Continued Hand Holding By Government May Reduce Investor Anxiety - RTTNews Daily Market Analysis

Tue. November 25, 2008; Posted: 09:21 AM

(RTTNews) - The major U.S. index futures are pointing to a higher opening on Tuesday. Federal Reserve's announcement over earmarking of $200 billion to support consumer and small business loans and the purchase of about $600 billion in debt issued or backed by government-chartered housing finance companies should help keep the recent positive momentum intact. Additionally, economic data released early in the day showed that the economy contracted in-line with expectations. However, commodity prices are moving back to the downside, triggering some anxiety over the fate of commodity-related stocks. The market may also stay tuned to the consumer confidence data to be released shortly after the markets open.

Encouraged by the government's bold move in bailing out ailing Citigroup (C), U.S. stocks opened higher on Monday and saw further upside in early trading. After trading sideways for much of the reminder of the session, the major averages advanced further in late trading and ended with notable gains. The Dow Industrials ended up 396.97 points or 4.93% at 8,443 and the Nasdaq Composite Index gained 87.67 points or 6.33% to 1,472, while the S&P 500 Index rose 51.78 points or 6.47% to 852.

Among the sub-indexes, the Amex Securities Broker/Dealer Index and the KBW Bank Index rose 19.28% and 17.72%, respectively. The S&P Retail Index rallied 10.56% compared to an 11.41% advance by the Philadelphia Housing Sector Index. Despite a rise in oil prices, the Amex Airline Index surged up 10.49% and the Dow Jones Transportation Average moved up 5.68%.

Oil stocks rose along with oil prices, with the Amex Oil Index and the Philadelphia Oil Service Sector Index rising 7.46% and 8.80%, respectively. The Amex Gold Bugs Index gained 7.25%. In the technology space, the Philadelphia Semiconductor Index rose 6.09%, the Amex Hardware Index rose 6.65% and the Amex Disk Drive Index advanced 6.94%. The Amex Networking Index and the Amex Internet Index gained more than 7% each.

On the economic front, the National Association of Realtors reported that existing home sales fell 3.1% in October to a seasonally adjusted annual rate of 4.98 million units from a downwardly revised 5.14 million units in September. On a year-over-year basis, sales were down 1.6%. Regionally, sales declined in each of the four regions, while inventories at the end of October fell to 4.23 million from 4.27 million in September. However, the months' supply measure increased to 10.2 from 10 months in September due to lower sales activity. The nationwide median price of existing homes declined 11.3% from a year-ago to $183,300 in October.

Currency, Commodity Markets

Crude oil futures are receding $2.11 to $52.39 a barrel after rising $4.57 to $54.50 a barrel in Monday's session. Currently, fears of further OPEC cuts are sending the commodity lower after it rallied along with the stock market yesterday.

Gold futures are currently moving down $11.10 to $809.30 an ounce. In the previous session, the precious metal rose $32.20 to $824 an ounce.

Among the currencies, the U.S. dollar is trading at 96.035 yen compared to 97.35 yen it fetched at the close of New York trading on Monday. The greenback is currently valued at $1.3028 versus the euro.

Asia

Stock markets across the Asia-Pacific region closed mostly higher after Wall Street rallied for a second day Monday on the back of the U.S. government's plan to bailout banking giant Citigroup. The British Government's announcement of a GBP 20 billion economic stimulus package also added to the positive sentiment. Crude prices fell in Asia today on concerns that a rally is unsustainable due to weaker demand for energy. While commodity-related stocks rallied following a jump in raw materials prices, a stronger U.S. dollar buoyed Japanese exporters.

Japan's Nikkei 225 average opened higher and remained above the unchanged line throughout the session. The index closed up 413.1 points or 5.2% at 8,324. The market was closed on Monday for a national holiday.

In economic news, the Bank of Japan reported Tuesday that the corporate services price index declined 1.4% year-over-year in October, recording its biggest decline in five years. On a monthly basis, the index was down 1.2%. The year-over-year decrease was the biggest fall since a drop of 1.5% registered in July 2003.

Later in the day, the Bank of Japan said in its monthly report of recent economic and financial developments that increased sluggishness in Japanese economic activity would possibly persist over the next several quarters as the slowdown in overseas economies becomes more evident. Stocks rose across the board, led by financial and real estate stocks. However, consumer electronics maker Sanyo Electric fell 2.5% on speculation that Panasonic plans to offer a lower than expected price for the company. The Nikkei financial daily reported Monday that Panasonic will offer 120 yen per share, below stakeholder Goldman Sachs' hopes for at least 250 yen per Sanyo share.

After opening sharply higher, South Korea's Kospi gave back much of its gains before closing up merely 13.18 points or 1.36% at 983. Shipbuilders led the market higher. Top shipyard Hyundai Heavy Industries jumped 3.6% and the second-ranked Samsung Heavy Industries rose 3.0%. Among other major gainers, steel maker POSCO jumped 6.9% and brokerage Samsung Securities rose 2.8%.

Auto shares tumbled following a Japanese brokerage report that forecast that local carmakers are likely to post the worst monthly domestic sales in three years in November. Industry leader Hyundai Motor plunged 7.3% and its affiliate Kia Motors slumped 12.8%. Meanwhile, the Chinese stock market closed lower for a fourth day, erasing early gains, as investors turned cautious in the absence of fresh policy moves. Most banks finished in negative territory, paring early gains, while some nonferrous metal stocks and coal firms posted gains following a rally in global commodities prices. The benchmark Shanghai Composite Index closed down 8.4 points or 0.4% at 1,889.

Hong Kong's Hang Seng Index opened sharply higher and moved sideways for the rest of the session to close up 420.6 points or 3.4% at 12,878. HSBC Holdings advanced 2.3% and China Mobile added 0.8%. Offshore oil producer CNOOC surged up 6.6%, Sinopec rose 4.2% and PetroChina gained 4.9%.

Australia's All Ordinaries opened higher and rose sharply in early trading. After the initial surge, buying interest moderated, as a result of which the index moved sideways to close up 186.6 points or 5.5% at 3,575.

Miners surged up on the back of firmer commodity prices, while banks also joined the rally. On the other hand, Qantas plunged 3.0% after the airline warned that pre-tax profits would fall by almost two-thirds to about A$500 million as passenger demand dropped because of the global economic slowdown. The airline also announced that it would cut passenger capacity further by removing from routes the equivalent of 10 aircraft. Virgin Blue plummeted 5.6%.

Europe

The major European averages are trading higher on Tuesday. While the French CAC 40 and the U.K. FTSE 100 Index are rising 2.23% and 2.75%, respectively, the German DAX Index is receding 2.45%.

On the economic front, the German Federal Statistical Office released its revised report on third quarter GDP, which showed that German economy contracted by 0.5% from the previous quarter, unrevised from the previous estimate. The decline in GDP follows a 0.4% contraction in the second quarter.

The Gfk Institute's consumer sentiment survey showed that the German consumer climate indicator is forecast at 2.2 points in December following a revised value of 1.9 points for November. The index held ground, as the income expectations index rose 6 points to -6.9 and the propensity to buy index climbed 11.5 points to -6.7. However, the economic expectations index fell 3.6 points to -30.1.

Meanwhile, the French National Institute of Statistics and Economic Studies reported that the synthetic indicator of industrial economic climate fell to 80 in October from 87 in September. The personal production outlook index fell 6 points to -28, while the index for general outlook on production also eased to -69 from -66 in the previous month. The personal as well as general price outlook also deteriorated.

U.S. Economic Reports

A report released by the Bureau of Economic Analysis showed that U.S. third quarter GDP contracted at a downwardly revised rate of 0.5%, with the contraction coming in-line with expectations. In the second quarter, real GDP growth was 2.8%. On a year-over-year basis, third quarter GDP grew 0.7% compared to 2.1% growth in the second quarter.

The decline in third quarter GDP compared to the previous quarter reflected negative contributions from personal consumption expenditures, residential fixed investment and equipment and software that were offset to some extent positive contributions from federal government spending, exports, private inventory, non-residential structures and state and local government spending.

The Conference Board is scheduled to release its consumer confidence report for November at about 10 am ET on Tuesday. The survey, which is based on a survey of 5,000 US households, is expected to show that the consumer confidence index inched up to 39.5 in November.

The U.S. consumer confidence index slumped to an all time low of 38 in October from 61.4 in September. While the present situation index declined to 41.9 from 61.1, the expectations index fell to 35.5 from 61.5 in September. The bleak reading was blamed on the financial crisis.

Earnings

Tech Data (TECD | Quote | Chart | News | PowerRating) said its third quarter net sales rose 3.6% to $5.9 billion. The company's net income declined to 37 cents per share from 73 cents per share in the year-ago period. The net income for the recent quarter included a net foreign currency loss of $23.5 million Analysts expected earnings of 63 cents per share on revenues of $6.17 billion. Citing a challenging macroeconomic environment and volatility in the foreign currencies, the company said it no longer thinks it is prudent to continue providing net sales guidance.

D.R. Horton's (DHI | Quote | Chart | News | PowerRating) fourth quarter revenue declined to $1.75 billion from $3.12 billion last year. The company reported a net loss for the quarter of $2.53 per share compared to a loss of 16 cents per share last year. The Street estimated a loss of $1.88 per share on revenues of $1.72 billion.

United Natural Foods (UNFI | Quote | Chart | News | PowerRating) reported that its first quarter net sales rose 17.4% to $127.8 million. On an adjusted basis, the company reported earnings of 34 cents per share. Analysts estimated earnings of 30 cents per share on revenues of $862.28 million.

American Eagle Outfitters (AEO | Quote | Chart | News | PowerRating) said its third quarter adjusted earnings were 30 cents per share compared to 45 cents per share in the year-ago period. Total sales rose 1% to $754 million. The consensus estimates had called for earnings of 30 cents per share on revenues of $752.87 million.

Stocks in Focus

Starbucks (SBUX | Quote | Chart | News | PowerRating) is likely to be in focus after the coffee retailer said in a filing that it expects fiscal 2009 to be extremely challenging due to the ongoing economic downturn. Additionally, the company said it expects negative comparable store sales for 2009 and it may need additional restructuring measures if it is unable to improve its financial performance.

Hewlett-Packard (HPQ | Quote | Chart | News | PowerRating) is likely to react to its announcement that its fourth quarter adjusted earnings were $1.03 per share compared to the $1.01 per share consensus estimate. Sales rose 19% to $33.6 billion. The Street had expected sales of $33.3 billion. The company expects 2009 adjusted earnings of $3.88-$4.03 per share on revenues of $127.5-$130 billion. The consensus estimates call for earnings of $3.80 per share on revenues of $130.56 billion.

Analog Devices (ADI | Quote | Chart | News | PowerRating) may come under selling pressure after it guided first quarter sales to decline 20% from the previous quarter to $529 million, which is below the consensus estimate of $600.5 million. On an adjusted basis, the company expects earnings of 22-23 cents per share, trailing the mean analysts' estimate of 35 cents per share. The company reported that its fourth quarter earnings climbed to 49 cents per share from 31 cents per share last year, as revenues rose 6% to $660.7 million. Analysts estimated earnings of 44 cents per share on revenues of $655.1 million.

Donaldson (DCI | Quote | Chart | News | PowerRating) may move in reaction to the news that its first quarter earnings rose 13% to 60 cents per share, as sales climbed 9% to $573.3 million. Analysts, on average, estimated earnings of 54 cents per share on revenues of $567.71 million. The company said the appreciation of the dollar would impact sales, with full year sales likely to come in between $2.15 billion and $2.23 billion compared to the consensus estimate of $2.15 billion.

Toronto-Dominion Bank (TD | Quote | Chart | News | PowerRating) is likely to come under selling pressure after it said it would raise gross proceeds of $1.2 billion through the issue of 30.4 million common shares at a price of $39.50 per share.

Pulte Homes, Inc. (PHM | Quote | Chart | News | PowerRating) could see weakness after it said it would discontinue the regular quarterly dividend on its common stock beginning with the first quarter of 2009 due the ongoing decline in economic conditions. The company also announced a regular quarterly dividend of 4 cents per share on January 2, 2009 to shareholders of record at the close of business on December 22, 2008.

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