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From Briefing.com: Weekly Recap - Week ending 20-Mar-09

Following its largest weekly gain in many months, the stock market managed to extend those gains in the beginning of this week, culminating with a sharp spike higher Wednesday afternoon after the Federal Reserve surprisingly increased its balance sheet. However, investors have taken profits over the last two sessions, resulting in only modest gains for the major averages this week -- S&P +1.6%, Dow +0.8%, Nasdaq +1.8%, Russell +1.8%.

Looking at sectors, Utilities led the way with an 8% advance, while Financials gave up their weekly gains on Thursday and Friday, losing 8% and 5%, respectively, to close nearly unchanged.

Financials helped the market begin the week on positive note. UK banks led the way after Barclays (BCS +19%) announced it is shopping its iShares ETF business. However, the overall market saw profit taking in the afternoon, closing modestly in negative territory.

The first big piece of economic data was also released on Monday, as Industrial Production showed a slightly larger-than-expected decline of 1.4% in February (consensus -1.3%), while the prior month was revised slightly lower to -1.9% from -1.8%.

But Tuesday the market resumed its upward trend, albeit in choppy trade, with gains across the board. Financials once again were a key determinant in the direction of the broader market, but they weren't the only source of strength as the Nasdaq's 4.1% advance was the biggest among the major averages, led by large-cap technology shares, while the Russell 2000 Small-Cap Index outperformed all others, rallying 4.6%.

It was a big day for economic data as well, as Housing Starts and Building Permits both showed large, unexpected jumps in February. Starts increased 22.2% month-over-month to 583,000 (consensus 450,000), while Permits increased 3% to 547,000 (consensus 500,000). The primary swing factor for Starts was the increase in multi-unit structures. Specifically, Starts on dwellings with five units or more surged 80% to 212,000 units, while single-family Starts rose just 1.1% to 357,000 units. Nevertheless, the February report was better-than-feared economic news and could factor favorably in revised forecasts for Q1 GDP.

Wednesday proved to be the biggest day of the week, though very little happened until the Federal Open Market Committee (FOMC) rate decision and policy statement at 14:15ET. The FOMC announced the decision to increase the size of the Federal Reserve's balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months.

The Treasury purchase sent the bond market rocketing higher, with the 30-year bond up more than 6 points at one point. The stock market followed suit, and a plunge in the dollar sent precious metals sharply higher.

While definitely overshadowed, there was also inflation data released on Tuesday and Wednesday. First was the Producer Price Index (PPI) on Tuesday. The core rate, which excludes food and energy, continued to defy the weak demand that is undoubtedly pressuring producers by advancing a larger-than-expected 0.2% (consensus 0.1%). Total PPI was up a smaller-than-expected 0.1% (consensus 0.4%). Next came the Consumer Price Index (CPI) on Wednesday. Both readings came in hotter-than-expected, with the core rate up 0.2% (consensus 0.1%) and total up 0.4% (consensus 0.3%).

The profit taking began on Thursday, despite commodities and commodity-related stocks soaring on the weaker dollar following the Federal Reserves announcement the previous day -- Energy +1.4%, Materials +1.4%. Two factors came into play for the expected weakness. The first was the understanding that the market was apt to encounter some profit taking after gaining as much as 20% between its low on March 6 and its high on March 18. The second was the recognition that the rally had left the S&P testing its 50-day simple moving average (now at 800), which has provided stern resistance during prior rebound attempts.

The market followed through to the downside on Friday. It was a slow session, despite the quadruple-witching options expiration, with the move lower broad-based and not related to any specific headline.

Things should pick up next week, with a number of notable pieces of economic data and some key testimony on tap. Looking at the economic calendar, Existing Home Sales are out Monday (3/23) morning, while Durable Goods Orders and New Homes Sales are out Wednesday (3/25). Looking at the Fed/Treasury calendar, Chairman Bernanke and Secretary Geithner testify before the House Financial Services Committee on Tuesday (3/24) on the government's rescue of AIG, while Mr. Geithner goes before the committee again on Thursday (3/26), this time on financial market regulation.

--David M Campione, CFA, Briefing.com

 
 Index        Started Week Ended Week  Change % Change  YTD % 
 DJIA	        7223.98	   7278.38     54.40	0.8   -17.1 
 Nasdaq	        1431.50	   1457.27     25.77	1.8    -7.6 
 S&P 500	         756.55	    768.54     11.99	1.6   -14.9 
 Russell 2000	 393.09	    400.11	7.02	1.8   -19.9 

09:33 am Research In Motion initiated with a Buy at Caris & Company; tgt $60: . Caris & Company initiates RIMM with a Buy and price target of $60. The firm notes that even while their estimates are well below consensus, and they still expect reduced enterprise IT budgets and weak consumer spend to sharply slow RIMM's Y/Y growth in handsets and subscriber additions in CY09, they nevertheless see BlackBerry continuing to post solid organic growth as one of the best positioned platforms in smartphones, increasing share of the cell phone pie. The firm believes that Apple's iPhone is actually the new gold standard, but with RIMM stock >70% off its highs and trading at just ~12x their CY09E EPS forecast of $3.26, combined with a solid balance sheet the firm sees ~50% upside at current valuation.

09:29 am Sony Ericsson

Handset maker Sony Ericsson warned Friday that it expects to post a loss for its first quarter as customer demand continues to shrink.

Sony Ericsson, a joint venture between Sony (SNE 20.52) and Ericsson (ERIC 9.30), said it expects a first-quarter loss ranging from 340 million euros to 390 million euros ($465 million to $533 million).

The company said weak sales are behind the outlook and that gross margins are expected to fall year-over-year and sequentially.

Sony Ericsson plans to ship 14 million handsets in the quarter, at an average selling price of a approximately 120 euros each.

08:54 am Palm (PALM)

Palm (7.71) reported a loss for its fiscal third quarter, but the company said its highly anticipated Pre smartphone is "coming along great" and the company is "poised to usher in a new era."

For its fiscal third quarter, Palm reported a loss of $0.86 per share, excluding nonrecurring items. The earnings per share figure excludes stock-based compensation, amortization of intangible assets, restructuring charges, a casualty loss, an impairment of non-current auction rate securities, a gain on a series C derivative and accretion of series B and series C preferred stocks and may not be comparable to the First Call consensus that expected a loss of $0.59 per share.

Revenues fell 71.0% year-over-year to $90.6 million, at the high end of the company's previous guidance of revenue between $85 million and $90 million, but below the consensus estimate of $105 million.

For Palm, all eyes are on the launch of its new Pre smartphone. On its earnings conference call, the company said it has to "polish things up" but that the phone is still planned to be available in the first half of 2009.

Palm's gross margins suffered markedly in the quarter, slipping to 5.0% from 20.1% in the prior quarter. Lower selling prices on its older product line contributed to the decline. Palm expects margins to improve as the next generation products are released.

Shares of PALM are down nearly 3% in premarket trade.

08:32 am Xerox (XRX)

Xerox (XRX 5.34) dramatically cut its first quarter earnings estimates due to lower sales of equipment and printer-based supplies in January and February.

Xerox said it now expects first quarter earnings to range from $0.03 to $0.05, well below the consensus of $0.18 and down from the company's previous range of $0.16-$0.20.

Xerox said the reduction includes a $0.06 impact from its share of Fuji Xerox's restructuring and a lower-than-expected Fuji Xerox profit contribution. The balance of the cut stems from an industry-wide slowdown in technology spending, putting pressure on revenue and earnings.

The Norwalk, Conn.-based company said that total revenue in January and February declined 18%, including a 5 point currency impact.

"We're expediting further cost savings that help to offset the economic impact on revenue while fueling our operating cash flow," said CEO Anne Mulcahy.

Xerox said it is on track to deliver $250 million in savings throughout this year from previous restructuring actions, and has identified an additional $300 million in cost and expense reductions that will flow through to earnings and cash generation.

08:09 am 3Com (COMS)

3Com (COMS 2.74) topped earnings estimates in its fiscal third quarter and swung to a profit after posting a net loss in the same period last year.

3Com reported earnings of $0.13 per share, excluding nonrecurring items, in its fiscal third quarter. The results were $0.03 better than the First Call consensus of $0.10.

Revenues fell 3.5% year-over-year to $324.7 million; the consensus expected $332.3 million.

CEO Bob Mao said, "Our China business remained strong in the quarter. Our TippingPoint segment achieved record revenue. The strength in these two segments, combined with stringent cost management, allowed us to offset weakness in other geographies and deliver substantially higher year-over-year profit."