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From Briefing.com: Weekly Recap - Week ending 19-Dec-08

Whether you recognize it or not, a little bit of history is made every day. This week history was made in a big way for the financial markets when the Federal Open Market Committee (FOMC) cut the fed funds target rate from 1.00% to a range of 0.00% to 0.25%.

In addition, the FOMC directive implied the Fed stands ready to do any, and all, things possible to stimulate the credit market and the economy, including possibly buying a lot of long-term Treasury securities.

The move in Treasuries this week was astounding. The 10-year note yield fell as many as 49 basis points to 2.08% Thursday while the yield on the 30-yr bond dropped as many as 52 basis points to 2.52%.

This no holds barred approach from the Fed fueled a sizable short-covering rally effort Tuesday that proved to be as fleeting as snow on the ground in Houston this time of year.

When it comes down to it, the directive conveyed a pretty bleak economic outlook, certainly for the near-term, and made it apparent that the economic fix won't be quick and easy. By the same token, neither will the fix for the stock market.

Even so, the stock market pressed on with a bullish bias and closed higher for the week, led by the transportation, health care, financial and retail sectors.

It was another week where bad news didn't carry the same weight it once did.

Goldman Sachs (GS) reported its first loss as a publicly-traded company and yet its stock traded higher after the news.

Best Buy (BBY) beat earnings estimates for its third quarter but observed that there has been a dramatic and potentially long-lasting change in consumer behavior. The translation is that the consumer is in retrenchment mode. Best Buy's stock gained 15% this week.

Industrial production declined 0.6% in November, housing starts declined 18.9%, marking the largest decline since March 1984, building permits hit a record low, and weekly initial jobless claims held near a 26-year high.

Standard and Poor's lowered its outlook (though not its rating) for AAA rated General Electric (GE) and lowered its rating by one or two notches on 11 major U.S. and European financial institutions.

Additional details were heard about the Bernard Madoff Ponzi scheme, including the names of many wealthy investors that got burned by Madoff's dealings.

OPEC, meanwhile, said it is going to cut 4.2 million barrels a day from the actual September 2008 OPEC-11 production of 29.045 million barrels per day. News like that would be expected to cause a spike in oil prices. There was a spike alright, only it was a spike lower.

Oil for January delivery tumbled 27% this week to $33.87 per barrel, with the majority of the decline coming after the OPEC announcement.

The downturn in oil prices, which touched $147 in July, is a positive for consumers and most businesses, yet that silver lining is dulled for now by a host of issues, the most nettlesome of which is a rising unemployment rate that is weighing heavily on spending and investment decisions.

The energy sector (-4.6%) was the worst-performing sector this week.

The drop in oil prices was all the more striking given that the dollar had a tough week as growing concerns about the U.S. government's increasing debt and interest rate differentials weighed heavily on the greenback. The dollar index fell 6.0% at one point before recovering some lost ground late in the week after Japan said it will undertake efforts to weaken its currency.

In terms of government spending, the big news came Friday with the Bush administration agreeing to lend $17.4 billion in TARP funds to the automakers.

GM and Chrysler are going to receive $13.4 billion and, if Congress approves the release of the other half of the TARP funds, GM ill get access to another $4 billion in February. The loans are being made on the contingency that the automakers have a viable plan by March 31 to become profitable.

Friday's mixed market left it clear that doubts remain.

In a separate, but not wholly unrelated development, word circulated this week that President-elect Obama might endorse a stimulus plan that costs as much as $850 billion.

Yes, Virginia, there is a recession.

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

**For interested readers, the S&P 400 Midcap Index, which isn't included in the table below, gained 3.1% this week and is down 39% year-to-date.

 
 Index      Started Week Ended Week Change % Change YTD %  
 DJIA          8629.68    8579.11  -50.57    -0.6  -35.3  
 Nasdaq        1540.72    1564.32   23.60     1.5  -41.0  
 S&P 500        879.73     887.88    8.15     0.9  -39.5  
 Russell 2000   468.43     486.26   17.83     3.8  -36.5

4:32PM Auto Fails to Inspire : A plan to provide automakers with more than $17 billion helped drive stocks higher, but the bounce proved unsustainable as investors remain cognizant of broader headwinds... The White House is providing $13.4 billion in TARP funds to automakers as part of an effort to shore up their finances. An additional $4.0 billion will be available in February. Though the funds won't ensure automakers achieve a successful recovery, the announcement does help clear up the market's concern on the matter... Shares of General Motors (GM 4.49, +0.83) rallied on the news, as did many suppliers dependent on the survival of the Big Three. Ford (F 2.95, +0.11) also traded higher, though to less of an extent since it is currently not depending on government funds. Ford and GM traded with heavy volume, part of which was induced by the expiration of December options... The expiration of December options also increased share volume in the broader market. More than 2.4 billion shares were traded on the New York Stock Exchange, most of which came in the early going... Futures contracts for January crude oil also expired this session, but not before sinking to a new four-year low of $32.40 per barrel. The contracts finished 6.5% lower at $33.87 per barrel. However, February contracts gained 1.5% to settle at $42.31 per barrel. The advance in February crude futures prices came despite continued gains in the U.S. dollar... The greenback gained 2.3% against a basket of major foreign currencies today. It is up 3.0% over the past two days. That has weighed on metals for two straight sessions. February gold shed 2.7% to settle at $837.40 per ounce, while March silver slipped 2.4% to finish at $10.85 per ounce. Their weakness continues to undermine the materials sector (-1.3%), which was the session's worst performer... Financials (+0.4%) had a relatively solid performance even though Standard & Poor's lowered the credit ratings of Goldman Sachs (GS 80.73, +0.68), Wells Fargo (WFC 28.70, -0.95), JPMorgan Chase (JPM 30.32, +0.11), and Bank of America (BAC 13.80, -0.16). Traders' reaction to the downgrade was relatively muted given the belief that the credit analysts are essentially late to the game... Tech (+0.9%) was a relative leader after Oracle (ORCL 17.78, +1.17) and Research In Motion (RIMM 42.83, +4.39) posted in-line earnings results for the latest quarter. Their strength helped the Nasdaq outperform... In other earnings news, Accenture (ACN 32.21, +1.80) made its way to a new December high after posting better-than-expected results for its latest quarter... European stocks ended the week lower after a volatile session. Lodon's FTSE fell 1.0%, Germany's DAX tumbled 1.3%, and France's CAC closed 0.3% lower... Russia's MICEX advanced 0.7%, but the RTS tumbled 5.1%... The MSCI Asia-Pacific Index closed 0.6% lower, while Japan's Nikkei closed 0.9% lower after the Bank of Japan lowered its key policy rate to 0.10% from 0.30%. In Hong Kong, the Hang Seng closed down 2.4%, ending four days of gains... Dow -0.3%... Nasdaq +0.8%... S&P 500 +0.3%... Nasdaq 100 +1.0%... S&P 400 +0.7%... Russell 2000 +1.5%.

7:56AM TrimTabs estimates all equity mutual funds post outflow of $6.0 billion in week ended Wednesday, December 17 : TrimTabs Investment Research estimates that all equity mutual funds posted an outflow of $6.0 billion in the week ended Wednesday, December 17, versus an outflow of $2.8 billion in the previous week. Equity funds that invest primarily in U.S. stocks posted an outflow of $5.6 billion, versus an outflow of $1.7 billion in the previous week. Equity funds that invest primarily in non-U.S. stocks had an outflow of $389 million, versus an outflow of $1.1 billion in the previous week. In addition, bond funds had an outflow of $4.1 billion, versus an outflow of $10.6 billion in the previous week, and hybrid funds had an outflow of $1.3 billion, versus an outflow of $3.5 billion in the previous week. Separately, TrimTabs reports that exchange-traded funds that invest in U.S. stocks posted an inflow of $11.6 billion, versus an inflow of $8.4 billion in the previous week. ETFs that invest in non-U.S. stocks had an inflow of $3.8 billion, versus an inflow of $2.9 billion in the previous week.

7:51AM North American semiconductor equipment industry posts November 2008 book-to-bill ratio of 1.00, according to SEMI : North America-based manufacturers of semiconductor equipment posted $805 million in orders in November 2008 (three-month average basis) and a book-to-bill ratio of 1.00 according to the November 2008 Book-to-Bill Report published by SEMI. The three-month average of worldwide bookings in November 2008 was $805.4 million. The bookings figure is about 4% less than the final October 2008 level of $839.7 million, and about 29% less than the $1.13 billion in orders posted in November 2007. The three-month average of worldwide billings in November 2008 was $807.3 million. The billings figure is about 7% less than the final October 2008 level of $871.4 million, and about 42% less than the November 2007 billings level of $1.38 billion. "The book-to-bill ratio reached parity as billings have declined sharper than bookings over the past six months," said Stanley Myers, president and CEO of SEMI. "2008 is closing with expected declines on the year, which have been further exacerbated by the deepening seismic global economic situation over the past quarter."

7:37AM Jabil Circuit misses by $0.02, misses on revs; guides Q2 EPS in-line, revs below consensus (JBL) 6.46 : Reports Q1 (Nov) earnings of $0.30 per share, $0.02 worse than the First Call consensus of $0.32; revenues rose 0.4% year/year to $3.38 bln vs the $3.42 bln consensus. Co issues mixed guidance for Q2, sees EPS of 0.20-0.24, excluding $0.03 per share for amortization of intangibles and $0.05 per share for stock-based compensation and related charges, vs. $0.20 consensus; sees Q2 revs of $2.8-3.0 bln vs. $3.07 bln consensus. Co says "Liquidity and a resilient balance sheet are key advantages in this market environment. The $1.4 bln of liquidity we enjoyed at the end of our first quarter should improve as our working capital and capital expenditure requirements decline during our second quarter." Jabil has nearly $600 mln in cash and $800 mln available under a five-year revolving credit facility expiring in 2012.

6:43AM Cabot Micro to acquire Epoch Material Co., Ltd. (CCMP) 26.26 : Co announces that it has entered into a definitive agreement to acquire the shares of Epoch Material Co., Ltd., a consolidated subsidiary of Eternal Chemical Co., Ltd. Epoch is a Taiwan-based company specializing in the development, manufacture and sale of copper CMP slurries and CMP cleaning solutions to the semiconductor industry, as well as color filter slurries to the liquid crystal display industry. Under the share purchase agreement, Cabot Microelectronics will purchase Epoch for a total purchase price of US$66 million. Cabot Microelectronics will initially obtain 90 percent of Epoch's stock, with the remaining 10 percent to be transferred eighteen months later. During this interim period, Eternal will hold a minority ownership interest in Epoch.

09:36 am Palm upgraded to Hold at Needham: . Needham upgrades PALM to Hold from Underperform after the company reported Q2 results in line with it preannouncement guidance on Dec 1. Firm is upgrading in advance of the co's pending launch of "Nova", its new operating system, and possibly its new smartphone. Although the new platform is unlikely to challenge any of the competing smartphone platforms, the credentials of PALM's engineering team lend a modicum of credibility to this possibility. The only thing that might save Palm is this disruptive new operating system, along with a breakthrough new form factor in its forthcoming smartphone.

09:04 am Research In Motion (RIMM)

Research In Motion (RIMM 38.44), makers of the popular BlackBerry smart phone, reported Q3 (Nov.) earnings that matched expectations and offered upside guidance for the current quarter.

Research In Motion reported earnings of $0.83 per share, excluding nonrecurring items, exactly in-step with the First Call consensus of $0.83. Revenue revenues rose 7.9% year-over-year to $2.78 billion, shy of the $2.81 billion consensus.

The company issued upside guidance for the current quarter, expecting earnings per share between $0.83 and $0.91; the current consensus stands at $0.83. Research In Motion expects revenue to range from $3.3 billion to $3.5 billion compared to the $2.98 billion consensus.

Research In Motion added approximately 2.6 million net new BlackBerry subscriber accounts during the quarter

A slip in gross margins provided the disappointing side to RIMM's report. Gross margins for the third quarter were 45.6%, lower than originally estimated and are expected to continue to drop, as the company sees gross margins between 40% and 41% in the fourth quarter.

The company said a rapid shift in product mix is causing gross margins to decline faster than expected.

08:40 am Oracle (ORCL)

Enterprise software giant Oracle (ORCL 16.61) issued a mixed earnings report following Thursday's close, meeting the mark on earnings per share but coming up a bit shy on revenues due to currency fluctuations.

For the quarter Oracle reported earnings that climbed 9% year-over-year to $0.34 per share, excluding nonrecurring items, spot on with the First Call consensus estimate.

While Oracle's revenues grew 5.5% year-over-year to $5.61 billion, they were short of the consensus that expected $5.84 billion.

The strength of the dollar in November had a significant impact on Oracle's results since nearly half of their business comes from overseas. The company said that strength in the dollar compared to other currencies impacted non-GAAP earnings by $0.03 per share, while revenue would have risen 13% in constant currencies.

Oracle posted solid gains in the important software segment, with non-GAAP revenues up 8% year-over-year while software license update and product support revenues were up 15% year-over-year.