Market Rally on Beige Book Report

Elena
19 Oct, 2005
New York City

CBOT public offering of 3.2 million shares was priced at $54 per share. Shares of the stock opened at $82. Intel posted disappointing earnings and sales forecast. Peabody Energy Corp. doubled its Q3 profit on high coal prices, but missed estimates by a penny. JP Morgan reported 78% profit jump, missing estimates by a penny. Yahoo posted 47% revenue growth, beating earnings estimates.

U.S. MARKET AVERAGES

The three major averages trade below the flat line. The market lacks leadership and all sectors are currently in the negative. Intel’s disappointing earnings and revenue outlook have weighed on the market sentiment throughout the whole trading session, offsetting robust earnings reports, positive economic data on housing stars, and crude-oil prices drop. The tech giant’s earnings missed expectations by a penny per share and warned of slow sales in the fourth quarter. The news led the investors to conclude that consumer spending, which represents 70% of the economy, is slowing down.

Stocks turned mixed with a drop in oil prices which came after a positive Energy Department report on petroleum inventories, helping to ease consumer spending concerns. A barrel of light crude was quoted at $62.10, down $1.10, on the New York Mercantile Exchange.

Stocks were also supported by upbeat earnings reports from J.P Morgan Chase((JPM)), Altria((MO)), Motorola((MOT)), Yahoo ((YHOO)).

Concern over inflation and consumer spending drew investors' attention away from some positive economic news. The Commerce Department said new housing construction rose 3.4% to an annualized rate of 2.108 million units, far greater than the 1.975 million economists expected.

United Technologies ((UTX)) is the best Dow performer, up 2.3% after a sharp decline yesterday on earnings report. JP Morgan ((JPM)) is posting a gain of 2%on better-than-expected quarterly profit.

GM ((GM)) is one of the worst performing Dow components, further retreating from the sharp advance it posted on Monday. The stock is showing a decline of 1.9%. Intel ((INTC)) is also a significant drag on the Dow, falling about 1.9% on its earnings report. Honeywell ((HON)) is also falling by 1.8% on earnings news.

MOVERS AND SHAKERS

Dow component Intel Corp ((INTC)) reported solid third-quarter earnings, but provided an outlook for fourth-quarter revenue where the mid-point of the range was slightly below analyst expectations. The company said net income for the period ended October 1 rose to $2 billion, or 32 cents a share, up from $1.9 billion, or 30 cents, a year ago. Intel is expected to be under pressure today.

Another Dow component, J.P. Morgan ((JPM)), reported an increase of 78% in adjusted earnings. The company also said that Jamie Dimon will take over as the company’s chief executive officer six months earlier. The investment bank’s shares added 2%.

Honeywell International Inc. ((HON)) posted quarterly revenue that fell slightly of Wall Street forecast. The company’s stock lost 1.2% yesterday and is expected to go down today.

Yahoo Inc. ((YHOO)) reported a growth in revenue from online advertising and Internet services that helped the company to compensate a quarterly profit that was nearly unchanged from a year ago. Yahoo posted $254 million, or 17 cents a share, for the period ended September 30. The company’s stock gained 1.7%.

Motorola Inc. ((MOT)) posted earnings that went ahead of expectations, boosted by higher handset sales, a one-time tax benefit and the sale of stock in Nextel Communications. The company reported a net profit of $1.75 billion, or 69 cents a share, up from $479 million, or 20 cents, a year ago. Motorola’s shares gain 2%.

ECONOMIC NEWS

Crude oil inventories advanced sharply in the latest week, according to government data released Wednesday, adding to the more moderate gain recorded during the previous period. Stocks of gasoline advanced as well.

The Department of Energy's Energy Information Administration revealed that crude oil inventories climbed by 5.6 million barrels for the week ended October 14, rising to 312.0 million barrels from the 306.4 million barrels recorded in the previous week. This followed an advance of 1 million barrels for the prior week. Oil inventories are now 11.9% higher than their levels of the same time last year.

Gasoline inventories posted a week-over-week advance of 2.9 million barrels, the government said, more than reversing the previous week's decline of 2.7 million barrels. Gasoline stocks are now 4.2% below their levels of last year. Inventories of distillate fuel oil fell by 1.9 million barrels in the most recent week.

Wednesday morning, the Department of Commerce released its report on housing starts and building permits in the month of September. The report showed that housing starts and building permits both rose unexpectedly.

The report showed that housing starts rose 3.4 percent to a seasonally adjusted annual rate of 2.108 million units in September from a revised 2.038 million unit rate in August. Economists had expected housing starts to fall to a 1.950 million unit rate from the 2.009 million unit rate originally reported for August.

The unexpected increase in housing starts reflected strong growth in the South, where housing starts rose by 6.9 percent. Housing starts rose by 1.9 percent in the Midwest while coming in unchanged in the Northeast and West.

The Commerce Dept. also said that building permits rose 2.4 percent to a seasonally adjusted annual rate of 2.189 million units in September from a 2.138 million unit rate in August. The increase came as a surprise to economists, who had expected building permits to fall to a 2.075 million unit rate.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks dropped across the region, posting heavy losses on renewed inflation worries related to the U.S. economy. Intel Corp was another drag of the market as it released a disappointing revenue forecast. The Nikkei slid for a sixth consecutive session, losing 1.7% on tech shares. South Korea’s Kospi tumbled 2.8%, Hong Kong’s Hang Seng declined 1.6%, and Australia’s All Ordinaries ended down 1.7%.

European markets expanded early losses to close the session deeply in the red. Averages were dragged down by growing U.S. inflation fears and a disappointing earnings report from tech giant Intel, which pressured European technology sector. The German DAX 30 slipped 2.1%, the French CAC 40 shed 1.9%, and London’s FTSE lost 1.8%.

ENERGY, METALS, CURRENCIES

Crude oil slipped more than $1 on better-than-expected petroleum inventory report and eased concerns over Hurricane Wilma which appears to steer away from vulnerable oil production facilities in the Mexican Gulf. Light sweet crude December delivery fell $1.10 to $62.10 a barrel. Heating oil lost 2 cents to $1.915 a gallon. Gasoline dropped 5 cents to $1.6850. London Brent declined 88 cents to $58.40.

In European trading gold prices further declined. In London gold closed at $465 per troy ounce, down from $472.20. In Hong Kong the precious metal lost $5.10 to close at $473.25. Silver closed at $7.66, down from $7.78.

In European trading the U.S. dollar lost ground against most of its major counterparts. The euro was quoted at $1.1970, up from $1.1950. The dollar changed hands at 115.57 yen, down from 115.65. The British pound was trading at $1.7596, up from $1.7492.

EARNINGS NEWS

Yahoo Inc. ((YHOO)) Internet company, reported Q3 net earnings of 17 cents per share, unchanged from last year’s net earnings in the comparable period on 47% revenue growth, beating analyst estimate of 14 cents a share. Yahoo would have earned 15 cents per share, but the company gained $16 million from the sale of another investment and an unusually low tax rate during the three-month period.

Intel's third-quarter earnings rose 5% from a year ago to $2 billion, or 32 cents a share, on an 18% jump in revenue to $9.96 billion. Two special items complicated the comparison to Wall Street estimates but the top line was about $40 million ahead of forecasts. Intel reported a solid gross margin of 61.1% before charges in the quarter.

Knight Capital Group Inc. ((NITE)) securities market-making and asset management company posted Q3 earnings of 23 cents a share, up from the previous year's loss of 1 cent a share on revenue growth, beating analysts’ forecasts of 13 cents a share. Apart from charges taken for costs related to excess real-estate capacity in Jersey City, the company announced it would have posted operating earnings from continuing operations of 26 cents a share.

Eastman Kodak ((EK)), imaging products manufacturer, posted a Q3 loss of $3.58 a share, down vs. earnings of $1.60 a share in the same period last year despite 5% revenue growth, as a 47% rise in digital revenue helped offset a 20% drop in traditional revenue The results incorporated a 1-cent a share gain from discontinued operations and a $3.13 a share charge related to deferred tax assets.

Honeywell International ((HON)), industrial and aerospace conglomerate, reported that Q3 net income advanced to 55 cents a share, 26 % up from 43 cents a share in the year-earlier period on strong demand for aircraft parts and services, beating analysts’ expectations of 54 cents a share.

JPMorgan Chase & Co. ((JPM)), financial services company, posted Q3 net income of 71 cents a share, 78% up from 39 cents a share in the same time a year ago on strong trading and investment banking fees, missing analyst estimate by a penny. Apart from $221 million of charges related to its merger last year with Bank One Corp., operating earnings amounted to 75 cents a share, the company announced.

Office Depot, Inc. ((ODP)), provider of office products and services, reported Q3 net loss of 15 cents per share, down from earnings of 28 cents per share in the same period a year ago despite 5 % sales growth. Q3 of 2005 results incorporate the effects of charges related to asset impairments, exit costs and other operating items previously announced. Apart from those charges, it would have earned 36 cents a share, beating analysts’ forecasts by a penny.

General Dynamics ((GD)) defense contractor, reported Q3 net income of $1.84 a share, up from $1.60 a share in the same period last year on sales growth, beating analysts’ forecasts of earnings of $1.76 a share.

Piper Jaffray ((PJC)), security brokerage firm posted Q3 net income of 79 cents a share, up vs. 61 cents a share in the year-earlier period on 12% revenue growth, beating analysts’ forecasts of 43 cents a share.

Bank of America Corp. ((BAC)), financial services provider, reported that Q3 net income advanced 10%, compared with the same time last year, to $1.02 a share on revenue growth, matching analyst expectations. Excluding pretax merger and restructuring charges of 2 cents per share, earnings would have been $1.04 per share. Bank of America announced that provisions for credit losses increased to $1.16 billion, up from $650 million a year ago, and that it also took $209 million in previously-reserved-for charge-offs connected with the domestic airline industry.