Rate Hike Spur Late Rally

123jump.com Staff
13 Dec, 2005
New York City

Market traded sideways in the morning despite barrage of news on the economic front and earnigs from companies. November retail sales rose 0.3%. Best Buy reported weaker than expected earnings, Lehman reported storng earnings on deal flow, and Proctor & Gamble guided earnings for the current quarter at top of the range. After the rate hike of 25 basis points market rallied and closed near the peak level of the day.

U.S. MARKET AVERAGES

Market traded in a tight trading range and at a lower trading volume than average in the morning hours ahead of FOMC meeting. S&P downgrade of General Motors debt closer to junk status and weaker than expected earnings at Best Buy put market on the defensive.

Energy sector stocks rallied in the morning on the news of mega merger news between ConocoPhillips and Burlington Resources. The deal is valued at $35.6 billion. Shares of natural gas producers rose in the session led by Southwestern Energy, Chesapeake Energy, Devon Energy, EOG Resources and XTO Energy. ConocoPhillips is buying Burlington Resources at 9.9% above yesterday’s stock price at closing and 19% above close of stock price on Friday. Burlington has most of its resources located in the North America and ConocoPhillips is acquiring natural gas resources at $3 per thousand cubic feet.

On earnings front mixed picture was presented to the market. Best Buy reported earnings 2 cents below estimates and Lehman Brothers reported earnings 14 cents above estimates. Proctor and Gamble also guided earnings near top end of the previously released guidance. Shares of Best Buy ((BBY)) fell 12%, Lehman Brothers ((LEH)) rose 33 cents, Proctor & Gamble ((PG)) rose close to 3% at close.

Market rose in the afternoon as Fed hiked the fed fund rates as expected by 25 basis points to 4.25%. The rate hike was expected but it appears that language of the minutes of meeting suggests that Fed may increase rates in future again. Market rallied on the expected rate hike. Shares of homebuilders, financials and select technology companies rose at close. Market closed at its best level of the day.

MOVERS AND SHAKERS

Best Buy Co., Inc ((BBY)) posted third-quarter earnings of $138 million, or 28 cents a share, up from $125 million, or 25 cents a share, a year earlier. Total revenue rose 10% to $7.3 billion, and sales at stores open at least one year rose 3.3%. The quarterly results failed to meet expectations of 30 cents a share, and revenue of $7.34 billion. The stock dropped 10.7%.

CuraGen ((CRGN)) said its Phase II trial of velafermin, which treats oral mocositis in patients receiving chemotherapy, failed to meet its primary endpoint. While velafermin reduced oral mucositis in come instances, the results were not statistically significant. The stock fell 22%.

Insmed Inc ((INSM)), biopharmaceutical company, said the Food and Drug Administration has approved Iplex to treat growth failure in children with severe primary IGF-1 deficiency or with growth hormone gene deletion who have developed neutralizing antibodies to growth hormones. The company said that Iplex is entitled to seven years of marketing exclusivity for the treatment of primary IGFD. Company’s shares rose 24.7%.

Celanese Corp. ((CE)) raised its 2005 earnings per share outlook to a range of $2.10 to $2.20, from the previous range of $1.95 to $2.05, citing continued strength of its Ibn Sina joint venture in Saudi Arabia, lower personnel costs, and a lower tax rate. The Dallas-based chemicals company also said it expects 2006 earnings in a range of $2.50 to $2.90. Thre stoch gained 6.9%.

ECONOMIC NEWS

The Department of Commerce released its report on November retail sales on Tuesday, showing that sales growth came in slightly below economist estimates. At the same time, the report showed a notable upward revision to October sales.

The Commerce Dept. said retail sales rose 0.3 percent in November, matching a revised increase in October. Economists had been expecting sales to grow by 0.5 percent in November compared to the 0.1 percent decrease originally reported for October.

The November sales growth was partly due to a rebound in sales by motor vehicle and parts dealers, which rose by 2.6 percent in November after falling 1.3 percent in October.

Excluding auto sales, total sales fell 0.3 percent in November compared to a 0.8 percent increase in October. The decrease in ex-auto sales surprised economists, who had been expecting an increase of 0.1 percent.

The decrease in sales outside the auto sector was partly due to a 5.9 percent drop in sales by gasoline stations, which reflected a drop in gas prices. Sales by gas stations fell 0.6 percent in October.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks closed mixed with gains capped ahead of a key Bank of Japan survey Wednesday. The Nikkei hit a five-year intraday high of 15,782.30 to close up 0.3%, boosted by strong steel and metals stocks. Among regional markets, Hong Kong’s Hang Seng lost 0.3%, Australia’s All Ordinaries fell 0.5%, while South Korea’s Kospi gained 0.2%.

European stocks closed slightly higher on strong energy stocks and ahead of U.S. Fed Reserve interest rate meeting today. The German DAX 30 gained 0.2%, the French CAC 40 advanced 0.4%, and London’s FTSE 100 added 0.1%. The euro fell 0.2% against the dollar to $1.1930.

OIL, METALS, CURRENCIES

Crude oil prices hovered over $61 a barrel after the IEA predicted recovery in global oil demand next year. Light sweet crude for January delivery gained 7 cents to $61.37 a barrel on the Nymex. Natural gas climbed 54 cents to $15.378 per 1,000 cubic feet. London Brent futures fell 9 cents to $59.35.

Gold prices declined for the first time in eight sessions ahead of Fed Reserve meeting. Gold in London closed at $524.30 per troy ounce, down from $536. In Zurich the precious metal fell to $522.95 from $583.03. In Hong Kong gold dropped $12.25 to close at $522.90. Silver closed at $8.59 from $9.07. In New York gold fell $7.40 at close to $524.10 per ounce and silver fell 29.70 cents to $8.585.

The U.S. dollar advanced against other major currencies. In European trading the euro was quoted at $1.1930, down from $1.1980. The dollar bought 120.12 yen, up from 119.75. The British pound stood at $1.7705, down from $1.7749.

EARNINGS NEWS

Lehman Brothers ((LEH)), investment banking services provider, reported a Q4 net profit of $2.76 a share, up from $1.96 a share in the year-ago period on 28% increase in revenue, topping analysts’ expectations of $2.64 a share. Lehman Brothers generated revenue of $3.7 billion vs. $2.9 billion in the fourth quarter of 2004. Banking revenue increased 34% to a record $817 million. Analysts polled by Thomson First Call expected per-share earnings of on revenue of $3.6 billion.

Best Buy Co Inc. ((BBY)), consumer electronics retailer, posted Q3 earnings of 28 cents a share, up from 25 cents a share in the year-ago period on 10% revenue growth and 3.3% same store sales increase, missing analyst estimate of 30 cents a share.

Engineered Support Systems Inc., ((EASI)), provider of military electronics products and logistics services, reported Q4 earnings from continuing operations of 55 cents a share, up from a year-ago equivalent profit of 51 cents a share in the same period last year on 2% revenue growth, missing analyst estimate by a penny.

Tupperware Brands ((TUP)), food storage producer, predicted a 2005 sales rise of 6% to 7%, and earnings of $1.02 to $1.07 a share. If not for items, the company expects earnings of $1.45 to $1.50 a share, in line with analyst expectations of earnings a share of $1.49. For 2006 it forecasts sales of $1.75 billion to $1.8 billion, including a $35 million item related to foreign currency, and earnings of $1.41 to $1.51 a share, including foreign currency.

Cendant Corp ((CD)), travel & real estate services provider, warned that Q4 earnings from continuing operations are estimated at 23 cents a share, at the low end of a 23 cent to 26 cents a share range, on continuing challenges at its travel distribution services business. The company stated it believes issues at its international online operations will be addressed by the actions it is takings.

Isonics ((ISON)), materials company, announced a revenue growth in its semiconductor division of 50% sequentially. More than 90% of the rise is attributable to sales of 300 million silicon wafers. Isonics' previous expectation was that revenue would go up 25% sequentially in the quarter. The company noted that, while revenue is advancing, its silicon wafer business is still not profitable.

CIT Group, Inc. ((CIT)), financial services company, announced that it is restating 2005 financial results on a technical interpretation of the derivative accounting rules. Earnings for the Q3 came at $1.02, down vs. $1.06 a share in the same period last year. The group stated it did not qualify for hedge accounting.