December 15, 2009

Wholesale Inflation Higher Than Expected

Investors were tentative in trading throughout the December 15 session, following wholesale inflation data that came in higher than expected. The markets were also cautious ahead of the Federal Reserve’s policy meeting scheduled for Wednesday, as investors believe that key interest rates will remain static after tomorrow’s meeting.

In economic news, the Labor Department affirmed that inflation at the wholesale level increased more than expected in November, as prices jumped 1.8%. That is more than double the 0.8% increase economists had anticipated. Core inflation, which excludes the price of food and energy, advanced 0.5%, its largest increase in more than a year.

Another government report showed that industrial production in November increased at a faster pace than expected, climbing 0.8%, well ahead of the 0.5% the Federal Reserve has projected. Activity at the nation’s mines saw an increase of 2.1%, while the manufacturing sector posted a 1.1% gain. However, utilities posted a 1.8% decline. Industrial capacity advanced during the month, increasing from 70.6% in October to 71.3% in November.

Following four straight months of improving manufacturing conditions, the Empire State Manufacturing survey plunged 21 points to a reading of 2.55. Meanwhile, the general business conditions index retreated from 23.5 to just 2.6, while the new orders index slipped more than 14 points to 2.2, and the shipments measure declined by just under 7 points to 6.3.

Announcing before the opening bell, Best Buy Co. (BBY) confirmed that the company’s earnings for the 3Q skyrocketed, but predicted a narrower 4Q profit as shoppers continue to check their spending. For the recent period, the nation’s largest electronics retailer posted a net profit of $227M, or $0.53 per share, versus a profit of $52M, or $0.13 per share from a year ago.

Quarterly revenues also advanced year-over-year, climbing from $11.5B to $12.02B, an increase in sales of 4.5%. Domestic sales increased 9% to $8.9B, while international sales slipped 6% to $3.1B. Analysts, on average, were looking for Best Buy to post a quarterly profit of $0.43 per share on total sales of $11.98B.

For fiscal 2010, Best Buy is now looking to post a profit between $2.94 and $3.09 per share, up from a previously stated range of $2.70 to $3.00 per share. Revenues are now expected to come in between $49B and $49.5B, higher than the prior range of $48B to $49B that was first anticipated. Analysts are looking for a yearly profit of $2.96 per share based on total sales of $48.59B.

Despite the raised outlook, shares of BBY slipped more than 8% by the close of Tuesday’s session, giving up $3.84 to finish the day at $41.53 per share. During the past year, the company’s stock has traded between $22.92 and $45.55 per share

Financial and economic information provider FactSet Research Systems Inc. (FDS) revealed early Tuesday morning that the company’s net earnings during the 1Q advanced year-over-year, as higher operating margins offset a marginal decrease in overall sales. For the quarter, FactSet posted net income of $36.14M, or $0.74 per share, compared to last year’s tally of $35.59M, or $0.73 per share.

Revenues for the period came in at $155.24M, down slightly from $155.63M a year ago. Sales from U.S. markets were down 1% at $105M, while non-U.S. sales came in up 1% at $50M. Analysts within the industry were looking for FactSet to record a quarterly profit of $0.74 per share on $155.85M in total revenues.

Looking forward to the 2Q, FactSet expects earnings to come in between $0.73 and $0.75 per share, with total sales in the range of $154M to $158M. Analysts are anticipating 2Q earnings of $0.75 per share on $158.31M in overall revenues.

Although the company posted a solid earnings report and a positive outlook, shares of FDS did not respond. By the sound of the closing bell, FactSet’s stock plunged more than 12%, losing $9.22 to conclude the session at $66.84 per share. Over the course of a year, the stock has traded between $34.24 and $76.76 per share.

After posting nine straight days of declines, the price of oil rebounded during the December 15 session, as the price for a barrel of light, sweet crude for January delivery added $1.18 to settle at $70.69. Oil prices marched higher following OPEC’s recent prediction that consumption in the coming year would outpace previous estimates by 70,000 barrels.

In additional NYMEX trading, heating oil slipped $0.006 to $1.9033 a gallon, while gasoline increased by $0.0184 to $1.8451 a gallon. Natural gas for January delivery jumped $0.191 to $5.523 per 1,000 cubic feet.

Inside the Forex markets, the U.S. Dollar rallied to a two-month high against the Euro, as the 16-nation currency slipped to $1.4530 after trading at $1.4647 late last night. The greenback also gained ground versus the British pound as well, as the Sterling fell to $1.6271, down from yesterday’s price of $1.6304.

In other currency trading, the Dollar advanced to 89.63 Japanese yen, up from Monday’s price of 88.63. The greenback also increased to 1.0609 Canadian dollars from 1.0595, while advancing to 1.0406 Swiss francs from 1.0322 francs.

In addition to the markets pushing lower by the end of trading, the value of government-backed securities declined as well. At the close, the benchmark 10-year note slipped 9/32 to 98 7/32, while its yield advanced to 3.59%, up from the previous session of 3.55%.

The longer maturing 30-year moved in a similar direction as the 10-year note, falling 19/32 to 97 19/32 while its yield climbed to 4.52%, up 0.04% from the previous session. Lastly, the shorter 2-year note remained unchanged at 99 25/32 while yielding 0.86%.

As the December 15 session concludes, the Dow Jones Industrial average slipped 49.05 points, or 0.5%, to end the day at 10,452.00, while the broader market indicators finished in negative ground as well.

The S&P 500 index slipped 6.18 points, or 0.6%, to end the session at 1,107.93, while the tech-heavy NASDAQ composite index retreated by 11.05 points, or 0.5%, at 2,201.05.

2009 Better Trades Article

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BRIAN MULLIN