September 30, 2009

Consumer Confidence Unexpectedly Declines

The markets traded in the green for a short period of time on September 29, prior to the announcement of housing and consumer confidence reports. The Dow advanced higher by more than 40 points in early trading on the housing data, but the gains were quickly lost following the confidence reading. The back and forth trading on Tuesday followed Monday’s surge within the markets, in which the Dow jumped more than 120 points.

Tuesday saw a light docket of economic and corporate news. The Conference Board reported that consumer confidence in September unexpectedly declined, as concerns over job security arose once again. The index revealed that confidence dipped to a reading of 53.1, much lower than the 57 that economists were anticipating. September’s reading also comes in below the 54.5 that was revised upwards in August.

The Conference Board additionally released findings for the Present Situation Index, which showed that the current assessment from consumers relating to the economy came in at 22.7, down from 25.4 in August. Moreover, the Expectations Index, which measures consumers’ outlook over the next six months, declined marginally, falling from 73.8 last month to 73.3.

In a report released by Standard & Poor's/Case-Shiller, the closely watched index of home prices continued to increase for the sixth consecutive month. The data showed that prices within the 20 major cities advanced 1.2% from June to July. Prices have increased for three straight months and have advanced to levels not seen since the third quarter of 2003.

Although the year-over-year improvements continue, the index is currently down nearly 33% from the housing peak in third quarter of 2006. Furthermore, home prices remain more than 13% below July’s prices from a year ago.

David M. Blitzer, committee Chairman for the Case-Shiller index replied to the recent showing, "We do need to be cautious in coming months to assess whether the housing market will weather the expiration of the federal first-time buyer's tax credit in November, anticipated higher unemployment rates and a possible increase in foreclosures."

In corporate news, one of the nation’s largest retail pharmacy chains, Walgreen Co. (WAG), made it known before the opening bell on September 29 that the company’s profits for the 4Q retreated year-over-year, yet managed to come in ahead of market expectations.

For the period, Walgreen reported net income of $436M, or $0.44 per share, in contrast to the previous year’s earnings of $443M, or $0.45 per share, a decrease in profits of nearly 2%.

However, quarterly sales advanced, climbing from $14.6B to $15.7B, a jump in revenues of 7.5% year-over-year. Analysts within the industry were looking for the drugstore operator to record quarterly earnings of $0.39 per share on revenues of $15.7B.

Peeking further inside the report, Walgreen saw same store sales surge 2.4%, while the sales of prescription drugs jumped 4.5%. For the year, the company posted annual earnings of $2B, or $2.02 per share, down from the prior year’s profits of $2.16BB, or $2.17 per share, a decrease in earnings of more than 7%.

President and CEO Greg Wasson remarked on Walgreen’s performance, "We posted solid fourth-quarter results, while continuing to advance one of the most important strategic and operational transformations in our company's history. And we've done this while navigating through the most severe economic downturn in decades."

By the sound of the closing bell, shares of WAG surged in trading, gaining more than 9%, or $3.16, to end the day at $37.35 per share.

Operating as a precision steel processing company principally engaged in the production and sale of cold-rolled steel products, China Precision Steel Inc. (CPSL) confirmed a sharp decline in profits during the 4Q, as lowered revenues affected the bottom-line.

For the recent quarter, CPSL posted net earnings of $2.21M, or $0.05 per share, versus last year’s profits of $5.62M, or $0.12 per share, a decrease in earnings of nearly 61%. Net income from continuing operations slipped from $4.59M to $1.5M, a drop of more than 67% year-over-year.

Sales during the quarter slipped nearly 10% from last year’s totals, falling from $28.55M to $25.73M. Gross profits were greatly reduced during the period, falling nearly 58%, from $5.5M to $2.3M.

Wo Hing Li, Chairman and CEO at CPSL stated, "We are extremely pleased with the rebound in our business during the fourth quarter of fiscal year 2009 as the Chinese steel industry recovers from its lowest level since the global economic crisis began."

Looking ahead, Li commented, "We remain optimistic about our future growth as we have built a strong foundation with our state-of-the-art patented technology process and our experienced management team which has served us well in these difficult times."

With the September 29 session concluded, shares of China Precision Steel slipped $0.12, or 4.2%, to close at $2.71 per share. Over the course of a year, the stock has traded within a narrow range, reaching a high of $3.92, while falling as low as $0.86 per share.

The price of oil continues to trade well below the $70 mark, as investors await pending U.S. economic news later in the week and the slight gain in the Dollar, which pushed traders away from commodities. By the close of trading, the price for a barrel of light, sweet crude for November delivery fell $0.75 to settle at $66.09.

In additional NYMEX trading, gasoline for October delivery retreated $0.0176 to $1.6204 a gallon, while heating oil was dropped $0.0097 at $1.6812 a gallon. Natural gas plunged $0.182 to $4.648 per 1,000 cubic feet.

Inside the bond markets, the government-backed securities were mixed in trading, as investors remained uncertain about the economy, and the broader markets wavered through the morning session. By the sound of the closing bell, the benchmark 10-year note was down marginally, falling 1/32 to 102 26/32 while yielding 3.28%, unchanged from the previous session.

The longer, 30-year note was higher by the close, adding 4/32 to 108 5/32 with a yield of 4.02%, down from Monday’s closing rate of 4.03%. Lastly, the 2-year note inched lower, giving up 1/32 to 100 while yielding 0.99%, up from yesterday’s rate of 0.97%.

With the September 29 session concluded, the markets could not hold their early momentum to stay within positive ground. At the close, the Dow Jones Industrial average retreated by 47.16 points, or 0.5%, to finish at 9,742.20.

The broader market indicators ended the day in the red as well, as the S&P 500 index slipped 2.37 points, or 0.2%, to conclude at 1,060.61, while the tech-heavy NASDAQ composite index fell 6.70 points, or 0.3%, to end at 2,124.04.

2009 Better Trades Article

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BRIAN MULLIN