markets closed lower, led by 5% decline in Norway and 0.8% in Switzerland.
-Emerging markets in Latin America closed down led by a decline in Argentina of 1.75% and Brazil 1.15%.

Market averages attempted a feeble recovery and failed to hold on to gains as buyers stayed on the sideline. Most analysts expressed views that there more down days to come before market musters strength to rise again. For the day market averages closed loser for the fourth day this week.

Market averages fell by 40 points in the early opening and rebounded in a positive territory at mid-day trading. In the final hour of trading market averages lost steam and fell 60 points to close for the third time this week and fifth session in a row. S&P 500 and Dow have lost close to 5% and Nasdaq has lost 8% in the last eight session. Dow has lost 600 points since the sell-off began last week. Natural gas prices hit a six-month low to $6 per million of BTU as supplies and inventories rose.

Foot Locker, Inc ((FL)) reported it earned 38 cents a share or $58 million in Q1 from 37 cents a year ago. Analysts had been expecting earnings of 37 cents. The current earnings include a 1 cent increase due to an accounting change. Revenue was down 0.9% at $1.37 billion. Same-store sales were up 0.5%. The company currently expects earnings per share to be in the range of 27 cents to 30 cents and full year earnings of $1.75 to $1.85 per share, unchanged from their prior guidance.

During Q1 negotiations were completed with a well-established franchisee to open Foot Locker franchise stores in several countries in the Middle East. The first new store is expected to open in the second quarter with a goal of 6 stores by the end of the year. In the next several years, Foot Locker and the franchisee are targeting 75 stores in the region. The stock closed down 0.4% and tracked the recent decline from its five-year high of $27.95 in February of 2005.

Children’s Place Retail Stores, Inc ((PLCE)), a specialty retailer of children’s merchandise, shares fell today. The company reported Q1 net income rose 56% to 52 cents a share from 34 cents a year ago. Analysts had been expecting 50 cents a share on sales of $423.43 million. Sales for the last three months increased to $436.5 million from $369.2 million in the year-earlier period. Same-store sales at Children’s Place increased 9%, while Disney Store saw an increase in same-store sales of 14%. The stock closed down 6.6% or $5.40.

New York & Co, Inc. ((NWY)), a specialty retailer of fashion-oriented, moderately priced women’s apparel, reported Q1 earnings of 10 cents a share at $6.1 million, down 1.1% from year ago profits of 38 cents a share. Analysts had been expecting earnings of 11 cents a share. Sales were down 1.1% in the last three months at $267.1 million from $270 million in the year-earlier period. Same-store sales were down 9.2% in the first quarter. While last year’s Q4 earnings were helped by its price-cut plan, it had disappointing results in Q1. The company expects Q2 earnings of 8 to 12 cents a share, while it expects full-year earnings of 70 cents to 82 cents a share down from the previous guidance range of $1.06 to $1.16 per diluted share. The stock has lost more than a 25% of its value so far this year.

[R]3:00PM Sears stock rises on earnings and litigation settlement.[/R]
Sears Holding Corp ((SHLD)) shares are up 15% this afternoon due to the company reporting a much bigger-than-expected quarterly profit and its agreement to settle a class-action litigation involving a credit card business it has since sold in November of 2003. The company agreed to pay $215 million to settle that lawsuit. Sears reported Q1 earnings of $1.14 a share vs. a loss of 7 cents a share a year ago. Its revenue rose 57 cents a share to $12 billion from $7.63 billion last year. Same-store sales declined 8.4% at domestic Sears stores due to sales drops in all categories except for home appliances. The company’s Kmart same-store sales lowered 0.2% due to lower transaction volume from home goods, which was partially offset by higher apparel and food sales.

[R]2:05PM Earnings parade continues on Wall Street.[/R]
Intuit Inc. ((INTU)), a provider of business and financial solutions reported it earned $1.79 on an adjusted basis for the third quarter. Revenue climbed 14%, due to strong demand for its TurboTax and QuickBooks financial software. The company’s quarterly profit dropped slightly on stock-option expenses and a higher tax rate. Intuit increased its financial forecast for the fiscal year on whole. Its board also approved a 2-for-1 stock split along with a plan to buy back up to $500 million of its own shares over a three year period. The company’s Q3 fiscal year profit dropped only slightly down to 1% to $298.6 million vs. $300.5 million in the year-earlier period. Excluding one-time items and option expenses per-share profits would have been $1.79 up from $1.54 last year’s Q3 earnings. The company is now expecting a yearly profit of $2.20 to $2.22 a share on revenue of $2.31 billion to $2.33 billion. The stock-split, according to the company, would be payable on July 6 to shareholders of record on July 21 and will trade on a post-split basis as of July 7th. The stock is currently trading up at 4%.

Limited Brands, Inc. ((LTD)), a retailer of women’s intimate apparel, apparel, personal care, and beauty products said its net income rose to 25 cents a share for the first quarter from 20 cents a year ago. Analysts had forecasted 20 cents per share earnings. The company credited strong performance to its Victoria’s Secret division. Limited said sales at outlets open more than a year increased by 5% from a year ago. The company now forecasts Q2 earnings of 22 cents to 24 cents a share and for the full year earnings of $1.50 to $1.60 a share. The company’s stock is up 6.52%.

Barnes & Nobel, Inc. ((BKN)) announced Q1 profits rose slightly to 14 cents a share up from 13 cents a share a year ago. Bestselling titles during the quarter included John Grogan's ""Marley & Me,"" James Patterson's ""Fifth Horseman,"" Stephen King's ""Cell,"" Giada de Laurentiis' ""Giada's Family Dinners"" and ""Jim Cramer's Real Money.""Analysts had been expecting profits of 13 cents a share on average. The company earned 18 cents a share excluding an expense of 4 cents a share stock option. Sales rose 2% in the last three months from $1.11 billion vs. $1.09 billion a year ago. Same-store sales dropped slightly 0.3% in Q1. The company expects earnings of 22 cents to 26 cents a share for Q2 and $2.20 $2.30 a share for the year which includes a stock option expense of 15 cents a share.

[R]12:30PM European markets close higher on autos.[/R]
European averages rebounded from earlier weakness to close largely in the positive. Market sentiment recovered on gains by auto stocks and bargain-hunting. The French Renault and the German BMW each rose 2% to lead market gainers. On Wednesday European averages tumbled about 3% each on U.S. core inflation data. On Thursday, the German DAX 30 closed up 0.2%, the French CAC 40 declined 0.2%, while London’s FTSE 100 was flat at 0.09%.

Oil hovered round $68 on weakening demand and rising inflation. Light crude fell 14 cents to $68.55 a barrel. London Brent crude shed 27 cents to $68.77. European gold declined. In London the precious metal fell to $690.70 an ounce from $696. In Zurich gold traded at $690.20, down from $690.70. In London silver fell to $12.90 from $13.30. The dollar traded lower in European trading. The euro traded at $1.2812, up from $1.2741. The dollar bought 110.48, down yen from 110.96. The British pound stood at $$1.8909, up from $1.8816.

[R]11:30AM Inflation weighed on market sentiment.[/R]
Stocks traded higher in morning trading, although the main equity indices were well off intraday highs, posting modest gains only. Stocks managed to overcome recent declines on bargain-hunting after the heavy sell-off yesterday. The airline sector was one of the market's best performances, lifted by gains for Continental Airlines ((CAL)), AMR ((AMR)), and a continued decrease by the price of oil, which helped to ease concerns about higher fuel costs. The Amex Airline Index advanced 2.4%. On the other hand, the oil price decrease led to some weakness in the oil service sector.

Telecommunications stocks also showed strength, leading the Amex Telecom Index up 1% after a decline of 2.6 % Wednesday. Some technology stocks also moved higher. Significant strength was posted by computer hardware stocks like Hewlett-Packard ((HPQ)) which extended recent gains. BEA Systems ((BEAS)) climbed 12% after the company reported better-than-expected Q1 earnings and revenues. Retail stocks moved higher, as reflected by the 1% gain shown by the S&P Retail Index. Limited Brands ((LTD)) turned in one of the sector's best performances after reporting stronger-than-expected Q1 earnings growth. Meanwhile, some health insurance stocks came under pressure, with shares of UnitedHealth ((UNH)) down 3.2% after the company received a subpoena from the U.S. attorney in New York for documents related to the granting of stock options.

[R]10:30AM Indian Sensex fell sharply on higher tax rate fears.[/R]
The Sensex in India plunged to 11,391.43, or 6.7% - its lowest level since April 17 2006. The turnover on the BSE was $1.1 billion or Rs 4,818 crore, up from Wednesday’s $900 million or Rs 4,116 crore. The market breadth was negative with 2,257 shares declined and only 266 advanced. Foreign investors were nervous as Finance Ministry issues a directive stating that a distinction will be made between companies acting as trading and investing firms. Currently foreign investment companies operating an investment fund are treated at rate of short or long term capital gains rate. Tax rate for short term capital gains is 10% and long term capital gains is tax free. If Ministry treats these investment funds as foreign investment companies then investment profits may be treated as business profit, regardless of long or short tem gains, which is taxed at 40% rate. Lack of clarity in guidelines from the ministry rattled market nerves in addition to the weakness in global markets.

Metal shares led decliners. Tata Steel lost 13% to Rs 531 on a high volume of 441 lakh shares. Other metal stock losers included Sterlite Industries, plunging 15% to Rs 438.50, Hindalco, down 12% to Rs 190.40. Reliance Industries was also hit severely, losing 7.7% to Rs 1,003 on a huge volume of 31.5 lakh shares traded. Automotive stocks were no exception. Maruti Udyog declined 11.5% to Rs 896 and Tata Motors was down 9.5% to Rs 870.50. Bajaj Auto lost 8% to Rs 2,999. Cement stocks also suffered heavy losses. ACC gave away 12% to Rs797, Grasim plunged 8.5% to Rs 1985 and Gujarat Ambuja Cements lost 8% to Rs 100. Infosys was also on the loserboard, down 5% to Rs 3,040. Among other major decliners were Reliance Energy, shedding 10.7% to Rs 532, MTNL, down 11.9% to Rs 176 and ONGC, lost 6.6% to Rs 1345.

[R]10:00AM Stocks opened in the positive on bargain-hunting.[/R]
At market opening investors turned to bargain hunting, lured by the beaten-down prices, and thus helping stocks to recover from the heavy losses posted yesterday. Telecommunications, housing, and gold stocks moved back to the upside after showing significant weakness Wednesday. Airline stocks also moved higher, benefiting from lower oil price. Significant strength was visible among networking, computer hardware, and semiconductor stocks. Software developer BEA Systems ((BEAS)) also posted a strong gain after reporting better-than-expected Q1 results.

The leading gainer was Sears Holdings Corp. ((SHLD)) which rose 12% to $154.62 on Nasdaq after reporting stronger-than-expected quarterly profit. The department store operator reported Q1 earnings of $1.14 a share, up from a loss of 7 cents a share a year-ago. Clothing retailer Limited Brands Inc. ((LTD)) rose 7.6% to $27.18 on the Nymex a day after it reported a jump in quarterly net income, driven by strength in its Victoria's Secret stores. Women's apparel chain New York & Co. Inc. ((NWY)) posted a lower Q1 profit and forecast Q2 and full-year earnings below forecasts. The stock dropped 5.5% to $14.51, also on the NYSE. Shares of UnitedHealth Group Inc. ((UNH)) dragged the S&P 500, falling 4.3% to $44.88 on the NYSE. The health insurer said on Wednesday it received a subpoena from the U.S. attorney's office relating to the granting of stock options.

[R]Jobless claims unexpectedly climbed.[/R]
Thursday morning, the Department of Labor released its report on initial jobless claims in the week ended May 13. The report showed that jobless claims saw a significant increase, surprising economists who expected a decline. The Labor Department said that jobless claims rose to 367,000 from the previous week's revised figure of 325,000. Economists had expected claims to fall to 310,000 from the 324,000 originally reported for the previous week. The report also showed that the 4-week moving average rose to 333,250 from the previous week's revised average of 317,500. This marked the fourth consecutive increase by the less volatile moving average. The Labor Department also said that continuing claims in the week ended May 6 rose to 2.389 million from the preceding week's revised level of 2.381 million. After the start of trading, the Conference Board is scheduled to release its report on leading economic indicators in the month of April while the Federal Reserve Bank of Philadelphia is due to release its report on manufacturing activity in the mid-Atlantic region in the month of May.

[R] 9:00AM Stock futures indicated a higher start.[/R]
U.S. stock futures were sitting above the flat line, pointing to some recovery from sharp declines in the previous session when strong consumer prices data raised worries that the Fed Reserve would continue raising interest rates. On Wednesday stocks dropped with the Dow Jones industrial average making its biggest one-day fall in three years, down more than 200 points and the Nasdaq recorded its seventh consecutive day of losses.

In company news, Sears Holdings Corp. ((SHLD)) reported a much bigger-than-expected quarterly profit, sending its stock up 8.7% to $150 on the Inet electronic brokerage system. On Thursday, the tech-heavy Nasdaq might be influenced by earnings from top computer maker Dell Inc. ((DELL)), which are expected later in the session. Among other stocks, clothing retailer Limited Brands Inc. ((LTD)) may extend gains after rising yesterday following a jump in quarterly net income, driven by strength in its Victoria's Secret stores. Limited shares were up 6.8% in pre-market trading. Gap Inc. ((GPS)) is also due to report quarterly results on Thursday. S&P 500 futures were up 6.7 points, above fair value. Dow Jones industrial average futures rose 49 points, and Nasdaq 100 futures rose 8.25 points.

Stein Mart Inc, ((SMRT)), retailer, reported Q1 net income dropped 55% to 17 cents a share, from 38 cents a share in the year-earlier period. The company added that sales dropped 4.2%. The company beat analyts’ forecast earnings of 15 cents a share.

Deb Shops Inc, ((DEBS)), teen apparel retailer, reported that Q1 income declined to 19 cents a share, a penny down from a year ago. Sales in Q1 rose to $81.5 million from $77.5 million. The company affirmed its guidance for fiscal 2007 earnings of $1.85 to $1.90 a share.

Casual Male, ((CMRG)), retailer, reported that Q1 net income advanced to 4 cents a share, from a loss of 5 cents a share in the year-earlier period. The company added hat revenue increased to $103 million from $97.3 million. The company topped analysts’ forecasts for earnings of 2 cents a share.

Finlay Enterprises, ((FNLY)), fine jewelry retailer, reported a Q1 profit of a penny per share, up from a loss of 31 cents a share a year-ago. On a continuing operations basis, the company lost 59 cents a share in Q1, wider than a year-ago equivalent loss of 44 cents a share. Sales advanced to $192.1 million from $170.5 million in the same period a year ago. Finlay predicts a loss from continuing operations of 45 to 50 cents a share for Q2 with same-store sales advancing between 3% and 3.5%. With items, it expects a loss of 60 to 70 cents a share in Q2. For fiscal 2006, the company expects earnings from continuing operations of 75 to 90 cents a share.

Sears Holdings Corp, ((SHLD)), department store operator, reported Q1 earnings of $1.14 a share, up from a loss of 7 cents a share a year-ago. Last year's results incorporate a charge of $90 million related to a change in accounting for certain inventory costs. The company attributed the improvement in earnings to better profitability in both its Kmart and Sears Domestic operations, mainly due to reduced expenses. The company topped analysts’ estimate for a profit of 65 cents a share. Total revenue advanced in the latest three months to $12 billion from $7.63 billion a year ago, primarily due to the inclusion of Sears operations for the full 13-week period. Sears Domestic same-store sales dropped 8.4% in Q1, while Kmart's comparable stores slid 0.2%.

[R]8:00AM Mittal officially launched $27 billion offer for Arcelor.[/R]
Mittal Steel Co. officially offered $27 billion in cash and stock for its rival Arcelor SA, expressing a strong belief that the offer is both attractive and generous. Mittal is offering Arcelor shareholders four Mittal Steel shares and $45.41 for every five Arcelor shares. A secondary offer consists of $36.34 for each Arcelor share. Merging the world's top steelmakers would create a company with nearly a 10% share of global steel production and a market capitalization close to $40 billion.

The offer, launched in Luxembourg, France and Belgium will be open until June 29. Mittal said it will also launch a bid in Spain and the United States when market regulators clear the offer. Arcelor has so far rejected the offer as hostile, maintaining the view that the present management and plans of the company serve best the company's shareholders’ interests. In a move that could help Arcelor defend itself, the company said it plans to spend up to $9.5 billion to buy back almost a quarter of its shares.

Arcelor CEO Guy Dolle said last week when both companies reported earnings that Mittal's Q1 earnings were much weaker than Arcelor's. He also likened Arcelor's high-quality steel as perfume to Mittal's cheaper eau-de-cologne.

Arcelor was formed in 2002 through the merger of Usinor SA of France, Arbed SA of Luxembourg and Aceralia Corp. Siderurgica SA of Spain. Shareholders include the governments of Luxembourg and Belgium's Walloon region. The company's board of directors was strongly supported by shareholders last month when they defended its moves to protect itself.

[R]7:30AM Asian-Pacific markets ended lower across the region.[/R]
Asian markets closed lower. Japanese benchmark Nikkei 225 shed 220.49 points to settle at 16087.18 points , its lowest closing since March 9. Decliners were led by Canon, down 2.3% and Honda Motor, falling 1.9%. Nippon Oil plunged 3.4% and Ebara, a machinery maker, fell 6.1%. Bank shares also declined, among them Mitsubishi UFJ Financial Group posting 3.5%. Korean index Kospi also fell 2.6%, finishing 36.32 points down, at 1365.15. Financial stocks and construction shares led the decliners. Kookmin Bank dropped 4.5% and Shinhan Financial Group lost 3.8%. Construction dived 6.3%. Hyundai Engineering & Construction plummeted 9.3%. Daewoo Engineering & Construction took a 6.3% dive. Hong Kong's benchmark Hang Seng Index dropped 349.03 points to finish at 16266.52. Clothes producer Esprit was one of the biggest losers, ending 4.71% down. China stocks finished slightly lower, led by nonferrous-metal companies. Shanghai Composite Index, China’s blue-chip finished 0.5% lower at 1617.28. Australia's index S&P/ASX 200 closed at 5119.3, off 1.9%, its biggest percentage fall since last October. Taiwan’s Weighted Price Index dropped 82.80 points, or 1.2%, to settle at 7034.03.

[R]6:30AM European markets fight back an early retreat.[/R]
The FTSE 100 gained 0.5 %, Xetra Dax traded in Frankfurt 0.5 % higher and the CAC-40 in Paris rose 0.4 %. On the corporate front, Societe Generale topped expectations, up 0.7%, on record-breaking first-quarter net earnings, while Air France beat the estimate only just, its stocks remained flat. Arcelor was among the decliners, shedding 2.6% in the wake of the takeover bid from Mittal Steel, which also fell 3.6%. Alstom lost 0.3% despite ING lifting its price target, after it reversed to profit. Man AG dropped 1.2% while Sandvik’s stocks advanced 1.5%.

Light crude oil was trading 14 cents down at $68.55 a barrel by 0742 GMT, continuing yesterday’s 84-cent loss. London Brent gained 3 cents to $69.07. Gold declined in early trade to $687.50 an ounce, down from $696.70, along with silver which also lost ground to$13.10 an ounce, down from $13.30 an ounce. The dollar fell against the euro. The euro bought $1.2792, up from $1.2741 late Wednesday. The British pound traded at US$1.8880, up from US$1.8816 and the yen was slightly stronger. The dollar traded at 110.65 Japanese yen, down from 110.96 yen.