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Market Update 071105
http://biz.yahoo.com/mu/update.html
4:25 pm : It was quite the start to the trading week with Citigroup (C 35.90, -1.83) roiling the market with an announcement that it anticipates recording a write-down of approximately $8 billion to $11 billion for its fourth quarter due to significant declines in the fair value of its approximately $55 billion of U.S. subprime related direct exposures.

On top of its write-down news, Citigroup also announced that CEO Charles Prince announced his "retirement." Sir Win Bischoff, the Chairman of Citi Europe, will serve as interim CEO. Robert Rubin has been named Chairman of the Board and will lead a committee entrusted with finding Prince's replacement.

The write-down news from Citigroup sent a shockwave through the financial sector, which traded down as much as 2.8% at its worst levels of the day, as it created fears about more write-downs being taken at other large financial institutions. In brief, it sent an unsettling message that the third quarter did not mark the bottom for the financial sector.

Briefing.com had its suspicions about that being the case. Accordingly, on October 5th we reiterated our Underweight rating for the sector.

Remarkably, more than 220 million shares of Citigroup, or nearly five times its average daily trading volume, were traded Monday.

The weakness in the financial sector was a key drag on the broader market. The S&P 500 was down close to 20 points at its low for the session, which was right around 2:30 ET.

The final numbers show that the S&P 500 finished well off its worst level of the day. Presumably, the recovery try was launched when the S&P 500 managed to hold support after re-testing the low of 1489.56 it hit on October 24th. Coincidentally, that was the day Merrill Lynch (MER 55.88, -1.40) reported a shocking $7.9 billion write-down of collateralized debt obligations and U.S. subprime mortgages during for its third quarter.

The S&P, in fact, managed to turn positive for a brief moment in the final half hour of the session as program trading and short-covering activity helped drive the expeditious rebound effort.

Buying efforts, however, faded into the close, leaving all three major indices in negative territory when the closing bell rang.

The financial sector finished down 1.4 percent and was the worst-performing of the ten economic sectors. The utilities sector, which gained 1.2 percent, and the consumer staples sector, which jumped 0.2 percent, were the only sectors to record a gain as they garnered interest in a safe-haven trade.

In other developments, the ISM Services index showed a reading of 55.8 for October. That was higher than the consensus estimate of 54.0 and slightly higher than the reading of 54.8 from September. A number above 50 reflects expansion. The market paid little attention to this news, though, as the Citigroup headlines overshadowed all else.DJ30 -51.70 NASDAQ -15.20 SP500 -7.48 NASDAQ Dec/Adv/Vol 2016/975/2.12 bln NYSE Dec/Adv/Vol 2471/782/1.52 bln

3:30 pm : The major indices have staged an expeditious rebound from their worst levels of the session, aided by what appears to be some program trading and, most likely, some short-covering activity.

The financial sector (-0.9%) has gone along for the ride and has played a major role in the broader market's recovery. At its lows for the day, the financial sector was down 2.8%.

Looking ahead, 53 companies are confirmed to report their earnings after the close, and 71 are set to report before the open tomorrow. There are no notable economic releases tomorrow.

DJ30 -10.97 NASDAQ -8.33 SP500 -1.77 NASDAQ Dec/Adv/Vol 1984/977/1.71 bln NYSE Dec/Adv/Vol 2458/778/1.13 bln

3:00 pm : The major indices are trading above their intraday lows following a modest pickup in buying interest. The small-cap Russell 2000 Index has slipped into negative territory for the year.

Decliners outweigh advancers this session. At the NYSE the advance/decline ratio is only 0.2.DJ30 -94.95 NASDAQ -26.42 R2K -1.3% SP500 -12.55 NASDAQ Dec/Adv/Vol 2168/780/1.53 bln NYSE Dec/Adv/Vol 2635/581/1.00 bln

2:30 pm : After a bit of choppiness, the major indices have drifted lower. Utilities (+0.4%) now stands alone in positive territory.

Time Warner (TWX 18.10, +0.22) has confirmed that its Board of Directors has elected Jeffrey Bewkes as Chief Executive Officer of Time Warner, effective Jan. 1, 2008. Bewkes currently serves as President and Chief Operating Officer, and he will retain the title of President. Bewkes will succeed Richard Parsons as CEO, and Parsons will remain as Chairman of the Board.DJ30 -134.05 NASDAQ -32.20 SP500 -17.62 NASDAQ Dec/Adv/Vol 2107/828/1.37 bln NYSE Dec/Adv/Vol 2598/602/866 mln

2:00 pm : Since the last update, the Dow and S&P have hit fresh intraday lows following broad-based selling pressure.The financial sector (-2.3%) is underperforming as a whole, but there is a notable pocket of weakness in the investment banks & brokerage industry (-5.1%).

In addition to the negative Citigroup (C 35.50, -2.23) news, Lehman Brothers downgraded U.S. Brokers to Neutral from Positive and downgraded Bear Stearns (BSC 100.12, -2.04) (target lowered to $117 from $145) and Merill Lynch (MER, 55.92, -1.36) (target lowered to $58 from $79) to Equal-weight from Overweight. DJ30 -131.85 NASDAQ -31.07 SP500 -16.61 NASDAQ Dec/Adv/Vol 2053/864/1.22 bln NYSE Dec/Adv/Vol 2513/686/809 mln

1:30 pm : Since the last update, the indices have slipped. There is not a specific news item that accounts for the broad-based selling interest.

In a move to strengthen its position in the fast growing virtualization market, Dell (DELL 29.93, -0.12) agreed to acquire EqualLogic, leading provider of high-performance iSCSI storage area network technology, for $1.4 billion.

Boeing (BA 97.87, +0.11) has announced that Chile's LAN Airlines will receive 32 new 787 Dreamliners, marking the largest 787 acquisition to date for Latin America. The Santiago-based carrier has ordered 26 airplanes from Boeing, and will lease an additional six 787-9s from International Lease Finance Corp.

Separately, Randall Kroszner, a governor of the Federal Reserve Board, said delinquencies and foreclosures are likely to continue to rise for a number of quarters DJ30 -81.13 NASDAQ -16.65 SP500 -9.47 NASDAQ Dec/Adv/Vol 2002/901/1.12 bln NYSE Dec/Adv/Vol 2415/759/736

12:55 pm : The market continues to trade in negative territory as buyers are unable to gain any momentum. Despite crude oil prices easing a bit, the AMEX Airline Index (-1.4%) is a notable pocket of weakness. The Dow Jones Trans. Average is also underperforming.

The small-cap Russell 2000 Index (-1.0%) and S&P 400 Mid-Cap Index (-0.7%) are laggards when compared to the broader market.DJ30 -63.73 DJTA -0.8% NASDAQ -16.84 SP500 -7.94 NASDAQ Dec/Adv/Vol 1997/897/1.01 bln NYSE Dec/Adv/Vol 2511/648/674 mln

12:30 pm : The stock market continues its choppy run as it trades in negative territory. The major indices are trading close to the middle of their intraday ranges.

It is being reported that Google (GOOG 726.05, +14.84 ) has announced plans to create an open source operating system for cell phones. The open source operating system will be able to run on a multitude of manufacturers' phones, thus allowing Google to extend its advertising reach.

Meanwhile, crude oil for December delivery is now flat at $95.90. DJ30 -71.53 NASDAQ -17.59 SP500 -8.24 NASDAQ Dec/Adv/Vol 2003/862/926 mln NYSE Dec/Adv/Vol 2424/716/611 mln

12:00 pm : The stock market opened with substantial losses following negative Citigroup (C 35.93, -1.80) news that has dominated headlines throughout the session. The market has since pared a good portion of its intraday losses, but remains in negative territory.

Following an emergency Citigroup board meeting this weekend, its embattled CEO Charles Prince announced his "retirement." That news isn't helping the stock in the manner investors thought it would. That's because there was another announcement that drove home the understanding that Citigroup has deeper problems than most people thought.

Specifically, Citigroup also said it is estimating that it will have to take another write-down in the fourth quarter due to the significant declines in the fair value of its approximately $55 billion in U.S. subprime direct related exposure. At the present time, the write-down is forecast to be $8 billion to $11 billion. The company recorded a write-down of approximately $6.0 billion in the third quarter.

In essence, what Citigroup's announcement indicates is that the third quarter was not the bottom for the financial sector.

In other corporate news, CNBC reports that Time Warner's (TWX 18.30, +0.43) CEO, Dick Parsons, will announce his resignation today, and that Jeff Bewkes will become CEO as of Jan 1. The Wall Street Journal reported this morning that Parsons would announce his retirement sometime this week.

On the economic front, The October ISM services came in at 55.8, which topped the consensus estimate that called for a reading of 54.0. Any reading above 50 indicates expansion. The stock market jumped following the reading, and then traded in a choppy manner.

The financials sector (-1.1%) is the main laggard, which was expected given the negative Citigroup headlines. The consumer staples (+0.3%) and utilities (+0.7%) sectors are outperforming on a relative basis.

Crude oil has slipped 0.8% to $95.19 DJ30 -41.05 NASDAQ -10.52 SP500 -4.71 NASDAQ Dec/Adv/Vol 1968/862/806 mln NYSE Dec/Adv/Vol 2433/675/519 mln

11:35 am : The major indices have slipped a bit since the last update, but are still trading well off their intraday lows.DJ30 -61.54 NASDAQ -13.45 SP500 -6.78 NASDAQ Dec/Adv/Vol 1949/852/715 mln NYSE Dec/Adv/Vol 2419/669/465 mln

11:00 am : The major indices have had a nice rebound off their losses, but remain in negative territory. The major indices are trading slightly below their recently reached session highs.

Kraft (KFT 33.19, +0.36) is outperforming this session following news that the company is near an agreement to sell its Post cereal business to Ralcorp Holdings Inc., according to an article in today's edition of The Wall Street Journal. Ralcorp, a private-label cereal maker, is looking to add clout to its production abilities as it competes with the likes of General Mills (GIS, 57.11, +0.20) and Kellogg (K, 52.48, -0.10).

According to The Journal, the $2.8 billion transaction involves a stock-based arrangement in which Kraft may divest Post and then merge the company with Ralcorp. The arrangement would free the parties from certain tax liabilities. DJ30 -52.67 NASDAQ -8.61 SP500 -6.16 NASDAQ Dec/Adv/Vol 1867/854/529 mln NYSE Dec/Adv/Vol 2431/587/328 mln

10:30 am : The stock market made a modest recovery following the better than expected ISM reading, and has since traded in a choppy manner. Currently, the major indices have pared a good portion of their intraday losses.

CNBC reports that Time Warner's (TWX 18.00 +0.12) CEO, Dick Parsons, will announce his resignation today, and that Jeff Bewkes will become CEO as of Jan 1. The Wall Street Journal reported this morning that Parsons would announce his retirement sometime this week.
DJ30 -63.24 NASDAQ -15.34 SP500 -7.93 NASDAQ Dec/Adv/Vol 1925/710/359 mln NYSE Dec/Adv/Vol 2339/603/226 mln

10:00 am : The major indices are off their opening lows, but are still posting substantial losses. Consumer staples (+0.1%) and utilities (+0.6%) are the only two economic sectors in the green. The financial sector (-1.6%) is the main laggard in response to the Citigroup (C 35.95, -1.78) headlines.

On a positive note, crude oil has slipped 1.7% to $94.30.

Just reported, October ISM Services came in at 55.8. Economists were expecting a reading of 54.0. A reading over 50 indicates expansion.DJ30 -64.38 NASDAQ -18.67 SP500 -7.68

09:40 am : The stock market opened sharply lower after Citigroup (C 36.06, -1.67) announced that because of significant declines in the value of its U.S. subprime related direct exposures since the end of the third quarter, it will suffer a reduction in revs of $8 billion to $11 billion. In addition, the company held an emergency board meeting over the weekend and announced that embattled Chairman and CEO Charles Prince is stepping down from his post.

CNBC reports that both Citigroup and Merrill Lynch (MER) are considering Blackrock's (BLK) CEO to fill their vacancies.DJ30 -78.12 NASDAQ -24.95 SP500 -10.94

09:15 am : S&P futures vs fair value: -15.5. Nasdaq futures vs fair value: -24.8. Futures continue to point to a significantly lower open. The October ISM Services, set to be released at 10:00 ET, is the lone economic report today.

09:00 am : S&P futures vs fair value: -13.0. Nasdaq futures vs fair value: -22.5. In a conference call, Citigroup (C) said liquidity is in no way impaired, and that it is fully committed to maintaining its dividend.

08:30 am : S&P futures vs fair value: -12.7. Nasdaq futures vs fair value: -22.8. Futures continue to point to a negative opening. Crude oil has slipped 1.5% to $94.45.

08:00 am : S&P futures vs fair value: -9.5. Nasdaq futures vs fair value: -19.5. Futures point to a decidedly lower start. Citigroup (C) is spearheaded the selling interest after the company announced its CEO, Chuck Prince, is retiring and it expects up to $11 billion in further write downs.

06:22 am : S&P futures vs fair value: -11.3. Nasdaq futures vs fair value: -21.0.

06:22 am : FTSE...6449.60...-81.00...-1.2%. DAX...7801.72...-47.77...-0.6%.

06:22 am : Nikkei...16268.92...-248.56...-1.5%. Hang Seng...28942.32...-1526.02...-5.0%.