Market Summary: Fri. April 11, 2008

We took a huge hit Friday thanks to General Electric (GE) and its poor earnings report. Not only is this company huge ($300B+) and stock market bell-weather, but it also consistently meets its earnings projections. However, when GE announced it missed EPS earnings by $0.07 and lowered its 2008 full-year guidance, stocks sold off huge. Not only was this a miss, but a huge miss and no one was expecting it. Shares of GE were off 13% on the day and over 366B shares changed hands (about 10x the normal volume).

This news from GE spooked many investors because the miss was caused by difficulties in the company’s commercial finance division. If GE is being squeezed by the credit crunch, how many other companies are also struggling? “GE Commercial Finance was hurt when…it marked the value of securities it held on its books. Three areas hurt profit: equities including the value of Chinese securities, specifically a wind energy company whose value fell 45 percent. Another $4 billion in loans GE originates to sell declined in value, as did about $1.5 billion in securitizations for retained interest.” After this news, analysts at Goldman Sachs, Deutsche Bank, and Credit Suisse lowered estimates for GE (Source: Bloomberg.com).

Economic news also weighed on stocks Friday when the consumer confidence report hit a 26-year low. “The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2 this month, the weakest level since 1982, when the jobless rate approached 11 percent, the worst since the Great Depression. In other figures released today, the Labor Department reported that the cost of imported goods climbed 14.8 percent in March from a year ago, led by oil” (Source: Bloomberg.com). With a weaker dollar, we are importing inflation because we have to spend more dollars to get goods.

The other day, Goldman Sachs CEO came out and said we are “closer to the end than the beginning.” Friday, however, the Lehman Brothers CFO said the market recovery will take until 2009. He was quoted as saying, “I don’t see what the real catalyst for change would be over the next several months. We’ve got to look out to 2009 for where we’re going to change” (Source: Bloomberg.com). Everyone keeps trying to pick a bottom, but the market keeps going lower and more and more problems are arising in the financial system.

The other big story on the day was the airlines. Recently, airlines have been under pressure from rising crude oil prices. Also, there have been talks of mergers that would consolidate the industry and make companies profitable once again. And, in the past week the FCC has cracked down on its inspections and many airlines have ground hundreds of flights. Frontier Airlines led the headlines today when it announced it voluntarily filed for bankruptcy after an “unexpected attempt by its principal credit card processor to substantially increase a holdback of customer receipts’ threatened to severely impact liquidity” (CNNMoney.com). Frontier plans to continue operations as normal; the bankruptcy is simply a preventative measure. Shares slipped 73% off of this news.

DJIA 12,325.42 -256.56 (-2.04%)
Nasdaq 2,290.24 -61.46 (-2.61%)
S&P 500 1,332.83 -27.72 (-2.04%)
NYSE Volume 3,716,873,000

2-Yr Bond 1.76% -0.08
10-Yr Bond 3.49% -0.06
30-Yr Bond 4.30% -0.04

Dollar Index 71.808 -0.309
Crude Oil (May) 110.14 +0.03
Nat Gas (May) 9.901 -0.197
Gold (June) 927.00 -4.80