US & World Daily Markets Financial Briefing 23-02-2010

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Stocks Come Under Pressure As Consumer Confidence Wanes

After showing a lack of direction early on, stocks have shown a notable move to the downside on Tuesday following the release of disappointing consumer confidence data. The major averages have moved sharply lower, backing further off of Friday's one-month closing highs.

The Conference Board reported a much bigger than expected drop in consumer confidence in the month of February, with consumers expressing concerns about business conditions and the job market.

The consumer confidence index fell to 46.0 in February from an upwardly revised 56.5 in January. Economists had been expecting the index to edge down to 55.0 from the 55.9 originally reported for the previous month.

On the housing front, Standard and Poor's revealed that home prices continued to show an annual rate of decline in the month of December, although the pace of the drop in home prices continued to slow.

The S&P/Case-Shiller 20-City Composite Home Price Index fell at an annual rate of 3.1 percent in December compared to a 5.3 percent decrease in November. The annual rate of decline in home prices came in line with economist estimates.

In earnings news, home improvement retailer Home Depot Inc. (HD) reported adjusted fourth quarter earnings of $0.24 per share, topping projections for $0.17 per share. Net sales for the quarter edged down to $14.57 billion but beat expectations for $14.07 billion.

Target Corp. (TGT) said it earned $1.24 per share in the fourth quarter, surpassing the $1.16 per share expected for the quarter. Total revenues for the quarter were $20.18 billion, edging out the $20.16 billion forecast by Wall Street analysts.

The major averages have seen some further downside in the past few minutes, falling to new lows for the session. The Dow is currently down 81.77 points or 0.8 percent at 10,301.61, the Nasdaq is down 28.26 points or 1.3 percent at 2,213.77 and the S&P 500 is down 11.70 points or 1.1 percent at 1,096.31.

Sector News

Semiconductor stocks are some of the morning's worst performers, as reflected by the 2.9 percent pullback by the Philadelphia Semiconductor Index. With the drop, the index continues to give back recent gains.

Within the sector, Micron Technology (MU), Teradyne (TER), and Novellus Systems (NVLS) are posting particularly steep losses.

Healthcare provider stocks are also moving notably lower, with the Morgan Stanley Healthcare Provider Index posting a 1.9 percent loss. With the decline, the index is backing off of the one-month closing high set on Monday.

The index is being led lower by Tenet Healthcare Corp. (THC), which has dropped by 8.6 percent after its fourth-quarter sales came in at $2.26 billion, short of the $2.29 billion forecast for the quarter.

Gold, steel, computer hardware and electronic storage stocks have also come under pressure, reflecting the day's broad based weakness.

Stocks Driven By Analyst Comments

Palm Inc. (PALM) is moving sharply lower in mid-morning trading after being downgraded at Bank of America from Buy to Underperform. The stock is down 6.4 percent after falling to its lowest intraday price in nearly eleven months in earlier trading.

Corning (GLW) is also under pressure following a downgrade by Oppenheimer from Outperform to Perform. Shares are currently down by 2.9 percent, setting a two-week intraday low.

On the other hand, Calpine (CPN) is on the rise after an upgrade at UBS from Neutral to Buy. The stock is currently up 0.4 percent after reaching a five-week intraday high.

TSX Poised To Open In The Red

The Canadian market may witness a lower opening Tuesday, as a drop in crude oil prices could pull down the index heavy-weight energy sector. Economic releases from the US, including reports on consumer confidence and house prices may influence the sentiment afterwards.

The S&P/TSX Composite Index ended lower 74.54 points or 0.64% to 11634.75 Monday, ending a long winning streak which lasted eight days.

Crude oil April was down $1.30 to $79.01 a barrel in the New York Mercantile Exchange. April Gold eased $2.8 to $1110.3 a troy ounce. The US Dollar edged higher against the Euro.

In corporate announcements, Muti-channel retailer Sears Canada Inc. reported a rise in fourth quarter net earnings to C$128.2 million from C$99.1 million last year.

Business software company MKS Inc. reported its net income increased to $1.1 million from 0.3 million for the comparable period.
 
Brookfield Asset Management Inc. is planning a bid to take a large stake in US real estate firm General Growth Properties Inc., according to a report from the Wall Street Journal.

Guyana Goldfields Inc. announced the closing of its previously announced exercise of over-allotment option and that it issued an additional 450,000 common shares at $6.95 per share to raise additional aggregate gross proceeds of $3.13 million.

Energy infrastructure company TransCanada Corporation reported fourth-quarter net income applicable to common shares of $381 million, compared to $277 million for the prior-year quarter.

Quorum Information Technologies Inc. announced it earned Chrysler dealer manufacturer integration certification for its dealership and customer management system.

MOSAID Technologies Inc. announced the closing of its previously announced bought deal financing for aggregate gross proceeds of approximately $31.0 million.

The US Conference Board will release its consumer confidence report for February at about 10:00 a.m. ET.

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Asian Markets End Mixed Amid Cautious Trading

The markets across Asia witnessed mixed trading on Tuesday with Hong Kong, South Korea, Indonesia, India and Taiwan ending in positive territory, while the markets in China, Australia an Japan ended in negative territory. Volume was relatively less with many traders preferring to stay on the sidelines awaiting further cues.

In Japan, the benchmark Nikkei 225 Index declined 48.37 points, or 0.47% at 10,352, while the broader Topix index of all First Section issues lost 2.38 points, or 0.26 percent, to 907.

On the economic front, minutes of the recent BOJ board meeting revealed that Members of the monetary policy board felt that deflationary pressures are likely to continue for some time. Some of the members felt that the equity markets are becoming increasing focused on the fiscal health of the government, the minutes showed, and that new lending opportunities have added to the overall easing of stimulus.

Profit taking was witnessed in thin trading as traders preferred to stay in the sidelines awaiting direction. Nippon Oil Corp. declined 2.28% and Nippon Mining Holdings fell 2.01%. However, Showa Shell Sekiyu managed to end in positive territory with a gain of 0.58%.

Impex Corp, engaged in oil exploration, plunged 3.01%. Among glass and ceramic stocks, Asahi Glass declined 3.03%, NGL Insulators slipped 0.49%, Tokai Carbon shed 1.03%, and Nippon Sheet Glass Co. fell 1.34%.
 
Trading companies also ended weaker on profit taking. Mitsubishi Corp. slipped 0.88%, Sumitomo Corp. lost 1.12%, Toyota Tsusho Corp., fell 0.68%, Marubeni Corp. declined 1.12% and Itochu Corp. shed 0.69%.

Mixed trading was witnessed among realty stocks. While Mitsubishi Estate gained 1.14% and Mitsui Fudosan added 0.46%, Sumitomo Realty & Development declined 0.50%, Tokyu Land Corp., fell 1.18% and Heiwa Real Estate lost 1.09%.

In Australia, the benchmark S&P/ASX 200 Index ended with a gain of 0.80 points, or 0.02% to close at 4,718, while the All-Ordinaries Index ended at 4,731, representing a loss of 1.70 points, or 0.04%.

Banks ended in positive territory and supported the market. ANZ Bank advanced 0.84%, Commonwealth Bank of Australia added 0.78% and Westpac Banking gained 0.92%. Investment banker Macquarie Group rose 0.96%. However, National Australia Bank bucked the trend and ended in negative territory with a loss of 0.32%.

Mining and metal stocks ended in negative territory as traders preferred to lock in gains from recent rally and move to the sidelines awaiting further cues on the global economy. BHP Billiton edged down 0.12%, Fortescue Metals lost 3.01%, Gindalbie Metals fell 1.92%, Iluka Resources slipped 0.53%, and Murchison Metals declined 2.37%. However, Rio Tinto bucked the trend and ended in positive territory with a gain of 0.32%.

Gold stocks ended mixed. While Lihir Gold managed to end in positive territory with a gain of 0.32%, Newcrest Mining slipped 0.48%.

Telecom major Telstra Corp. declined 0.33% amid huge volumes, while Singapore Telecommunications remained unchanged from previous close.

Airline stocks also ended in negative territory on profit taking. Qantas Airways lost 2.57% and Virgin Blue Holdings fell 3.88%.

In Hong Kong, the Hang Seng Index ended in positive territory for the second successive day with a gain of 245.73 points, or 1.21%, at 20,623, as traders evinced fresh buying interest in realty, resource and china-related stocks at lower levels. Speculation that the recent policy tightening measures from mainland China might not have any negative impact and the global economy is poised for sustaining recovery also lifted market sentiment. As many as 39 of the 42 components in the index ended in positive territory.
 
In South Korea, the KOSPI Index ended in positive territory with a modest gain of 1.80 points, or 0.11%, to 1,629, as traders evinced fresh interest on steel stocks on optimism about increased demand for steel. Profit taking however trimmed the gains as investors preferred to adopt a wait-and-watch approach ahead of Federal Chairman Ben Bernanke's testimony on the economy later in the week.

The Indian market ended a quiet session higher on Tuesday, helped by positive global cues. However, cautious undertone ahead of Friday's Union Budget limited the gains. Traders looked ahead to congressional testimony by Fed Chairman Ben Bernanke on Wednesday and Thursday for clues on interest rate hikes. After initially struggling to move decisively in either direction, the benchmark Sensex rose to a high of 16,325 by mid-session, but pared gains and ended at 16,286, up 49 points or 0.30%, while the Nifty rose by 14 points or 0.28% to 4,870.

Among the other major markets, Indonesia's Jakarta Composite Index added 19.39 points, or 0.76%, to close at 2,584, Singapore's Strait Times rose 25.09 points, or 0.91% to 2,783, and Taiwan' s Weighted Index gained 37.40 points, or 0.49%, to close at 7,597. China's Shanghai Composite Index, however, bucked the trend and ended in negative territory with a loss of 20.82 points, or 0.69%, at 2,983.

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The major European averages are extending their slide on Tuesday, as they opened higher, but surrendered their gains by late morning trading and are trading lower. The French CAC 40 Index and the German DAX Index are declining 0.44% and 0.73%, respectively, while the U.K.’s FTSE 100 Index is edging up 0.20%.

On the economic front, the results of the Ifo Institute’s survey showed that Germany’s business confidence index fell to 95.2 in February from 95.8 in January. The current assessment index fell 1.4 points to 89.8, while the expectations index continued to rise, advancing to 100.9.

Economists attribute the decline to a harsh winter and doubts about the recovery in Germany amid the fiscal crisis plaguing some of the countries in the euro zone. That said, it is believed that the underlying trend of the German recovery remains healthy.

Meanwhile, French Statistical Office INSEE reported that French consumer spending fell 2.7% month-over-month in January compared to the 1.3% increase in the previous month. Economists had expected a more modest decline of 1.1%. Spending on durable goods fell 7.8% and spending on other manufactured goods edged down 0.4%, while spending on textile-leather rose 1.6%. Annually, consumer spending rose 1.5%, slower than the 5.8% growth in December.

An inflation report released by INSEE showed that the French consumer price index rose 1.1% year-over-year in January compared to the 0.9% increase in December. On a monthly basis, consumer prices slipped 0.2%, partly reversing the 0.3% increase in the previous month. Economists had expected 1.1% growth compared to the previous year, but a 0.3% decline compared to the previous month.

U.S. Economic Reports

The S&P/Case-Shiller home price index, which tracks monthly changes in the value of residential real estate in 20 metropolitan regions across the U.S., is scheduled to be released at 9 AM. Economists expect a 3.1% year-over-year decline in the 20-city composite house price index for December.

The index declined 5.3% year-over-year in November, steeper than the 5% drop expected by economists. However, the decline was the smallest since September 2007. Four cities, Denver, Dallas, San Francisco and San Diego saw year-over-year gains.

The Conference Board is scheduled to release its consumer confidence report for February at about 10 am ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index fell to 55 in February.

The consumer confidence index rose to 55.9 in January from 53.6 in December, with the reading representing the highest level since September 2008. The present situation index rose about 5 points to 25, while the expectations index increased by 0.6 points to 76.

St. Louis Federal Reserve Bank President James Bullard will speak on regulatory reform to the Chartered Financial Analysts Virginia Society in Richmond, Virginia, at 5 PM ET.

Earnings

Medco Health (MHS) reported fourth quarter net revenues of $15.2 billion, up 17.6% year-over-year. The company’s adjusted earnings rose to 70 cents per share from 54 cents per share last year. Analysts estimated earnings of 75 cents per share on revenues of $15.09 billion. The company reaffirmed its 2010 adjusted earnings guidance of $3.28-$3.38 per share compared to the $3.36 per share consensus estimate.

Home Depot (HD) reported fourth quarter earnings from continuing operations pf 18 cents per share compared to break-even results in the year-ago quarter. On an adjusted basis, the company’s earnings from continuing operations were 24 cents per share. Sales fell 0.3% to $14.6 billion. The consensus estimates called for earnings of 17 cents per share on revenues of $14.07 billion. The company announced a 5% increase in its quarterly cash dividend to 23.625 cents per share. For 2010, the company expects sales growth of 2.5% and earnings per share from continuing operations of $1.79. Analysts estimate earnings of $1.73 per share on revenue growth of $66.43 billion.

Office Depot (ODP) said its fourth quarter sales fell 6% to $3.1 billion. The company reported a loss of 6 cents for the quarter compared to a loss of 73 cents per share last year. Sales fell 6% to $3.1 billion. Analysts expected a loss of 22 cents per share on revenues of $2.97 billion.

Cracker Barrel (CBRL) reported second quarter revenues of $632.6 million, up 0.4% year-over-year. The company’s earnings per share rose 35% to $1.09. The consensus estimates called for earnings of 90 cents per share on revenues of $634.75 million. For the full year, the company estimates earnings of $3.35-$3.50 per share.

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RadioShack (RSH) saw notable weakness in Monday’s after hours session despite saying its fourth quarter net sales and operating revenues rose 4.7% to $1.32 billion. The company’s net income rose to 60 cents per share from the year-ago’s 48 cents per share. Analysts estimated earnings of 59 cents per share on revenues of $1.32 billion.

Brocade Communications (BRCD) is likely to see some activity after it reported that its first quarter revenues rose 25% to $539.5 million. The company’s non-GAAP earnings rose 27% to 19 cents per share. The consensus estimates called for earnings of 15 cents per share on revenues of $548.43 million.

Forest Oil (FST) may also be in focus after it reported fourth quarter adjusted earnings of 56 cents per basic sharecompared to 32 cents per basic share last year. Analysts estimated earnings of 60 cents per share on revenues of $255.99 million.

Microsoft (MSFT) and Amazon (AMZN) are likely to be in focus after they announced that they have signed a patent cross-license agreement that provides each company with access to the other’s patent portfolio and covers a broad range of products and technology, including coverage for Amazon’s e-reading device Kindle. Microsoft also said Amazon would pay Microsoft an undisclosed amount of money.

Helmerich & Payne (HP) could gain ground after Standard & Poor’s announced that the company will replace IMS Health (RX) in the S&P 500 Index. IMS Health is being taken private by TPG Capital. Meanwhile, Prosperity Bancshares (PRSP) will replace Helmerich & Payne in the S&P SmallMidCap 400 Index and Interactive Intelligence (ININ) will replace Prosperity Bancshares in the S&P SmallCap 600 Index.

Wal-Mart (WMT) may also be in focus after it announced a deal to buy digital technology and service provider VUDU, Inc. The company expects the deal to close within the next few weeks.

Honeywell (HON) is expected to see some activity after it announced that it expects 6%-8% compounded annual sales growth over the next few years. The company also said it expects operating margins in the 8%-16% range.

Oceaneering International (OII) could move to the upside after it said its board has approved the repurchase of up to 6 million of its shares on a discretionary basis in privately negotiated transactions.

Cooper Companies (COO) is likely to move in reaction to its announcement that its women’s healthcare unit has acquired the Her Option Global Endometrial Ablation product line from American Medical Systems Holdings (AMMD).

Health Management Associates (HMA) traded higher in Monday’s after hours session after it reported fourth quarter net revenues of $1.20 billion, up from $1.09 billion. Excluding gains and losses, the company reported earnings from continuing operations of 12 cents per share compared to 7 cents per share last year. Analysts estimated earnings of 12 cents per share on revenues of $1.17 billion.

Nordson (NDSN) found notable buying interest in the after hours session after it reported first quarter sales of $221 million, up 18% year-over-year. The company reported earnings of 79 cents per share, including a one-time tax benefit of 9 cents per share and a charge of 1 cent per share. Analysts estimated earnings of 58 cents per share on revenues of $212.19 million. For the second quarter, the company expects 26%-30% sales growth and earnings of 81-89 cents per share, including a 1 cent per share charge. The consensus estimates call for earnings of 65 cents per share on 13.5% revenue growth.

Wilmington Trust (WL) came under selling pressure after it said it has started an underwritten public offering of $250 million of its common stock. The company noted that net proceeds from the offering would qualify both as tangible common equity and regulatory Tier I capital. Another stock that could be in focus because of a common share offering is TCF Financial (TCF), which commenced an underwritten registered public offering of $150 of its common stock.

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