Market Summary: Wed. Feb. 6, 2008

Here’s what I thought was going to happen this morning after getting a good (maybe very good?) productivity number (1.8% vs. 0.5% expectations – Explanation of data): investors were going to sell the news. The negativity has come back to the market and this report is backward-looking (from January). Initially this was the case as the markets opened slightly higher and then sold off. However, they then rallied (Dow was up almost 100 points) – partly because of Disney’s strong earnings due to its entertainment division. Disney also said theme parks were still strong because the weak dollar is attracting overseas tourists and Americans aren’t spending a lot of money to travel overseas so they go somewhere domestic like Disneyworld/land.

Also, Asian markets were down big overnight (most likely because of our huge sell-off Tuesday) so I figured people would be in the selling mood. But that wasn’t the case in early morning trading. Around 10:30 am, Federal Reserve Bank of Philadelphia President said rising inflation is a concern and it could prevent the Fed from cutting interest rates even further. This announcement triggered selling. There was the expectation among traders that the Fed would cut rates at their next meeting by at least 25 bp, so stocks were being priced accordingly. However, this much-anticipated cut now is not as likely to occur. However, take this report lightly because this is the guy that was opposed to lowering rates in the first place – looks like he was outvoted.

Also, crude oil futures were down big (as were oil stocks) after the inventory report showed a build. The trade for the last few days has been: short oil and go long the airlines. You also have the upside potential in the airlines because of merger talks. Here is an article describing the possible merger of Delta and Northwest.

Macy’s said same store sales fell 7% in January and they announced 2,550 job cuts. The stock was down almost 5% on the day. Tomorrow is a big day for retailers as they announce their January sales numbers. Big names to watch are Wal-Mart and Costco. This data will give us a sense of how the holiday shopping season was (need to look at combined Dec. and Jan. sales).

Toll Brothers (a homebuilder) reported today, and in their conference call, the CEO said he doesn’t see “much light at the end of the tunnel” for the housing market. Tomorrow, we will get pending home sales data.

GM and Ford were both downgraded.

MBIA announced they were going to issue 50.3 million common shares to raise $750 million in capital in an effort to maintain their AAA credit rating (Bloomberg.com Reference article).

After the bell Cisco (CSCO) reported earnings. They were in-line with analysts’ expectations, but they offered poor guidance for next quarter (10% sales growth vs 15% expected by analysts). The stock was down 7.5% in after hours. Tech will be down big tomorrow and this report just justifies the massive selling that has occurred the past few weeks.

Tomorrow we will get the initial jobless claims number, consumer credit data, and pending home sales. Pepsi, Unilever, and Deutsche Bank report earnings tomorrow.