The market rallied once again today thanks to better-than-expected housing data, positive earnings reports from Tiffany and Walgreen’s, and a higher bid from JPMorgan to buy Bear Stearns.
Existing home sales rose to 5.03M units for February compared to 4.89M units for January. This was the first increase in the last seven months. The market was expecting about 4.85M units. However, “the median price of single-family homes dropped 8.7% from February 2007, the most in four decades” (Source: Bloomberg.com). The median price currently stands at $195,900. Many took this data as extremely positive news possibly marking a bottom in the housing market. The bond market sold off hard, and the homebuilders were up huge. I wouldn’t be calling a bottom in the housing market just yet – maybe it is the beginning of a bottom, though. This is just one month’s worth of data and it is way too early to tell for sure. I’d be a seller of this news.
Walgreen’s reported strong earnings beating analysts’ estimates. Net income was 69 cents per share compared with 65 cents from the previous year. Most analysts were looking for 67 cents per share. Walgreen’s attributed the rise in income to “limited labor costs and [selling] more prescription drugs…selling and administrative expense growth slowed to 11 percent from 14.3 percent a year earlier as the chain reduced store hours and lowered legal and insurance costs” (Source: Bloomberg.com).
Tiffany was up 10.5% after beating analysts’ EPS estimates by 6 cents. Net income was $1.27 per share for Q4 and revenue was $1.053B, $4M more than analysts were expecting (Source: Bloomberg.com).
The day’s biggest news was JPMorgan increasing their take-over bid for Bear Stearns. On March 16th, JPMorgan initially offered to pay $2.52 per share ($366M) for Bear Stearns, but today JPMorgan upped their bid to $10 per share ($2.4B). JPMorgan also bought 39.5% of Bear Stearns’ stock. This move does not require Bear Stearns’ shareholder approval and the Bear Stearns’ board of directors said they will vote in favor of the deal (Source: Bloomberg.com). This news helped the financial stocks rally. BSC is currently trading above $10 and the options point to another potential bid increase. JPMorgan is 10.5% away from being the majority shareholder and it looks like they will get their $10 price.
S&P released some negative news regarding Q1 earnings. They “expect first-quarter earnings at Standard & Poor’s 500 companies to decline 5.5% from a year earlier, twice the 2.7% decline they had forecast just one week ago” (Source: CNBC.com). S&P came out with a “negative outlook” on Goldman Sachs and Lehman Brothers. Previously, the two companies’ outlooks were “stable.” S&P said “net revenue could decline between 20% and 30% this year after write-downs” (Source: Marketwatch.com).
The agriculture stocks got a boost today thanks to upgrades at Monsanto and Potash. Corn, wheat, and soybean prices all rebounded nicely, while gold and crude oil were relative laggards. Large-cap tech stocks were the big winners on the day on relatively no news. Here are two possible reasons: 1) Investors are covering their short positions or 2) section rotation is occurring and investors are moving money back into this beaten-down sector. I suspect this to be more short covering because MSFT, the tech bell-weather, was flat. If sector rotation was occurring, MSFT would have had a big day.
As long as the dollar continues its rally, oil and gold will be relative laggards compared to the stock market. One interesting point discussed on Fast Money today was whether this rally is exaggerated to the upside because the quarter is almost over. Last December, we saw stock prices increase and then sell-off quickly when the new year began. Hedge funds bid up stocks that they own to cut their quarterly losses and then sell right when the next quarter begins. A strong beginning of April will be a sign the market is bottoming and stock prices aren’t being artificially inflated by hedge funds.
In other news…
- Lehman Brothers was downgraded by Oppenheimer to “Perform” from “Outperform”
- Wells Fargo was downgraded by Robert W. Baird to “Underperform” from “Neutral”
- Monsanto was upgraded by UBS to “Buy” from “Neutral”
- Potash was upgraded by RBC Capital Markets to “Top Pick” from “Outperform”
- The XM Satellite-Sirius merger finally got Dept. of Justice approval (Bloomberg.com) – the FCC still needs to approve the deal, though
- After the bell, Valero cut their Q1 profit outlook and shares were down 6%
- So far Wall Street firms have laid off more than 34,000 workers (Bloomberg.com)
- The defensive names, like Pepsi, Proctor & Gamble, Coke, and JNJ, were laggards
- A gallon of gasoline reaches $3.26 (CNBC.com)
- “Federal Home Loan Banks were freed to increase their purchase of mortgage-backed bonds by about $150 billion” (Bloomberg.com)
DJIA 12,548.64 +187.32 (+1.52%)
Nasdaq 2,326.75 +68.64 (+3.04%)
S&P 500 1,349.88 +20.37 (+1.53%)
NYSE Volume 4,462,485,000
2-Yr Bond 1.84% +0.25
10-Yr Bond 3.56% +0.22
30-Yr Bond 4.33% +0.16
Crude Oil (May) 100.86 -0.98
Nat Gas (May) 9.423 +0.283
Gold (Apr) 918.70 -1.30
No comments:
Post a Comment