The big news on the day was crude oil prices hit another new high. A barrel of crude oil almost hit $114 on what CNBC described as “supply disruptions.” A gallon of gasoline hit $2.88 -- another record level. As these two commodities, as well as natural gas and the agricultural products, continue their bull market trend, the Fed is going to be faced with an evermore difficult task to putting the breaks on inflation. Right now, I wouldn’t be a buyer of the agriculture and energy stocks seeing they’ve had a tremendous run-up lately, but the long-term thesis still holds true and no end is in sight just yet.
In economic news, the March PPI came in at 1.1%, much higher than economists had predicted. The market was only looking for a 0.4 – 0.6% increase. The Core PPI, which removes food and energy costs, only rose 0.2% (Source: Bloomberg.com). This news caused the market to sell-off a little bit, but not as much as I thought. Basically, traders were betting the Fed would cut by 25bp or 50bp, but after this news, it looks like 25bp (or maybe even no cut) is most likely. The Fed next meets April 30th.
The rumors were true regarding the Delta / Northwest merger. Delta purchased Northwest for $3.63B in stock to create the world’s largest airline. However, shares of Delta declined 13% and Northwest declined 8%. Why? Investors were worried that this merger will not help cut costs and the airline will not be profitable. Also, with oil prices hitting a new high, profit margins for airlines are squeezed (Source: Bloomberg.com).
Today, we had another Wall Street big-wig come out and state his opinion on the credit crisis. Lehman’s CEO said “the worst is behind us” and the “current environment remains challenging” regarding the freeze up in the credit markets (Source: Bloomberg.com). The financial stocks got a little boost from this news, but I wouldn’t read into it too much.
Washington Mutual reported a $1.14B quarterly loss because of $3.51B worth of loan losses. The company’s CEO explained “This is the toughest credit cycle [he] has seen in [his] years in the industry” and that “Nothing of this scale has happened since the Great Depression.” WaMu plans to cut 3,000 jobs, cut its dividend by 93%, and raise $7B in capital (Source: CNBC.com).
Large-cap tech stocks were the relative laggard after EMC was downgraded to “hold” from “buy” by Citigroup. Intel will report earnings after the bell (Source: Briefing.com).
In earnings news, all the reports were quite positive. Johnson & Johnson beat estimates by six cents thanks to effective cost cuts. U.S. Bancorp and Northern Trust also reported good numbers.
The one-trick pony known as Crocs disappointed once again. The company lowered its Q1 earnings outlook to -$0.05 from a previous estimate of $0.46. Full-year guidance was also lowered. Shares of CROX were down about 40% on the day (Source: Briefing.com). Everyone should have seen this disaster coming…when you only have one product the robust growth can only last so long (also see Heeley’s).
Tomorrow is a big earnings day as Coca-Cola, JPMorgan Chase, and Wells Fargo will report quarterly results.
DJIA 12,362.47 +60.41 (+0.49%)
Nasdaq 2,286.04 +10.22 (+0.45%)
S&P 500 1,334.43 +6.11 (+0.46%)
NYSE Volume N/A
2-Yr Bond 1.84% +0.06
10-Yr Bond 3.60% +0.07
30-Yr Bond 4.42% +0.07
Crude Oil (May) 113.79 +2.03
Nat Gas (May) 10.205 +0.152
Gold (June) 932.00 +3.30
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