May 5, 2009

Better Trades US News

Tuesday’s trading was tame in comparison to the previous session, as investors took some profits from the previous day’s trading. Investors are also anticipating the announcement from the government on Thursday regarding the outcome of the banks’ stress tests, which could bolster the markets optimism, adding to the foray of upbeat economic news received over the past few weeks.

Federal Reserve Chief Ben Bernanke spoke to Congress today, informing them that the economy should show signs of expansion by the end of this year. Bernanke went on to advise that although the recovery will take place, that there will be offsetting signs of weakness, coming as no surprise to investors.

As the sole economic report released today, the Institute for Supply Management (ISM) revealed their data for the U.S. service sector in which the index receded for the seventh consecutive month in April, albeit at a slower rate than previous readings. For the month, the sector showed a reading of 43.7, up from a March reading of 40.8. Even with the number coming in below 50, which indicates a contraction within the service sector, economists were expecting a lower reading, which in turn, could be a sign that the economic downturn is nearing a bottom.

In a busy day in corporate earnings, one of the world leaders in agricultural processing and fermentation technology with specialties in soybeans, corn, wheat and cocoa, Archer-Daniels Midland Co. (ADM) acknowledged early Tuesday morning that the company’s profits during the 3Q plunged due to weakened demand and losses related to equity investments. For the recent period, ADM recorded net income of $8M, or $0.01 per share, in sharp contrast to last year’s earnings of $517M, or $0.80 per share, a decline of 98%. The quarter included a loss of $229M, or $0.36 per share from investment results. Revenues receded as well, falling from $19.7B to $14.8B, a decrease in sales of nearly 21%. Analysts were looking for the agribusiness giant to record earnings of $0.49 per share on total revenues of $16.9B. By the sound of the closing bell, shares of ADM were down nearly 9%, or $2.33, to conclude the day at $23.84 per share.

As the nation's premier integrated pharmacy services provider, combining one of the nation's leading pharmaceutical services companies with the country's largest pharmacy chain, CVS Caremark Corp. (CVS) confirmed before the opening bell on Tuesday that the company’s 1Q earnings slipped due in large part to one-time charges. During the quarter, CVS booked profits of $738.4M, or $0.50 per share, down marginally from last year’s earnings of $745M, or $0.51 per share. Overall sales surged during the period, climbing from $21.33B to $23.39B, an increase in revenues of nearly 10%. On average, analysts were looking for the drugstore operator and pharmacy to book net earnings of $0.54 per share on total sales of $23.64B. Excluding the company’s one-time charges, CVS would have earned $0.55 per share, just above market expectations. Heading into the close, shares of CVS were down nearly 1%, slipping $0.23, to finish the session at $31.80 per share.

Duke Energy Corp. (DUK), an integrated energy and energy services provider with the ability to offer physical delivery and management of both electricity and natural gas, made it known early Tuesday morning that the company’s profits declined in large part due to the lack of electric demand within the weakened economy. For the 1Q, Duke recorded a profit of $344M, or $0.27 per share, compared to a profit of $465M, or $0.37 per share, a decline in earnings of 26%. Quarterly sales totals remained relatively unchanged for the period, coming in at $3.31B, down from last year’s totals of $3.34B. In the meantime, analysts within the industry were looking for the energy generating company to post earnings of $0.22 per share on overall revenues of $3.4B. Over the past year, shares of DUK have traded within a range between $11.72 and $19.20 per share. At the close of Tuesday’s trading, the stock dipped less than 1%, losing $0.04, to end at $14.19 per share, 20% off their yearly lows.

Kraft Foods, Inc. (KFT), the largest branded food and beverage company headquartered in the U.S., and the second largest in the world, announced early Tuesday morning that the company’s 1Q profits advanced from last year’s results even with a stronger Dollar affecting international sales. Throughout the period, Kraft earned $660M, or $0.45 per share, versus the previous year’s tally of $599M, or $0.39 per share, a jump in net income of more than 10%. Revenues, meanwhile, slipped from $10.05B to $9.4B, a drop of more than 6%. In lieu of a stronger Dollar, an unfavorable exchange rate reduced the company’s revenues by nearly 8 percentage points. Analysts, on average, were anticipating earnings from the maker of Oreo cookies and Maxwell House coffee to post earnings of $0.40 per share on total revenues of $9.67B. Kraft also announced that the company reaffirmed their yearly guidance, and is looking to post annual earnings of $1.88 per share. As the markets concluded trading, shares of KFT were up 4%, adding $0.96, to end the session at $25.22 per share.

Prior to tomorrow’s energy inventory report from the EIA, the price of crude retreated from its five-month high of $54.47 on Monday to end Tuesday’s trading session down $0.63 to settle at $53.84 per share. Monday’s closing price marked the highest price since November 26.

In additional NYMEX trading, gasoline for June delivery slipped $0.014 to $1.5722, while heating oil dropped $0.006 to $1.4262 a gallon. Natural gas for June delivery decreased $0.11 to $3.615 per 1,000 cubic feet.

In the Forex markets, the U.S. Dollar mixed in trading ahead of news that the European Central Bank could reduce their main interest rate to a record low 1%, following a report that European industrial producer prices plunged 3.1% in March, the largest such decline in more than 22 years. Trading against the Dollar, the 16-nation Euro slipped in price versus the greenback, buying $1.3327. Against the British pound, the Dollar declined in value, trading higher at $1.508, while the greenback traded higher versus the Japanese yen, buying 98.96.

Within the bond markets, Treasuries slipped in trading as the government sold $35B worth of 3-year notes and is awaiting an auction of $71B worth of additional notes and bonds to be held later this week. By the close of trading, the benchmark 10-year note was down 3/32 to 96 17/32, as its yield advanced to 3.16% from Monday’s 3.15%. Meanwhile, the 30-year note also retreated by the end of trading, falling 1/32 to 90 9/32 with a yield of 4.07%, up from 4.06%. Finally, the 2-year note slipped 1/32 to 99 26/32, as its yield was 0.97%, up from Monday’s 0.94%.

After a surge in Monday’s trading session, which saw the major indices jump more than 2.5% each, sellers returned to the marketplace in Tuesday’s trading to cash in on the previous day’s gains. At the close of trading, the Dow Jones Industrial average fell 16.09 points, or 0.2%, to 8,410.65, but still remains in the green heading into Wednesday’s session.

As for the broader market indicators, they too traded in negative ground by the close, as the S&P 500 index slipped 3.45 points, or 0.4%, to finish at 903.65, just above the psychological barrier of 900. Meanwhile, the tech-heavy NASDAQ composite index dropped 9.44 points, or 0.5%, to 1,754.12.

As corporate earnings continue to pour in for the remainder of the week, the markets could be influenced by several economic reports due out over the next three days. Included are ADP Employment Change, Initial Claims, Productivity and Unit Labor Costs, along with Wholesale Inventories, Consumer Credit and the all-important Unemployment Rate.

2009 Better Trades Article

brought to you by

BRIAN MULLIN