April 14, 2009

Better Trades US News

As a result of dire economic reports early Tuesday, the markets were trading in the red since the opening bell after an unexpected drop in retail sales. The indices were not swayed by solid earnings reports from Johnson & Johnson and the after market surprise release of Goldman Sachs’ 1Q profits of more than $1.6B.

In an announcement from Fed Chairman Ben Bernanke, he stated that there has been “tentative signs” that the economic recession may be easing. "Recently we have seen tentative signs that the sharp decline in economic activity may be slowing," Bernanke stated in an interview at Morehouse College in Atlanta.

Bernanke went on to add, "A leveling out of economic activity is the first step toward recovery. To be sure, we will not have a sustainable recovery without a stabilization of our financial system and credit markets."

In a week filled with influential economic reports soon to be revealed, Tuesday’s session witnessed the release of the Labor Department’s Producer Price Index (PPI), which measures the change in price before reaching the consumer. In the March reading, the PPI plunged 1.2%, as the price of gas, food and heating oil receded, implying a weakened level of inflation within the economy. Analysts were looking for the PPI to remain unchanged, following February’s reading of a slight increase of 0.1%.

Further inside the report, the decline in prices were propelled by the sharp decrease in food and energy prices, showing a drop in food costs of 0.7%, while the prices in energy were the key catalyst. During the month, gas prices plunged more than 13%, while heating oil prices fell 1.2%. Excluding food and energy costs, the Core PPI, remained unchanged for the month, below the 0.1% increase economists were anticipating.

With a drop in wholesale prices, economists believe that inflation will not be a problem for the consumer, being that the economy remains buried within a prolonged recession. However, concerns have arisen about deflation in that wholesale prices have fallen 3.5% over the past year, the largest decline in more than 60 years. On the other side of the coin, Core PPI have increase nearly 4% over the last year, which could offset any concerns regarding deflation.

The Commerce Department released their findings early Tuesday morning regarding Retail Sales for the month of March, in which sales decreased surprisingly, bringing apprehensions back into the mind’s of consumers as the economy could still be contracting. During the month, sales dropped 1.1%, the largest decrease in three months. Meanwhile, analysts were projecting a modest increase in retail sales for the month of 0.3%.

Tuesday’s release comes on the heels of February’s increase in sales of 0.3% and January’s influx of 1.9%, which followed six straight months of declines in retail sales, on one of the worst holiday sales seasons on record. The overall decline in sales was led by the lack of automobile sales, which fell 2.3%, adding to February’s decline of 3%. Year-over-year, auto sales have plunged more than 23% as the auto industry struggles to stave off the deepening economic downturn.

Excluding auto sales figures, retail sales posted a decline of 0.9%, well below analysts’ prediction of sales coming in flat for March. The monthly reading, excluding autos, follows February’s reading of a 1% increase for the month.

In an unexpected early release of company earnings from Goldman Sachs Group Inc. (GS) last night, the global investment banking and securities firm announced after Monday’s closing bell that the firm’s 1Q earnings surpassed market expectations. For the quarter, Goldman posted a profit of $1.66B, or $3.39 per share, in sharp contrast to the previous year’s 1Q profit of $1.47B, or $3.23 per share, an increase of nearly 13%. Monday’s figures come on the heels of the company’s 4Q loss of $2.29B. Albeit that net income was higher, total revenues decreased during the quarter, falling from $18.62B to $11.88B, a decline in sales of more than 36%. Analysts, on average, were expecting Goldman to post quarterly earnings of $1.47 per share on overall revenues of $7.19B. In after-hours trading, shares of GS were trading down 1.9%.

Before the markets opened on Tuesday, Goldman announced a $5B public offering, selling 40.65 million shares at $123 per share for the use in paying back government debt. Having received $10B in government aid late last year, Goldman is adamant about paying the loan back, while the Treasury Department continues to run stress tests on the banking industry. Tuesday’s offering comes as a 5.5% discount of Monday’s closing price of $130.15 per share. Goldman also stated that the company has the option to sell an additional $750M in stock in order to cover over allotments. By the sound of the closing bell, shares of Goldman Sachs dropped 11.6%, or $15.04, to end the session at $115.11 per share.

Joining Goldman in releasing quarterly results was health care products maker Johnson & Johnson (JNJ), which announced early Tuesday morning that the company’s 1Q retreated over last year’s results, yet coming in above expectations. For the recent period, JNJ recorded net earnings of $3.5B, or $1.26 per share, versus last year’s performance of $3.6B, or $1.26 per share. Quarterly revenues were hurt drastically by the global economy, as sales dropped from $16.19B to $15.03B, a decrease in revenues of more than 7%. In the meantime, analysts were looking for JNJ to book quarterly profits of $1.22 per share on total sales of $15.47B. at the close, shares of JNJ were up marginally, adding $0.22, or 0.4%, to conclude at $51.37 per share.

In additional news from Johnson & Johnson, the company reaffirmed their previous forecast for 2009 earnings, ranging between $4.45 and $4.55 per share. Although annual sales totals were not released, analysts believe that JNJ’s yearly earnings per share should come in at $4.49.

Lastly, maintenance-products distributor W.W. Grainger Inc. (GWW) made it known early Tuesday morning that the company’s 1Q performance came in below the previous year’s results, as consumers remain cautious in their discretionary spending. Distributing such items as safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, Grainger booked net income of $96.4M, or $1.25 per share, compared to last year’s earnings of $114.2M, or $1.41 per share, a decrease in profits of more than 15%. Revenues, meanwhile, retreated as well during the quarter, falling from $1.66B to $1.47B, a decline in sales of more than 11%. On average, analysts were looking for Grainger to post quarterly results of $1.06 per share on total revenues of $1.48B. At the conclusion of Tuesday’s trading session, shares of GWW were up 3.5%, adding $2.72, to end the day at $79.96 per share.

In the commodities markets, oil prices fluctuated during Tuesday’s session as investors look for signs that the crude markets are in a position to advance or hold steady at their current levels. By the sound of the closing bell, the price for a barrel of light, sweet crude for May delivery slipped $0.64 to settle at $49.41 a barrel, following Monday’s decline of $2.19 a barrel. Over the last two weeks, prices have remained near the $50 mark, after trading in the low $30s for much of February.

In additional NYMEX trading, gasoline for May delivery slipped $0.0056 at $1.4576 a gallon, while heating oil gained $0.0043 to $1.423 a gallon. Natural gas prices increased as well, advancing by $0.061 to $3.689 per 1,000 cubic feet.

The Energy Information Administration revealed this morning that the government agency predicted that the price of regular grade gasoline would average $2.23 a gallon between now and September, the peak of the driving season, with prices peaking near $2.30 a gallon. This year’s projected prices are a welcome sight from last year’s prices of $3.81 a gallon, with countless states seeing prices well above $4 a gallon. Meanwhile, at the pump, gas prices slipped $0.001 overnight, to a national average of $2.05 a gallon.

Within the Forex markets, the U.S. Dollar traded mixed against the major world currencies on Tuesday, as the 16-nation Euro retreated in price versus the greenback, buying $1.3264, down from last night’s price of $1.3358. Meanwhile, the British pound edged higher against the Dollar, buying $1.4899, up from Monday’s value of $1.4831. Trading against the Japanese yen, the Dollar slipped in value, buying 98.88, down from yesterday’s price of 100.08.

Investors retreated from the equity markets on Tuesday toward the safer haven of government-backed bonds following more disheartening economic news. Investors remain cautious about upcoming company reports from key financial service companies, due out later this week. By the conclusion of Tuesday’s trading, the benchmark 10-year note was higher, adding 21/32 to 99 22/32 while yielding 2.78%, down from yesterday’s 2.86%. In addition, the 30-year note was trading higher as well, gaining 1 1/32 to 97 6/32, as its yield slipped to 3.65%, down from Monday’s 3.71%. Finally, the 2-year note was slightly higher, up 1/32 to 100 1/32 with a yield of 0.85%, well below the previous session’s rate of 0.98%.

At the sound of the closing bell, the Dow Jones Industrial average was down 137.62 points, or 1.71%, at 7,920.18, falling below that all-important 8,000 mark, while the broader market indicators closed the session in negative ground as well.

The S&P 500 index lost 17.23 points, or 2.01%, to close out the session at 841.50, as the tech-heavy NASFDAQ composite index gave up 27.59 points, or 1.67%, to finish the day at 1,625.72.

2009 Better Trades Article

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BRIAN MULLIN