Sentiment Reversal Drags Averages

123jump.com Staff
28 Feb, 2006
New York City

It was a day of sentiments reversal. Weakening home sales, weak revision of Q4 GDP to 1.6% and decline in consumer confidence dragged market averages. For the moth Dow is up 1.2%, S&P up 0.04% and Nasdaq lost 1.1%. Google stock came under heavy selling as investors read latest comments from its CFO. The stock declined 13% before recovering to a loss of 7.1%. Staples closed at one year high on earnings. Markets in UK and Germany were down 1.4% and 2.1%.

U.S. MARKET AVERAGES

It was cautious news on the economic front that weakened the market. Slowing sales of existing-homes, weakening business activities and declining consumer confidence all contributed to weakness in the broader averages. Comments from Google CFO knocked-off 13% of stock at one point.

Housing stocks have been in decline since December of 2005 and today they came under pressure again. Toll Bros. ((TOL)) has declined close to 50% in the last six months from its peak of $58, Beazer Homes ((BZH)) stock has declined 20% in less than 2 months and stocks of D.R. Horton ((DHI)) and Lennar ((LEN)) have lost 10% in a month. The Philadelphia Housing Sector Index dropped 1.5%.

Investors were dismayed with less-than-expected rise in GDP growth rate for the fourth quarter 2005. The revised data suggested that the economy grew at 1.6% than 1.1% as estimated in the preliminary report. Softness in the government spending, little build up in inventory and small rise in export led manufacturing activity related to defense and transportation sector kept the economic growth in check. Market forecasters are looking for the economy to expand at a rate of 4% or higher in the first quarter.

For the year 2005 real economic growth was registered at 3.5% and in 2004 real GDP increased at 4.2%.

Cautious comments on core rate of company growth from the CFO of Google Inc. led stock to decline at one point at low as 13% before recovering to a loss of 7.1%. Google ((GOOG)) stock has been under pressure in the last one month. Stock reached its high of $475 in the last week of December 2005 and since then has corrected to $338 on Feb 14, 2006.

Two other surveys on business activities and consumer confidence suggested slow down in the business related activities and consumer seem to lose confidence as the near-term outlook for the economy is not clear.


MOVERS AND SHAKERS

Apollo Group ((APOL)) projected Q2 net income of 43-44 cents a share and revenue of $570 million, below analyst forecasts of earnings of 54 cents a share and revenue of $586 million. The company, due to report earnings on March 23, didn''t provide outlook commentary. The stock fell 12%.

Dycom Industries ((DY)), provider of specialty contracting services, reported Q2 net income drop of 10 cents a share compared with 15 cents in the year-earlier period. Revenue rose to $244.1 million from $224.5 million. Company’s quarterly results beat expectations of earnings of 8 cents a share on revenue of $213 million. The stock dropped 11%.

BJ Services ((BJS)), oil-services provider, was cut to neutral from buy at Merrill Lynch. The broker cited a continued drop in natural-gas prices and blamed the company''s conservative strategy which caused it to lose market share to smaller and more aggressive rivals. The stock lost 5.2%.

Dynamic Materials ((BOOM)), metalworking company, reported a 50% rise in Q4 earnings. The company posted profit of $3.5 million, or 28 cents a share, up from $2.3 million, or 20 cents a share a year ago. Sales climbed 16% to $23.2 million. The company said it will increase its capex budget to $4.5 million in 2006, up about 50% from 2005, to expand production capacity at both of its divisions. Company’s shares rose 10%.

Marvel Entertainment ((MVL)) was upgraded at J.P. Morgan to overweight from neutral, which said share buybacks and a strong movie slate in 2007 should enable the company to perform better than its rivals. The broker expects the stock to outperform due to the release of """"Spider-Man 3,"""" """"Fantastic Four 2"""" and """"Ghost Rider."""" The stock gained 5%.

ECONOMIC NEWS

The National Association of Realtors released its report on existing home sales in the month of January on Tuesday, showing that sales came in below economist estimates while home prices continued to appreciate at double-digit rates.

The report showed that existing home sales fell 2.8 percent to a seasonally adjust annual rate of 6.56 million units in January from an upwardly revised rate of 6.75 million units in December.

Economists had been expecting existing home sales to come in at a 6.75 million unit rate compared to the 6.60 million unit rate originally reported for December.

The report also showed that the national median existing home price rose 11.6 percent to $211,000 in January from $189,000 in the same month last year.

Additionally, total housing inventory levels rose 2.4 percent to 2.91 million existing homes available for sale at the end of January, representing a 5.3 month supply at the current sales pace.

Consumer confidence fell much more than expected in the month of February, according to a report from the Conference Board, with consumer expressing concerns about the outlook for the economy.

The Conference Board said that its consumer confidence index fell to 101.7 in February from a revised 106.8 in January. Economists had expected a more modest decline to a reading of 104.0 compared to the 106.3 originally reported for January.

The decrease by the index came as a modest increase by the present situation index was more than offset by a notable decline by the expectations index.

The report showed that the present situation index rose to 129.3 in February from 128.8 January, reaching its highest level since the month before the September 11th terrorist attacks. The reading suggests that the start of 2006 will be better than the end of 2005

At the same time, the report showed that the expectations index, a reading of consumers'' outlook for the next six months, fell to 83.3 from 92.1 last month. With the decrease, the index fell to its lowest level in three years, excluding the two months following Hurricane Katrina.

Tuesday morning, the Department of Commerce released its revised report on fourth quarter GDP growth, showing that the annual rate of growth in the quarter was upwardly revised in line with economist estimates.

The report showed that fourth quarter GDP growth was revised up to 1.6 percent compared to the 1.1 percent growth previously reported. While the growth met expectations, it was still well below the 4.1 percent rate of growth seen in the third quarter.

The Commerce Dept. said that the upward revision to fourth quarter GDP growth reflected upward revisions to readings on exports, federal government spending, equipment and software spending, and to changes in private inventories.

The slowdown in GDP growth in the fourth quarter compared to the third quarter was primarily due to a slowdown in consumer spending, an acceleration in imports, a downturn in federal government spending, and a slowdown in spending on equipment and software.

The report also showed a downward revision to the pace of core inflation, as the increase in the index of consumer prices excluding food and prices was revised down to 2.1 percent from the 2.2 percent growth previously reported. The growth is still above the 1.4 percent increase seen in the third quarter.

INTERNATIONAL MARKETS NEWS

Asian-Pacific benchmarks closed mixed, reflecting lower oil prices, disappointing U.S. economic data, worries about further downgrades, and overcapacity in the tech sector. The Nikkei spent most of the session in the red, but eventually recovered on demand from overseas investors and new domestic investment funds to edge up 0.1%. Indian shares hit an all-time high of 0.9%. South Korea’s Kospi lost 0.2%, dragged by automotive and steel stocks. Hong Kong’s Hang Seng fell 0.2% on profit taking.

European stocks closed deeply in the red, hurt by mixed U.S. economic data and a sharp drop of Google’s shares on negative comments. Strong cash-return programs from Royal Bank of Scotland and AXA failed to provide a boost to market sentiment. The German DAX 30 slid 2%, the French CAC 40 dropped 1.6%, and London’s FTSE 100 tumbled 1.4%.

OIL, METALS, CURRENCIES

Crude oil prices hovered over $61 on expectations of another rise in U.S. oil inventories. Light sweet crude April delivery gained 41 cents to $61.41 a barrel. London Brent for April delivery added 48 cents to $61.47 a barrel. In New York April delivery of gasoline was up 4 cents and that of heating oil was up 2 cents.

European gold prices advanced Tuesday. In London gold traded at the fixed price of $559.30 bid per troy ounce, up from $553. In Zurich the precious metal traded at $558.40, up from $552.90. In Hong Kong gold slipped $1.20 to $555.30. Silver opened at $9.75, up from $9.59. In New York gold rose $6.90 to $563.90 per ounce.

The U.S. dollar was weak against other major currencies. The euro traded at $1.1924, up from $1.1855. The dollar bought 115.89, down from 116.12. The British pound stood at $1.7513, up from $1.7400.

EARNINGS NEWS

Overseas Shipholding Group, ((OSG)), provider of energy transportation services, reported Q4 earnings of $2.88 a share, down from a profit of $5.35 a share a year-ago. If not for gains on vessel sales and securities transactions, the company earned $2.79 a share in Q4, still missing analyst estimate of $3.63 a share. In addition, the company announced it plans to increase the quarterly dividend by 43% to 25 cents a share, effective with its next payout.

Astec Industries Inc, ((ASTE)), road building equipment maker, reported that Q4 net income climbed to $1.02 million, or 5 cents a share, up from $268,000 in the year-ago quarter. Revenue in Q4 jumped 21% to $134.5 million. The company stated that Q4 showed seasonal weakness, but added the work backlog is considerably higher than last year. Astec also made it clear that, during its annual audit, it identified significant internal control deficiencies related to inventory controls and accounting system access controls. Despite the weaknesses, the company remains confident in the reliability of its financial statement.

H.J. Heinz Co ((HNZ)), maker of sauces, condiments and packaged foods, reported Q3 net income of 35 cents a share,. down from 43 cents in the same period last year. Quarterly sales shot up 5.7% to nearly $2.19 billion, from $2.07 billion, but gross profit dropped to $780.7 million from $784.7 million. Sales grew 9.4% on a constant-currency basis. Earnings from continuing operations, aside from special items, would have been 50 cents.The company missed analysts view for earnings of 56 cents a share.

Innkeepers USA Trust ((KPA)), real estate investment trust, reported a Q4 breakeven on a per-share basis, up from a loss of 6 cents a share, a year earlier. Funds from operations grew to 21 cents a share from 15 cents a year ago. The company missed analysts’ estimates for earnings of 23 cents a share. Revenue increased to $60.9 million from $50.5 million.

Staples Inc ((SPLS)), office products retailer, reported Q4 earnings of 39 cents a share, up from a profit of 33 cents a share a year-ago on sales and 3% same-store sales growth in Q4, topping analyst estimate by a penny.