For the first half of the day, the market was trending higher thanks to strength in the energy and financial names. Oil was trading near $109 all day and gasoline hit another record high. The strength in financials came from talks that Washington Mutual (WM) was working on getting a $5B capital infusion. Shares of WM were up 30% on this news.
TPG Inc., a private equity firm, looks like it will be the main investor and the deal could be completed within a few days. “TPG would purchase both common and preferred shares…and TPG probably would get a seat on [WaMu’s] board” (Source: Bloomberg.com).
Also helping the financials was a UBS upgrade to “buy” from “neutral” at Merrill Lynch.
Apple continued its run higher after an upgrade by Thomas Weisel Partners. Shares were upgraded to “overweight” from “market perform” and the price target was raised to $195 from $188. The analyst said, “Over the next few years, we expect Aplle to maintain above-peer operating margins, preserve its fierce brand loyalty and set a foundation for accelerating market share gains” (Source: Forbes.com).
After some time on the sideline, the Yahoo! – Microsoft deal talks have resumed. After Friday’s close, Microsoft threatened to lower its $31 bid and gave Yahoo! three weeks to accept the offer or else a proxy fight will occur (Source: Bloomberg.com). On Monday, Yahoo! fired back, saying “We have continued to make clear that we are not opposed to a transaction with Microsoft if it is in the best interests of our stockholders. … We are open to all alternatives that maximize stockholder value. To be clear, this includes a transaction with Microsoft if it represents a price that fully recognizes the value of Yahoo! on a standalone basis and to Microsoft, is superior to our other alternatives, and provides certainty of value and certainty of closing” (Source: Businessweek.com). Basically, Yahoo! said they want more than $31/share.
Around noon, the market did a complete 180 and volatility came back. Arch Coal (ACI), an average-sized ($7.4B market cap) company, came out and re-affirmed its earnings forecast of $2-$2.50 for 2008. Shares dipped from $51.50 to $47 and the stock market followed suit by rolling over and erasing its 1% gain. This was a very positive report and reporters on CNBC made it out to be an earnings “warning.” I don’t believe that to be the case at all given that the company expects to double its 2007 profit (Source: Reuters.com).
The earnings season kicked off after the bell with Alcoa (AA), an aluminum producer. Reactions were mixed as AA lowered its forecast for worldwide aluminum consumption.
Alcoa’s profit fell short of analysts’ expectations because of higher energy costs, slowing demand, and a weakening dollar. Sales, however, surpassed analysts’ expectations (Source: CNBC.com). Alcoa is the first Dow component to report quarterly earnings and some look to this report to set the tone for the entire earnings season.
DJIA 12,612.43 +3.01 (+0.02%)
Nasdaq 2,364.83 -6.15 (-0.26%)
S&P 500 1,372.54 +2.14 (+0.16%)
NYSE Volume 3,718,560,000
2-Yr Bond 1.95% +0.12
10-Yr Bond 3.57% +0.07
30-Yr Bond 4.36% +0.04
Crude Oil (May) 109.09 +2.86
Nat Gas (May) 9.791 +0.469
Gold (June) 926.80 +13.60
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