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The Week That Was: Earnings
Start, Deals Continue, Fed Minutes Upbeat …
Earnings Season Starts…
Dow Jones Industrial
10 yr Treasury (Yield)
almighty consumer accounts for two-thirds of the economy’s growth of the
economy (or, at least, that’s what the “experts” always claim). Well, last week, they received some pretty
mixed signals about consumer activity: past, present, and future. While the world’s top retailer, Wal-Mart Stores Inc. (WMT),
surprisingly increased its earnings forecast for the third quarter, few others
had anything positive to report.
Clothing stores ranging from Limited
Brands Inc. (LTD)
to The Gap Inc. (GPS) to J.C. Penney Co. Inc. (JCP) to Nordstrom Inc. (JWN)
announced weaker sales in September and all reduced their outlooks for the rest
of the year, a pretty concerning trend heading into the holiday season. Many of these retailers are already trimming
prices in an attempt to get folks to catch the shopping bug a bit early this
year. However, a recent survey by NPD
Group showed that 40% of consumers will not even begin to focus on their
gift buying until after Thanksgiving (better late than never, we always say…)
While naysayers already started predicting plenty of coal for each stocking
come December, the U.S. Commerce Department reported stronger-than-expected
retail sales in September (see below).
Mixed signals, indeed.
Alcoa Inc. (AA) kicked off another much-anticipated earnings season by
announcing higher profits, largely due to the sale of its interest in a Chinese
aluminum company. Management also
increased its share buyback program, a move often perceived as positive for the
future of the firm. PepsiCo Inc. (PEP) and General Electric Co. (GE) each reported double-digit earnings
growth and attributed their gains to international/global sales. While consumers may be staying away from the
malls, they haven’t lost their appetites for Big Macs as fast-food giant McDonalds Corp. (MCD) projected
another strong quarter. And, as we
demonstrated here with a Money Morning investment analysis, Yum!
Brands Inc. (YUM)
used yet another strong quarter to demonstrate that this appetite for fast food
(KFC, Taco Bell and Pizza Hut) is becoming a global phenomenon – reporting
strong results from China and the rest of Asia.
into earnings season, many analysts raised concerns about the subprime mortgage
mess (so what else is new?) and the impact it had on companies within the
financial services and housing sectors. Microchip Technology Inc.
(MCHP) tried to
blame its quarterly woes on the subprime fiasco, but analysts generally weren’t
buying. Only time will tell how many companies really are affected.
few key mergers were proposed this week and corporate boardrooms seem to be
buzzing again about the ‘art of the deal,’ and with promising
transactions. Software leader Oracle Corp. (ORCL) took
aim at rival SAP AG (SAP) by offering
to buy BEA Systems Inc. (BEAS) in a
$6.7 billion deal, but Oracle CEO Larry Ellison had the door slammed in
his face. GE’s media division, NBC Universal (now known in some
circles as “Nothing But Chicks”), will be acquiring Oxygen Media and
its network that targets women viewers.
Last year, the company bought web site iVillage, which caters to a similar audience. Male beer guzzlers took note of the proposed
merger of the domestic operations of Molson
Coors Brewing Co. (TAP)
and SABMillerPLC to create the number two
U.S. brewing company behind Anheuser-Busch
Cos. Inc. (BUD).
The deal will likely undergo a strict regulatory review for antitrust
bulls are celebrating a milestone five-year anniversary as the prior bear
market (remember the dot.com bubble?) ended in October 2002. Stock-market investors reacted positively to
Tuesday’s release of the minutes from the Sept. 18 meeting of Federal Open
Market Committee (FOMC) policymakers (see below), and economists now believe
more rate cuts are in the cards. While
earnings season produced some decent early results, the jury is still waiting
for the large investment houses to report.
led the charge this week as news of the Oracle acquisition helped investors
overlook a negative report on Chinese Internet firm, Baidu.com (BIDU). The Nasdaq climbed to its highest level in
six and a half years. Bonds moved lower
with the sudden renewed interest in stocks.
(If only consumers could renew their interest in shopping…I’m just
Economically Speaking: Fed Minutes, Inflation Worries…
* Reflects changes in interest rates over
various time frames.
Weekly Economic Calendar
Policy Meeting Minutes
Initial Jobless Claims
Balance of Trade (08/07)
Retail Sales (09/07)
The Week Ahead
Industrial Production (09/07)
Housing Starts (09/07)
Beige Book (09/07)
Initial Jobless Claims
Leading Eco. Indicators
“Given the unusual nature of the current
financial shock, participants regarded the outlook for economic activity as
characterized by particularly high uncertainty, with the risks to growth skewed
to the downside…Although financial
markets were expected to stabilize over time, participants judged that credit
markets were likely to restrain economic growth in the period ahead.” On those “concerning” notes, the Fed
unanimously agreed to take “the most
prudent course of action” and cut the Fed Funds Rate by 50 basis points
(half a percentage point) last month.
love-fest for Chairman Ben S. Bernanke began in earnest as a WSJ.com poll
showed that 76% of economists surveyed believe that the aggressive move was
appropriate, and 90% gave him favorable marks in his role as Fed Chief. (Somewhere out there, a man named Greenspan
is both bitter and jealous.)
addition to the minutes, some key economic reports were released last
week. The significant recalls of
Chinese products have started to impact the global trade picture as the U.S.
deficit dropped to its lowest level in seven months.
sales jumped by 0.6% in September as strong car sales helped overcome the
weakness in apparel demand. The large
increase was surprising given the poor sales results that had been reported by
the nation’s retailers just a day earlier.
Unseasonably warm weather and ongoing credit concerns have given many
shoppers some good excuses to put off buying those winter wardrobes.
prices soared by 4.1% and PPI jumped by 1.1% in September, though the more
closely watched core number (ex-food and energy) rose by a mere 0.1%. Keep up the good work, Dr. B. Sorry about
Talladega, Sterling (Keep your chin up!). Happy 70th, Dad. Good