BROAD MARKET SUMMARY:
This week the domestic equity markets proved we pegged things right weeks ago when we reported the continued volatility could be with us for awhile. Just after a week where the markets rose by about 2 to 3 percent, now the major indices give it all back. Every headline that carried any weight through this week was tied to how consumers are “feeling the pinch” and are unable to spend money on anything except the basics. With consumer spending being regarded as the driver of economic growth and overall GDP, these reports don’t bode well for the state of the economy. Oil prices broke through $135 this week in intraday trading, but still managed to close the week out near all time high closing prices around $133. Higher gas makes it more costly to drive, fly, eat, buy necessities, and basically live. Is it fair to say the U.S. is dependent on oil???
The domestic stock markets will be closed on Monday, May 26th in honor of Memorial Day.
INDEX
5/23 Close
5/16 Close
% Chg
DJIA
12,479.63
12,986.80
-3.91%
S&P 500
1,375.93
1,425.35
-3.47%
NASDAQ
2,444.67
2,528.85
-3.33%
West Texas Intermediate Crude closed at $132.19/bbl. Gold Futures closed at $925.80/oz.
Next FOMC Meeting:June 24 & 25, 2008 - Tuesday/Wednesday
Notable Economic Data This Week:
• PPI and Core PPI, measurements of wholesale inflation, flipped in April where PPI grew more slowly than Core PPI.
• Crude Oil Inventories shrank this week putting upward pressure on the price of the commodity.
• Tighter lending practices are the cited causes for continued falling existing home sales in April.
ECONOMIC PULSE: April’s Producer Price Index report was a little strange. As many know, PPI is a measurement of inflation at a wholesale level and the “Core PPI” is the measurement excluding food and energy. Last month the PPI reported a rise in prices of 0.2%, while the core reported prices without food and energy rose 0.4%. Experiencing what we have in the last six to eight weeks sure seems PPI should have risen more than the Core measurement, but we must remember this is wholesale inflation measurement and not CPI which measures inflation at the consumer level.
In the U.S., sales of existing homes fell one percent from March to April however this is still stronger than the street expected. Sliding home prices and the largest backlog in 20 years were also highlights from the report.
HEADLINES OF INTEREST: Remember the good old days of airline travel when you could check a bag without paying additional charges? You used to even be able to get a meal too! With costs for earphones, snacks, meals, bags, and even leg room, some are joking pay toilets aren’t far off. Why are the airlines saying they are forced to take such measures? Sky high oil prices - pun intended.
Ford (F) is taking a cue from Honda and Toyota, which have taken significant market share as of late, and is moving toward a line up more focused on fuel efficient cars. The company is banking on strong results in Europe and South America to get to profitability in 2009. Why exactly is Ford planning to build less large trucks and SUVs? Oil prices keep driving higher - pun intended again.
While reports are centered on Americans only buying food and gasoline, Belgians are buying beer. Belgian brewing company InBev NV (INTB), is contemplating a $46 billion bid for Anheuser-Bush (BUD) to make the largest deal in the alcohol industry ever. Nothing about the deal is certain, and InBev is said to just be thinking through the deal, but supposedly some preliminary financing has already been arranged informally. No one from either company is speaking on the record.
DEVELOPING TECHNOLOGY: Microsoft (MSFT) is still interested in working something out with Yahoo (YHOO), even after the previous buyout offer of roughly $47 billion dollars expired unaccepted in recent weeks. The New York Times reported a partnership or joint venture aimed at taking market share from Google (GOOG) in the search-related advertising space could be the plan. Nothing has been agreed to, or even officially proposed, at this point.
The anticipation of the new iPhone is growing and so is the price target for its manufacturer Apple (APPL). Goldman Sachs raised the target from $185 to $220, and the stock price has risen 42% already in the past three months. Global rollout of the new 3G iPhone along with strong Mac sales both are factors in the optimistic outlook. (FAIR DISCLOSURE: we are long a vertical spread option for July) CONTINUING FINANCIAL STORIES: Shareholders didn’t receive the news well that American International Group (AIG) raised significantly more capital than was previously intended. The company announced plans to raise $12.5 billion a couple of weeks ago, but now says $20 billion is needed. The new funds are slated to enable foreign expansion and shore up deteriorated capital base due to mortgage market conditions.
It’s that time of the month to read between the lines, and most of you guys know what I’m talking about. The FOMC meeting minutes have been released and it seems the rate cuts are over for awhile. It also became known that the Fed seems to feel economic recovery could begin in the second half of this year. How much hope can we put in that??? Who knows.
Paying for things is becoming a real hassle in the U.S. Supply worries, rising demand, and a slumping greenback combined to push oil prices to more record highs this week which makes the cost of pretty much everything rise. Not only filling up the car, but the price of nearly every good and service is tied to the commodity price which seems to have no ceiling.
EARNINGS TIED TO CONSUMERS AND OIL: Q1 results at Lowe’s (LOW)dropped 18% year-over-year, prompting a reducing in full year projections. The 41 cents reported was lower than last year’s 48 cents, but still managed to beat the 40 cent street expectation. Consumers feeling the home value, credit tightening, and the crunch of food and gasoline has dampened their spending on home improvement projects.
Profit was down 66% compared to last year at Home Depot (HD). 21 cents versus 53 cents was the bottom line. Stores will be closed and expansion plans will be abandoned. With that said, somehow excluding one-time charges the report was able to manage to beat analysts’ expectations.
Target (TGT) said in its quarterly announcement that shoppers are buying food. While that’s good news on some level, the company would prefer the customers also buy some clothing and home purchases as well. Albeit, quarterly profit was 74 cents compared to 75 cents last year making the comparison not all that bad, and in fact beating street estimates of 71 cents. Citing increased food and gas prices and less expendable income otherwise, sales of non-core items are down. Are you sensing a trend?
Campbell Soup (CPB)reported quarterly earnings of $1.40 per share, much higher than $0.55 last year, but it did include the sale of their Godiva business. Apples-to-apples, profit was $0.43 this year vs. $0.45 last year.
ALFONSE
StockwireAdmin
April’s Producer Price Index report was a little strange. As many know, PPI is a measurement of inflation at a wholesale level and the “Core PPI” is the measurement excluding food and energy. Last month the PPI reported a rise in prices of 0.2%, while the core reported prices without food and energy rose 0.4%. Experiencing what we have in the last six to eight weeks sure seems PPI should have risen more than the Core measurement, but we must remember this is wholesale inflation measurement and not CPI which measures inflation at the consumer level.
In the U.S., sales of existing homes fell one percent from March to April however this is still stronger than the street expected. Sliding home prices and the largest backlog in 20 years were also highlights from the report.
Remember the good old days of airline travel when you could check a bag without paying additional charges? You used to even be able to get a meal too! With costs for earphones, snacks, meals, bags, and even leg room, some are joking pay toilets aren’t far off. Why are the airlines saying they are forced to take such measures? Sky high oil prices - pun intended. 
Ford (F) is taking a cue from Honda and Toyota, which have taken significant market share as of late, and is moving toward a line up more focused on fuel efficient cars. The company is banking on strong results in Europe and South America to get to profitability in 2009. Why exactly is Ford planning to build less large trucks and SUVs? Oil prices keep driving higher - pun intended again.
While reports are centered on Americans only buying food and gasoline, Belgians are buying beer. Belgian brewing company InBev NV (INTB), is contemplating a $46 billion bid for Anheuser-Bush (BUD) to make the largest deal in the alcohol industry ever. Nothing about the deal is certain, and InBev is said to just be thinking through the deal, but supposedly some preliminary financing has already been arranged informally. No one from either company is speaking on the record.
Microsoft (MSFT) is still interested in working something out with Yahoo (YHOO), even after the previous buyout offer of roughly $47 billion dollars expired unaccepted in recent weeks. The New York Times reported a partnership or joint venture aimed at taking market share from Google (GOOG) in the search-related advertising space could be the plan. Nothing has been agreed to, or even officially proposed, at this point.
The anticipation of the new iPhone is growing and so is the price target for its manufacturer Apple (APPL). Goldman Sachs raised the target from $185 to $220, and the stock price has risen 42% already in the past three months. Global rollout of the new 3G iPhone along with strong Mac sales both are factors in the optimistic outlook. (FAIR DISCLOSURE: we are long a vertical spread option for July)
Shareholders didn’t receive the news well that American International Group (AIG) raised significantly more capital than was previously intended. The company announced plans to raise $12.5 billion a couple of weeks ago, but now says $20 billion is needed. The new funds are slated to enable foreign expansion and shore up deteriorated capital base due to mortgage market conditions.
It’s that time of the month to read between the lines, and most of you guys know what I’m talking about. The FOMC meeting minutes have been released and it seems the rate cuts are over for awhile. It also became known that the Fed seems to feel economic recovery could begin in the second half of this year. How much hope can we put in that??? Who knows. 
Paying for things is becoming a real hassle in the U.S. Supply worries, rising demand, and a slumping greenback combined to push oil prices to more record highs this week which makes the cost of pretty much everything rise. Not only filling up the car, but the price of nearly every good and service is tied to the commodity price which seems to have no ceiling.
Q1 results at Lowe’s (LOW) dropped 18% year-over-year, prompting a reducing in full year projections. The 41 cents reported was lower than last year’s 48 cents, but still managed to beat the 40 cent street expectation. Consumers feeling the home value, credit tightening, and the crunch of food and gasoline has dampened their spending on home improvement projects.
Profit was down 66% compared to last year at Home Depot (HD). 21 cents versus 53 cents was the bottom line. Stores will be closed and expansion plans will be abandoned. With that said, somehow excluding one-time charges the report was able to manage to beat analysts’ expectations.
Target (TGT) said in its quarterly announcement that shoppers are buying food. While that’s good news on some level, the company would prefer the customers also buy some clothing and home purchases as well. Albeit, quarterly profit was 74 cents compared to 75 cents last year making the comparison not all that bad, and in fact beating street estimates of 71 cents. Citing increased food and gas prices and less expendable income otherwise, sales of non-core items are down. Are you sensing a trend?
Campbell Soup (CPB) reported quarterly earnings of $1.40 per share, much higher than $0.55 last year, but it did include the sale of their Godiva business. Apples-to-apples, profit was $0.43 this year vs. $0.45 last year.