September 18, 2009

Major Indices Seesawed

After trading in the red shortly after the opening bell, the major indices seesawed throughout much of the morning before settling into positive ground by the conclusion of trading on September 15. Investors responded well to upbeat economic data including retail sales and wholesale prices.

Before the opening bell on September 15, the Labor Department announced that prices at the wholesale level surged 1.7% in August, more than double the 0.8% increase economists were expecting. The recent reading follows July’s decrease in prices of 0.9%. Both months were greatly affected by the cost of energy.

Energy prices were the primary culprit for the increase in wholesale prices, with an 8% jump in August, after falling more than 2% in July. Leading the way for the increase in energy costs was the price of gasoline, which surged 23% during the month. The August surge in gas prices was the largest since a 28.8% increase in April 1999.

Excluding the costs of food and energy, core inflation advanced at a more modest rate, 0.2%, slightly higher than the 0.1% gain analysts were looking for. The increase was not seen as a sign that inflation was in danger of becoming a problem.

With a 0.2% increase in core inflation, the rate is currently up 2.3% over the past 12 months.

As consumers become more confident during the past few months, retail sales in August jumped, led by an increase in auto sales from the government’s Cash for Clunkers program. In a report from the Commerce Department, retail sales advanced by 2.7% last month, after falling 0.2% in July.

Economists were looking for retail sales to increase by 2%. Excluding the sale of automobiles, sales climbed 1.1%, well ahead of the 0.4% increase analysts were projecting.

The Cash for Clunkers program enhanced retail sales by 20% in August, following a minuscule 2.4% increase in auto sales in July.

With consumers spending more, economists believe that economic growth during the current July-September period could post gains between 3% and 4%, which could aid in the conclusion of the worst U.S. recession since the 1930s.

Manufacturing within the New York region surged in September, as the Federal Reserve Bank of New York’s general economic index increased to a reading of 18.9, up from July’s reading of 12.1. It was the largest increase within the index in more than two years.

Economists were looking for the Empire Manufacturing index to post a reading of 15.

The last bit of economic news released on September 15 was another report from the Commerce Department, which showed that businesses once again reduced their inventory in July, marking the 11th consecutive month in which supplies were slashed.

For the month, inventories dropped by 1%, slightly higher than the 0.9% reduction economists were expecting. The prolonged string of inventory cutbacks began in August 2008.

In corporate news, restaurant operator Cracker Barrel Old Country Store Inc. (CBRL) confirmed early Tuesday morning that the company’s profits during the 4Q jumped, due in large part to lowered expenses. For the recent period, CBRL recorded net income of $22.8M, or $0.99 per share, versus last year’s tally of $21M, or $0.93 per share, a jump in profits of nearly 9% year-over-year.

Revenues during the quarter decreased marginally, falling from $601.8M to $595.6M, a decrease in sales of 1%. The key to the company’s profit was the decrease in general and administrative expenses, which retreated more than 10% to $32M. Additionally, interest expenses fell almost 13% to $12.1M.

Analysts, on average, were looking for Cracker Barrel to post a quarterly profit of $0.95 per share on total revenues of $599.6M.

For the year, CBRL managed to increase their yearly earnings over last year’s results, posting net earnings of $65.9M, or $2.89 per share, up marginally from the previous year’s earnings of $65.6M, or $2.80 per share.

Looking ahead to fiscal 2010, the company is expecting annual earnings to come in between $2.85 and $3.10 per share, with yearly sales ranging from $2.38B to $2.43B.

By the sound of the closing bell, shares of CBRL were up more than 5%, adding $1.64, to end the day at $33.71 per share. Over the course of a year, the company’s stock has traded as high as $35.18 and as low as $10.67 per share.

The price of oil advanced by the close of trading on Tuesday, despite the obvious sign that demand for crude products is weakening. At the closing bell, the price for a barrel of light, sweet crude for October delivery added $2.07 to settle at $70.93 per barrel. Tuesday’s closing price follows the previous session’s decline of $0.43 to settle at $68.86.

In additional NYMEX trading, gasoline for October advanced $0.0459 to $1.7892 a gallon, while heating oil added $0.0379 to $1.7801 a gallon. Additionally, natural gas rocketed higher by $0.023 to $3.32 per 1,000 cubic feet.

With a rising market, government bonds become less attractive, as investors are placing their capital in to more risky equity plays. By the end of trading, the benchmark 10-year note was lower by 8/32 to 101 13/32, while yielding 3.45%, up from Monday’s rate of 3.42%.

Additionally, the longer, 30-year note was down as well, falling 17/32 to 104, with a yield of 4.26%, up from yesterday’s 4.23%. Lastly, the 2-year note was also lower, slipping 1/32 to 100 3/32, while yielding 0.94%, up from the previous session’s rate of 0.92%.

At the close of trading, the Dow Jones Industrial average gained 56.61 points, or 0.6%, to end the session at 9,683.41, while the broader market indicators concluded the day in the green as well.

The S&P 500 index added 3.30 points, or 0.3%, at 1,052.65, while the tech-heavy NASDAQ composite index garnered 10.75 points, or 0.5%, to finish the day at 2,102.64.

2009 Better Trades Article

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BRIAN MULLIN