Why were we down only 1% with the dollar tanking, financials getting crushed because of downgrades/lowered estimates, and poor housing and durable goods reports? Most days, we would have been down much more. We can thank the energy and agriculture stocks for keeping the losses to a minimum. As crude oil soared to $106 on a bearish inventory report, all the commodity-related names were rallying.
February durable goods orders declined 1.7%, more than expected once again. Last month, orders declined 4.7%. The consensus estimate for February was for a 0.7% increase (Source: Bloomberg.com).
The February new home sales number was 590K, beating the 578K consensus estimate. Last month’s reading was 601K. “New home sales slipped 1.8% month-over-month. Economists, on average, estimated sales would fall 1.7% month over month after January's downturn” (Source: Briefing.com).
Citigroup was the main laggard of the financial stocks after Oppenheimer analyst Meredith Whitney lowered the companies’ estimates four-fold. She “predicted the bank will lose $1.15 a share in the first quarter. That compares with her earlier loss estimate of 28 cents…Whitney correctly predicted two months in advance that Citigroup Inc. would reduce its dividend to preserve capital. Citigroup may write down $13.1B of assets including leveraged loans and collateralized debt obligations in the first quarter…U.S. bank earnings overall will tumble 84 percent in the quarter…This will not be our last reduction in 2008…We anticipate further downside to both estimates and stock prices'' because banks will be under pressure to mark down assets to reflect falling market indexes” (Source: Bloomberg.com). This analyst has been right so far about all the financials, so when she came out with a negative statement the markets reacted accordingly.
Bank of America, Wachovia, and JPMorgan Chase also had earnings estimates cut. Deutsche Bank also came out with a statement warning it might miss its 2008 profit forecast.
Treasury Secretary Paulson made a speech today and he talked about how the Fed needs to “broaden its oversight to include Wall Street investment firms.” He explained the “world has changed” and he urged regulators to “think more broadly about the regulatory and supervisory framework.” In was also announced that the Senate Finance Committee will be reviewing the JPMorgan Chase – Bear Stearns deal (Source: Bloomberg.com).
Also, Motorola announced it would be splitting into two companies after receiving pressure from activist investor Carl Icahn (Source: Bloomberg.com).
After the bell, Oracle reported earnings that were below analysts’ expectations despite good guidance. Shares were down almost 10% in after hours trading. The earnings per share number was in-line with expectations, but revenues trailed analysts’ predictions (Source: Bloomberg.com). Look for the Nasdaq and large-cap tech names to be the relative laggard tomorrow off of this news.
Have we just finished the typical bear market rally? We saw the financials spike for a few days after the Fed stepped in and bailed out Bear Stearns, but there are still lots of problems at these banks that will take some time to fix. I expect more analysts to keep downgrading and reducing earnings estimates.
As oil and other commodities rebound, inflationary pressures remain making the decision for the Fed at their next meeting even more difficult. The biggest number between now and the next Fed meeting is the CPI/PPI/CPE. Keep an eye on gas prices as they just hit a new all-time high.
DJIA 12,422.86 -109.74 (-0.88%)
Nasdaq 2,324.36 -16.69 (-0.71%)
S&P 500 1,341.13 -11.86 (-0.88%)
NYSE Volume 4,041,470,000
2-Yr Bond 1.71% -0.08
10-Yr Bond 3.51% unch
30-Yr Bond 4.33% +0.03
Crude Oil (May) 105.90 +4.68
Nat Gas (May) 9.685 +0.174
Gold (Apr) 949.20 +14.20
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