Market on the Defensive

Elena
29 Sep, 2005
New York City

PepsiCo reported Q3 earnings of 78 cents a share on revenue of $18.8 billion, beating expectations. Research In Motion declined 7% on disappointing earnings report. The initial jobless claims in the latest week fell by 79,000 to 356,000, 60,000 of which were related to Hurricane Katrina. The Commerce Department said that Q2 GDP figures remained unchanged at 3.3% growth.

U.S. MARKET AVERAGES

The U.S. stock markets started the trading session near the flat line, continuing the sequence of three consecutive lackluster sessions. The three major averages have widened losses since opening and each of them posts a decline of 0.3%. The stocks decline is attributable to rising oil and the Labor Department report which has disclosed some of the impact of Katrina. According to the data the initial jobless claims fell by 79,000 with 60,000 of them related to the devastating storm. Additional pressure has been exerted by surging oil prices, with crude oil recently up 58 cents to $66.93.

Markets seem to ignore upbeat Commerce Department report, showing GDP growth rate of 3.3%, as the figures relate to periods before Katrina and Rita and do not include their impact on domestic economy.

In the first hour of trading, the Dow Jones industrial average fell 28.82, or 0.28%, to 10,444.27. The Standard & Poor's 500 index fell 3.07, or 0.25%, to 1,213.82, and the Nasdaq composite index fell 4.61, or 0.22%, to 2,110.79.

Bonds fell, with the yield on the 10-year Treasury note rising to 4.28% from 4.26% late Wednesday.

The HMO sector is among the biggest losers in early trading, falling by about 3.4%, largely due to AMERIGROUP, which is down by more than 35% after a forecast of a loss for the third quarter. Airline and retail stocks are other notable decliners.

Gold and energy stocks stand out among the gainers. The broker/dealer space is slightly higher after E-TRADE announced a $1.6 billion deal to acquire JP Morgan's BrownCo unit.

MOVERS AND SHAKERS

PepsiCo ((PEP)) added 2.2% because the company posted a higher-than-expected third-quarter revenue and profit. The soft drink and snack company said its third-quarter profit rose by 18% percent, while its revenue rose to $8.18 billion from $7.26 billion. Total volume of products sold rose 8%.

Ford Motor Co. ((F))was up 1.1%, following a report in The Wall Street Journal that the company will renew its global purchasing process of $90 billion a year by cutting suppliers to less than 1,000 from near 2,500. The company described cost savings as significant, according to the report.

Guidant Corp. ((GDT))dropped 1.8% after The New York Times reported that criminal agents at the Food and Drug Administration will survey the way the company handled problems with heart devices. The company has agreed to be purchased by Johnson&Johnson and the deal will be completed until the end of 2005.

ECONOMIC NEWS

The number of people filing for first-time unemployment benefits dropped in the most recent week, according to government data released Thursday, with the measure coming in below economists' expectations.

The U.S. Labor Department revealed that initial jobless claims came in at 356,000 for the week ended September 24, down 79,000 from the previous week's revised total. Economists had expected the number of claims to drop, but they had, on average, predicted a more moderate decline to a level around 400,000. In the most recent week, initial claims continued to be inflated by filings from people impacted by Hurricane Katrina.

The U.S. economy saw notable growth in the second quarter, according to a report from the Department of Commerce, although it remains to be seen how much economic growth will be impacted by hurricanes Katrina and Rita.

The Commerce Dept. said that second quarter GDP grew at an annual rate of 3.3 percent, unchanged from the preliminary estimate but down from the 3.8 percent growth seen in the first quarter. Economists had been expecting second quarter GDP growth of 3.3 percent.

The report showed that the GDP growth in the second quarter was partly due to strong consumer spending, which grew by 3.4 percent for the quarter. This represents an upward revision from the 3 percent growth previously reported. The GDP growth also reflected increased exports, equipment and software spending, residential fixed investment, and government spending. The growth was partly offset by a downturn in private inventory investment.

Additionally, the Commerce Dept. said that prices excluding food and energy showed upwardly revised growth of 1.7 percent compared to the preliminary estimate of 1.6 percent growth. The price growth still came in below the 2.4 percent increase reported for the first quarter.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks ended mostly in the positive. The strong performance was led by the Nikkei which closed at a new four-year high of 1.4% at 13617.24 with gains, made on the back of the stronger dollar, positive retail sales data and optimism about the domestic economy ahead of two economic reports. Hong Kong’s Hang Seng rose 1.4%, reflecting gains in commodity prices and higher U.S. durable goods orders. South Korea’s Kospi ended up 0.2% at a record of 1,231 22, despite disappointing economic news.

European markets lost ground at mid-day trading on mixed corporate upgrades from pharmacy chain Boots Group and sugar refinery Tate & Lyle, although strength in steel and mining stocks provided some support to the markets with Arcelor rising 2.7% and Corus up 2.9%. The German DAX 30 lost 0.2%, the French CAC 40 declined 0.1%, and London’s FTSE 100 was flat. The euro was steady against the dollar at $1.2061.

ENERGY, METALS, CURRENCIES

Crude-oil prices surged over $66 a barrel, but refined products prices declined after the U.S. petroleum inventory report, which showed a drop of crude and distillate stocks but an increase of gasoline stocks. Light sweet crude November delivery added 15 cents to $66.50 a barrel in electronic trading on the Nymex. Heating oil inched up to $2.1345 a gallon, while gasoline was up 1 cent to $2.3300 London Brent added 7 cents to $64 a barrel.

Gold prices jumped in European trading, reflecting higher crude-oil and weaker dollar. In London the precious metal traded at $472.50 per troy ounce, up from $463.90. In Hong Kong gold rose $8.20 to $470.25. Silver traded at $7.35, up from $7.30.

The U.S. dollar lost ground against the other major currencies in European trading. The euro was quoted at $1.2054, up from $1.2038. The dollar changed hands at 112.72 yen, up from 113.01. The British pound was trading at $1.7651, up from $1.7648.

EARNINGS NEWS

PepsiCo ((PEP)), beverages and foods manufacturer, reported 3Q earnings dropped 37% to 51 cents a share and after adjusting for repatriating $7.5 billion of international earnings, its earnings of 78 cents a share beat analysts’ forecasts of 73 cents a share. Revenue soared 12.7% to $8.18 billion, also beating analyst estimate

Emmis Broadcasting Corp. ((EMMS)), broadcasting company, reported 2Q net income dropped to 15 cents a share, down from 23 cents a share in the year-ago period, on higher interest expense from debt incurred to implement the company's Dutch Auction stock repurchase in June. Revenue for the period advanced 11% to $108 million. The company also stated that the sale of 9 of its 16 stations would lead to proceeds that exceed expectations.

American Greetings Corp. ((AM)), greeting cards maker, reported that 2Q net income dropped to 5 cents per share, down from 10 cents per share a year earlier as weak international business countered strong domestic growth. Sales shed 1 % to $387.6 million from $392.1 million in the year ago period.

Family Dollar Stores Inc. ((FDO)), discount retailer, posted 4Q earnings of 18 cents a share, down from a year-earlier profit of 25 cents a share, beating analyst estimate by a penny. Sales advanced 8% and Same-store sales rose 0.6%, compared to the same period last year.

CORPORATE NEWS

E-Trade Financial Corp. announced it has agreed to buy BrownCo from JPMorgan Chase & Co. for $1.6 billion in cash. For the online brokerage this will be the second acquisition deal of a rival in the last two months.