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From Briefing.com: 6:39 pm Weekly Wrap

The stock market put in a surprisingly good performance this week considering that most of the fundamentals are trending less favorably.

There is a fair amount of optimism about upcoming first quarter earnings reports. That is giving the market some lift. Seasonal factors may also be helping, as April has been the strongest month for stocks over the past 50 years. There is also clearly some momentum from the recent rebound after the late February sell-off.

The best news this past week came on the earnings front. Alcoa posted earnings above expectations. General Electric merely came in at expectations. But Merck raised estimates for the full year and McDonald's did likewise for the first quarter. There are hopes that first quarter operating earnings for the S&P 500 in aggregate will come in a couple percentage points above Wall Street estimates of about a 4% gain.

The macro news was generally bearish. Most significantly, the minutes of the Fed policy committee meeting of March 21 threw cold water on expectations of an imminent rate cut. The policy statement released on March 21 was received extremely bullishly by the stock market. The statement removed the policy leaning towards tightening and replaced it with a much more balanced outlook. The stock market took that as a step towards imminent rate cuts.

The minutes released on Wednesday showed that to be an error. The minutes reflected a consensus of the committee that further rate hikes might be necessary and there was no indication that a rate cut was likely any time soon. This news slammed the S&P to a 10 points loss on Wednesday.

Fed funds futures rationally moved to eliminate rate cut expectations for either late this summer or fall. This shift in expectations about interest rates could have had a lasting impact on underlying sentiment. Surprisingly, however, the S&P rebounded the very next day with a 9 point gain.

The economic news this week was limited. New claims for unemployment jumped for the week ended April 7 to 342,000 from 323,000 the week before. This might reflect a softening in the labor market, but the weekly numbers can be very volatile. The March core PPI was weaker than expected at unchanged, but the total PPI surged 1.0%. The flat core was good news, but also may not reflect a trend. The core was up 0.4% in February, and is up at a 2.3% annual rate for the first quarter. This too may prove aberrant.

Oil closed the week little changed at $63.60 a barrel and the yield on the 10-year note was unchanged at 4.75%.

The fundamentals have worsened over the past month even while the stock market has rebounded. This worsening was reflected in the monthly Wall Street Journal survey of Wall Street economists. First quarter real GDP forecasts have dropped to 2%. Interest rate forecasts were raised to reflect the lower probability of Fed easing. Inflation forecasts inched higher. And home price forecasts were lowered. Yet, the stock market has held in well against these bearish trends. Now, the focus turns to the flood of earnings reports that start on Monday and whether they live up to heightened expectations.

 
 Index      Started Week Ended Week Change % Change YTD  
 DJIA         12560.20    12612.13  51.93     0.4 % 1.2 %  
 Nasdaq        2471.34     2491.94  20.60     0.8 % 3.2 %  
 S&P 500       1443.76     1452.85   9.09     0.6 % 2.4 %  
 Russell 2000   813.35      819.30   5.95     0.7 % 4.0 %

4:20 pm : The major averages closed modestly higher Friday as some upbeat corporate news eventually helped investors look past mixed economic data.

With the Fed recently increasing its attention on raw material prices as the chief influence on inflation, the market's early focus was on the March PPI report. Core PPI in March checking in unchanged was initially comforting; but the soft number, coupled with rising food and energy costs, did not exactly signal that inflation is back under control.

Another report showing erosion in consumer sentiment and that one-year inflation expectations are at the highest level in eight months also sidelined the bulls in early action.

Be that as it may, investors gradually embraced leadership in two of the S&P 500's most heavily-weighted sectors -- Financials and Health Care. The latter got a huge boost from Merck (MRK 50.20 +3.84), which opened up 6% at a three-year high after upside Q1 and FY07 EPS guidance prompted an upgrade from Goldman Sachs. By far today's best performing Dow component (+8.3%), Merck accounted for more than half of the Dow's 59-point advance.

Financials garnered some early interest following reports that SLM Corp. (SLM 46.76 +6.01) could be taken private in a deal worth $30 bln, including debt. ABN AMRO (ABN 48.28 +2.49) confirming receipt of a joint letter from three potential acquirers late in the day gave the sector an added lift.

It wasn't until news out of Cisco Systems (CSCO 26.65 +0.68) late in the session, though, that helped the Nasdaq finally break out of its intraday funk. After trading down as much as 1.2% in early trading, Cisco spiked more than 3.0% after its Chief Development Officer said the company is at the "high end" of sales forecasts and is in the "early phases" of an upgrade cycle.

The news gave the market a late-day lift, especially among tech companies reeling from a handful of warnings that have placed the sector's growth prospects under scrutiny of late. Technology bounced 1.1% from its intraday lows. DJ30 +59.17 NASDAQ +11.62 SP500 +5.05 NASDAQ Dec/Adv/Vol 1119/1902/1.86 bln NYSE Dec/Adv/Vol 1306/1940/1.32 bln

3:30 pm : The indices are holding onto the bulk of their gains and on pace to finish the day, and the week, in positive territory. The Dow is poised to close higher for the tenth time in 11 sessions and is now up more than 1% for the year.

The tech-heavy Nasdaq, thanks in large part to the recent rally in Cisco Systems (CSCO 26.91 +0.94), looks to extend its year-to-date leading advance to over 3%. DJ30 +52.77 NASDAQ +11.53 SP500 +4.96 NASDAQ Dec/Adv/Vol 1251/1723/1.50 bln NYSE Dec/Adv/Vol 1361/1858/1.08 bln

3:59PM Market View: Late week range break (TECHX) : The market entered the week on a winning streak and after extending into Tuesday (8 in a row for Dow, 6 for S&P 500) there was modest pullback into Thursday morning. The Dow held near its 50 ema and trendline off the March lows, the Nasdaq Comp held at a similar trendline while the S&P 500 retraced only 38% of the March 30-April 10 run (held at trendline on close basis). The steady climb off these lows left the S&P 500 roughly 8 points (0.5%) shy of the Feb/52-wk peak as of today's high (Dow 180 points --1.4%, Nasdaq Comp 40 points -- 1.6%). Short term posture above the early/mid-wk highs leaves the door open for additional upticks early next week (CPI will be watched closely Tuesday). Helping to underpin were Drug +2.3% (MRK +8.3%), Mining -1.7%, Gold +1.3%, Restaurant +1.2%, Networking +1.1% (late jump CSCO +2.7%), Internet HOLDRs +1%, Commodity Index +1%, REITs +1%, Casino +0.9%. Pressure was noted in Home Construction -1.3%, Railroad -1.1%, Retail -0.6% and Semi HOLDRs -0.5%.

8:01AM Broadcom says charges Qualcomm with unfair competition, fraud and breach of contract (BRCM) 32.69 : Co announces that it has commenced new litigation against Qualcomm (QCOM) asserting that QCOM's conduct before prominent industry standards organizations violates California law. BRCM asserts that QCOM's misconduct before standards setting bodies includes improperly concealing its patents, reneging on licensing obligations, and exerting dominance through hidden affiliations.

09:59 am General Electric (GE)

The first quarter earnings report from General Electric (GE 35.52, +0.34) provided investors with more of the same, which is to say it was a solid report that reinforced the company's long-term investment appeal.

Earnings from continuing operations rose 8.0% to $4.5 billion while earnings per share jumped 10% to $0.44. The latter was in line with the consensus estimate and smack dab in the middle of the company's guidance range of $0.43 to $0.45. Revenues for the period rose 6.0% to $40.2 billion and organic revenues increased 8.0%. The first quarter marked the ninth consecutive quarter that organic revenues have grown at a rate of 2-3 times global GDP.

GE's Infrastructure business continued to be its earnings driver as it achieved 28% profit growth on an 18% increase in revenue. Commercial Finance followed close behind with gains of 21% and 15%, respectively.

Profit growth for GE Money, however, was just 2.0% as the challenges presented by the U.S. mortgage business acted as a restraining influence. GE said it expects the business to rebound during the remainder of the year.

The Healthcare and NBC Universal segments also managed only single-digit percentage profit growth with each encountering special issues. In the case of Healthcare, it got hurt by a temporary regulatory suspension on shipments of surgical supplies, whereas NBC Universal was dealing with the comparison to last year when it benefited from the 2006 Olympic broadcasts.

GE's Industrial business experienced a 20% decline in profit as its plastics business, which GE is shopping to prospective buyers, remained a drag. The understanding that the plastics business is up for sale id a big reason why the market hasn't been too bothered by the weakness in the Industrial segment.

GE expects to deliver second quarter earnings from continuing operations of $0.52-0.54 per share (consensus $0.53) and reaffirmed its FY07 outlook for EPS from continuing operations to increase 10-12% to $2.18-2.23 (consensus $2.22).

That is steady, and respectable, growth for a company the size of GE. With a P/E multiple of 16.0x estimated earnings that is basically in line with the market multiple, GE is attractively priced in our estimation for the investment-minded individual given its dependable nature and attractive dividend yield of 3.20%.

--Patrick J. O'Hare, Briefing.com

09:33 am Lam Research (LRCX)

Lam Research (LRCX 50.98) beat analysts' expectations for its fiscal third quarter, driven by demand for equipment to make DRAM memory and flash chips used in computers and mobile electronics. Its shares, however, traded slightly lower in pre-market activity, amid concerns about a potential decline in memory spending.

For the third quarter, Lam posted a profit of $164.7 million, or $1.15 per share, on revenue of $650.3 million. That compares with earnings of $86.3 million, or $0.65 per share, on revenue of $437 million a year earlier, and second quarter earnings of $167.3 million, or $1.15 per share, on revenue of $633.4 million. Overall, the results topped Wall Street's expectations. Analysts on average were expecting the company to post a more modest profit of $1.06 per share and $644.7 million in revenue.

Gross profit of $326.2 million for the quarter was in line with expectations at 50.2% of revenue, compared to gross margin of 51% in the previous quarter.

Looking to the current fourth quarter, Lam expects to earn between $1.13 and $1.17 per share on revenue of $655 to $675 million. That is above analysts' forecast for earnings per share of $1.09 and revenue of $650 million. However, the company also projected sequential shipment growth of 10% to 15%, down from its previous guidance of 25% to 30%, exacerbating concerns about the magnitude of decline in memory spending.

--Richard Jahnke, Briefing.com

08:50 am Oracle (ORCL)

Oracle Corp. (ORCL, 18.70) late Thursday indicated there are more share repurchases in its future. The software giant said its board of directors authorized the repurchase of up to an additional $4 billion of common stock under its share repurchase plan.

The increase means the company has the authorization to repurchase approximately $4.7 billion of common stock. The repurchase plan is designed to return cash to stockholders and offset the effects of share issuances under the company's stock option and employee stock purchase plans.

In the latest quarter, Oracle's sales of applications and databases were strong, and margins were significantly higher than expected. The company beat on consensus for both earnings per share and revenue. The company has implemented a very successful acquisition strategy, and has long been a favorite stock of Briefing.com.
The company said the stock repurchase authorization does not have an expiration date and the pace of repurchase activity will depend on factors such as working capital needs, cash requirements for acquisitions, and repayment of debt, including the $1.7 billion in commercial paper issued to pay for its acquisition of Hyperion.

Oracle's board of directors first approved a share repurchase plan in 1992, and over the years has expanded the program several times. From the inception of the program, the company has returned approximately $25.8 billion to stockholders, including approximately $3.46 billion so far this fiscal year.

--Christine Marie Nielsen, Briefing.com

08:03 am Samsung Electronics

Samsung Electronics, the world's largest memory chip maker, posted a slightly larger than expected 15% drop in first quarter profits to 1.6 trillion won (US$1.72 billion) on falling memory prices and low utilization levels contracting margins. This was Samsung's lowest interim profit since the first quarter of 2005. Given the challenging pricing environment for memory, market participants were expecting weak results, but we hoped Samsung's second quarter predictions would signal a bottom for the industry.

Samsung forecast another 5-10% drop in DRAM (dynamic random access memory) prices sequentially in the second quarter. As anticipated, however, the company, which is notoriously aggressive in its guidance, predicted Q2 would be the bottom for DRAM profitability and forecast earnings to improve in the second quarter as seasonal demand for consumer electronic products picks up. Samsung cited demand stemming from Windows Vista during the holiday season. It predicted NAND prices should rise 20-25% in the April-June quarter after falling 40% in the first quarter.

Overshadowed by its memory products, Samsung reported a recovery in its mobile phone business driven by a focus on medium to lower-end models. It sold 34.8 million mobile devices in the quarter and margins widened to 13% from 7% in the fourth quarter despite lower ASPs. The company is the third largest producer behind Nokia (NOK) and Motorola (MOT).

Samsung is also the world's largest maker of LCD panels, which were also hurt this quarter by lower seasonal demand and weaker shipment of monitor screens. Samsung, LG Philips, and AU Optronics are all dealing with a glut of inventories that have caused LCD prices to drop steadily from last year.

In November, we warned of growing capacity in both DRAM and NAND flash as the market headed into its seasonally weakest period, raising red flags for pricing. As expected, ramping capacity resulted in an oversupply, causing prices to plummet as demand for Vista was sluggish. Our position on the memory producers remains, and we continue to suggest investors stay on the sidelines until mid 2007 until the supply/demand picture crystallizes. The risk is that the upturn takes longer than expected.

For Samsung's competitor, Micron (MU), we think current price levels offer an attractive buying opportunity. Investors should tread lightly, however, as the downside risk is 10% lower, in our estimation. But we would argue that shares are close to bottoming as the market looks toward a second half recovery.

--Kimberly DuBord, Briefing.com