Lackluster Trading on Expirations

Elena
16 Dec, 2005
New York City

An oil prices decline below $60 a barrel, healthy U.S. economic data and news from GM sent averages higher at the start of Friday session, but the expiration of key options and futures caused volatility to the market. In corporate news, natural gas distributor Southern Union agreed to buy Sid Richardson Energy Services Co. along with a related energy marketing business, for $1.6 billion in cash.

U.S. MARKET AVERAGES

Stocks opened higher on oil prices decline and healthy U.S. economic data, but later in the session lost momentum and traded in a lackluster fashion throughout most of the morning session. The choppy trading resulted largely from the fact that Friday marks the expiration of key options and futures which tend to create volatility and exaggerate stock price movements.

In economic news, the U.S. Commerce Department reported that the current account deficit narrowed in the third quarter to $195.8 billion, compared to the second-quarter revised $197.8 billion. Economists had expected the deficit to widen to more than $200 billion.

In morning trading, the Dow Jones industrial average rose 49.31, or 0.45%. The Standard & Poor''s 500 index rose 3.00, or 0.24%, and the Nasdaq composite index fell 1.35, or 0.06%.

Bonds prices rose, with the yield on the 10-year Treasury note falling to 4.44% from 4.47% late Wednesday.

The airline sector advanced steadily in early going to rise by 1.8%. The pharmaceutical sector began a rally Monday after Pfizer ((PFE)) announced an increase in its quarterly dividend. On Friday the sector continued its movement to the upside to reach a gain of just under 1%.

Financial stocks shrugged off a lowered profit forecast that First Data Corp issued, as banking, insurance and brokerage stocks followed the market higher on Friday.

Energy stocks remained notable movers to the downside. The biotech group posted modest losses. The retail sector also traded slightly below the flat line.

Among the biggest gainers of the day, Adobe ((ADBE)) jumped to a new 52-week high after its earnings release sparked an advance of nearly 10%. Qwest ((Q)) extended advance to set a new high. AMR ((AMR)) is expanding its peak, followed by fellow airline Continental ((CAL)) which also hit a fresh high.

Among decliners, MGI Pharma ((MOGN)) extended its 52-week low. Falling on disappointing quarterly results, Scholastic ((SCHL)) broke below a 2-month trading range to reach a new low.


MOVERS AND SHAKERS

SMSC Corp ((SMSC)) posted Q3 earnings of $5.4 million, or 24 cents a share, up from $600,000, or 3 cents a share, the year earlier. Excluding special charges, the company would have earned 38 cents a share against 4 cents a year ago. Revenue climbed to $86.6 million from $50.8 million. The average estimates of analysts were 33 cents a share on revenue of $83 million. The stock dropped 11%.

Oracle Corp ((ORCL)), database software company, posted quarterly earnings decline of 2% as the company reported an increase in sales but felt the effects of adverse currency-exchange rages and higher expenses following a number of acquisitions. The stock dropped 4%.

Scholastic Corp ((SCHL)) forecast fiscal 2005 earnings at the bottom end of its $2.30 to $2.50 a share range after reporting an 8% decline in Q2 profit. Scholastic''s net income in the Q2 fell to $66.9 million, or $1.59 a share, with revenue up 2% at $696 million mainly due to a decline on its international operations. It sees full-year revenue between $2.3 billion and $2.4 billion. Analysts were expecting earnings of $1.80 a share for the Nov. 30-ending quarter and $2.43 for the fiscal year. Company’s shares fell 2.1%.

Quiksilver Inc ((ZQK)), sports apparel and accessories company, reported Q4 profit rise of $33.6 million, or 27 cents a share, from $24.9 million, or 20 cents, a year ago, matching analyst estimates. Revenue for the quarter advanced to $637.4 million from $350.3 million. The stock rose 3%.

ECONOMIC NEWS

Friday morning, the Department of Commerce released its report on the current account deficit in the third quarter, showing that the deficit unexpectedly narrowed from the second quarter.

The report showed that the current account deficit narrowed to $195.8 billion in the third quarter from an upwardly revised $197.8 billion in the second quarter. Economists had expected the deficit to widen to about $206 billion.

The Commerce Dept. said that the narrower deficit reflected a decrease in net outflows for unilateral current transfers, a shift to a surplus on income from a deficit, and an increase in the surplus on services.

With the decrease, the current account deficit ran at 6.2 percent of gross domestic product in the third quarter compared with 6.4 percent in the second quarter.

INTERNATIONAL MARKET NEWS

Asian-Pacific benchmarks ended mixed with the Nikkei falling for a third straight day. The 0.5% decline of the Japanese bellwether reflected a decline in U.S. markets, weaker dollar against the yen and profit-taking. Across the region, South Korea’s Kospi dropped 1.2%, Hong Kong’s Hang Seng fell 0.2%, while Taipei’s Weighted index climbed by 1.5%, followed by Australia’s All Ordinaries, up 0.3%.

European stocks finished the session higher, boosted by utility stocks and the expiration of key futures and options contracts. Averages were also supported by positive German economic data which sent the euro higher by 0.2% to $1.1988. The German DAX 30 rose 0.9%, the French CAC 40 gained 0.6%, and London’s FTSE 100 climbed 0.7%.

OIL, METALS, CURRENCIES

Crude oil prices declined below $60 a barrel on warm weather forecasts after Christmas. Light sweet crude for January delivery fell 38 cents to $59.61 a barrel on the Nymex. Heating oil fell 1 cent to $1.7730, followed by gasoline, also down 1 cent to $1.6028. Natural gas dropped 38 cents to $13.400 per 1,000 cubic feet. London Brent declined 52 cents to $58.88.

Gold prices in Europe declined still keeping above $500. In London gold slipped to $504.40 per troy ounce from $507.60. In Zurich the precious metal closed at $503.45, down from $507.20. In Hong Kong gold dropped $2.45 to close at $499.65. Silver closed at $8.55, up from $8.51.

The U.S. dollar declined against its major counterparts. In European trading the euro was quoted at $1.1998, up from $1.1968. The dollar bought 115.87 yen, down from 116.29. The British pound stood at $1.7719, up from $1.7647.

EARNINGS NEWS

Scholastic Corp ((SCHL)), children’s book publisher, reported that Q2 net income fell to $1.59 a share, 8% down from the comparable period last year despite 2% revenue growth, missing analyst estimate of $1.80 a share. The company stated that the profit decline was due to its international operations and modestly lower results in children''s book publishing and distribution.

Oracle ((ORCL)), software firm, reported a 16% increase in Q2 non-GAAP earnings of 19 cents per share compared with the year-ago period. The quarterly results met analysts’ estimate. The company said that total revenue advanced to $3.29 billion, up from $2.76 billion last year.

Steelcase Inc. ((SCS)), office furniture manufacturer, reported Q3 net income of 13 cents a share, up from or 7 cents a share in the year-earlier period, missing analyst expectations by a penny. Last year net income included the benefit of a $6.5 million tax reserve reduction. The company expects Q4 earnings of 7-12 cents a share, ahead of analyst target of 10 cents a share.

Gtech Holdings Corporation ((GTK)), gaming technology company, announced that Q3 net income advanced 4.1% to 37 cents a share, compared with the same period last despite 4.9% revenue decline, a penny less than expected by analysts.

CORPORATE NEWS

Natural gas distributor Southern Union Co agreed to buy Sid Richardson Energy Services Co., a privately held natural gas gathering and processing concern, along with a related energy marketing business, for $1.6 billion in cash.

BellSouth ((BLS)), phone company, announced that it will cut its management ranks by 1,500 employees. BellSouth stated that it will record an after-tax charge of about $95 million related to the cuts, including about $50 million in the fourth quarter of 2005.