Lower Open in Anticipation of Corporate Earnings
April 20, 2009 – The futures are indicating lower openings this morning as the Street prepares for a busy week of corporate earnings. The lead stories on the day for stocks are Bank of America (which beat expectations) and Oracle’s purchase of SunMicrosystems.
The dollar is stronger against the euro this morning as traders look for another interest rate cut from the European Central Bank. Gold is up $3.30 to $871.20 this morning. It has been weakened lately by increasing demand for equities and expectations that the IMF is selling reserves.
Oil prices are lower again this morning as focus turns back to expectations on a downbeat corporate earnings season. OPEC is meeting on May 28, and there is an increasing sense that it will cut production further to adjust for lower expectations of global oil demand. Since September, it has cut production by 4.2 million barrels per day.
On the economic data front, this is going to be a relatively light week with leading indicators for March out today, weekly crude inventories out on Wednesday, weekly jobless claims and existing home sales for March on Thursday, and durable goods orders for March and new home sales for March rounding out the week on Friday.
On the corporate front,
· Discretionary – Toys & Games – Hasbro (NYSE:HAS) reported a 12% decline in Q1 revenue to $621.3 million, and a 29% decline in profit to $19.7 million, or $0.14 per share (expectations were for a profit of $0.14 per share).
· Drug Manufacturers – GlaxoSmithKline (NYSE:GSK) is buying Stiefel Laboratories for $2.9 billion. Eli Lilly (NYSE:LLY) reported a 5% Y/Y increase in revenue for Q1 to $5.05 billion, and a 24% Y/Y increase in profit to $1.31 billion, or $1.20 per share, compared to a $1.06 billion last year (expectations were for profit of $1.06billion, or $0.97 per share).
· Financial Sector – Bank of America (NYSE:BAC) reported Q1 profit of $2.81 billion, or $0.44 per share (expectations were for profit of $0.04 per share).
· Oil & Gas Equipment & Services – Halliburton (NYSE:HAL) – reported a 3% Y/Y decline in revenue to $3.91 billion, and a 35% Y/Y decline in profit to $387 million, or $0.42 per share (expectations were expecting $0.41 per share).
· Technology – Oracle (Nasdaq:ORCL) is buying SunMicrosystems (Nasdaq:JAVA) is paying $9.50 per share in cash, or $7.4 billion.
· Job Losses – General Motors (NYSE:GM) is cutting 1,600 jobs,
In terms of what we expect in today’s session, stocks are set for a decisive move to the downside at the Street prepares for poor earnings performance in the week ahead. That being said, the markets have shown a surprising amount of resilience and there is an increasing amount of evidence having surfaced in recent economic data that the pace of the negative trends has slowed.
The question is, whether this slowdown is a reversal, or whether it is just a natural occurrence in a longer-bear and recessionary trend. We are inclined to the latter thesis, and would point to expectations of increasing unemployment levels, not as a lagging indicator, but as a leading indicator. With further deterioration in the labor market and the current negative direction that consume credit is moving in, coupled with the fact that consumers are relied on to such a significant (and unrealistic) extent to support GDP, we just don’t see how there is going to be any prolonged pickup in economy any time soon.
That being said, we see more downside risk to the markets at current levels than upside – decisively so. We wouldn’t be surprised to see a retest of 7,522.02 on the DJIA, 1,500 on the Nasdaq and 787.53 on the S&P 500 in the near term.
Cool (But Depressing) Sites You Should Know About
· Dynamic Map of Bank Card and Mortgage Delinquencies in the US
Fast Facts
· China’s holdings of US Treasuries increased to $744.2 billion in February, up from $727.4 billion at the end of 2008, and from $486.9 billion since the same period last year. China’s holdings represent 23.5% of total foreign debt holdings of US Treasuries, down slightly from January.
· The national debt is up to $11.2 trillion this morning.
