Sector Investing

[ReturntoSender]

From Briefing.com: Weekly Recap - Week ending 17-Apr-09The stock market used two late-session rallies on Wednesday and Thursday to close with gains for a sixth consecutive week -- S&P +1.5%, Dow +0.6%, Nasdaq Comp +1.2%, Russell 2000 +2.4%. The Financial sector led the way once again (+4.1%), with Goldman Sachs (GS), JP Morgan (JPM) and Citigroup (C) all reporting moderately better-than-expected first quarter results. In all, seven of the ten sectors that make up the S&P 500 showed gains.

Monday was a very slow, but positive session. Thanks to leadership from financial stocks, the S&P reversed an early 1.3% decline to finish with a modest gain.

After the close, Goldman Sachs used an announcement of a $5 billion common stock offering as an opportunity to report its quarterly results a day early. The company beat by a whopping $1.79 on much better-than-expected revenue of $9.43 billion (First Call consensus $7.09 billion). However, it's worth mentioning that this was the first quarter in which the company reported on the March cycle, and it reported weaker December numbers in the footnotes of its financial statements.

But shares of GS plunged 11.6% on Tuesday on the equity offering and profit taking as they had been rebounding since they set lows back in November, including a 13.4% rally over the previous two sessions. The market as a whole declined, with the S&P losing 2.0%. Goldman pushed the Financial sector lower, while disappointing retail sales data led some to second guess the prospects of retailers, putting an abrupt end to the good news we had seen in January and February. Total Sales declined -1.1% (consensus +0.3%) while Sales, excluding autos, fell -0.9% (consensus 0.0%).

Intel (INTC) became the next big company to report first quarter results after the close, beating by $0.08 on better-than-expected revenue ($7.14 billion vs. $6.98 billion consensus), gross margin (45.6% vs. 43.6% consensus) and tax rate (1% vs. ~27% expectation). The company said for Q2 it expects revenue to be flat sequentially, or ~$7.14 billion, vs. the $7.05 billion consensus, while gross margin is expected to remain in the mid-40s. It said on the conference call that the bottom in the PC market has been reached and believes the worst is now behind the company from an inventory correction and demand-level adjustment perspective.

Nevertheless, shares of INTC sold off the next day, losing 2.4% and helping the Nasdaq underperform. But the stock and the index both closed well off their worst levels, and the other major indices ended with solid gains as the stock market rocketed higher in the last hour of trade. Financials led the way once again. The sector reversed early weakness to trade with gains for the entire afternoon, but it wasn't until that last surge that financials were able to climb to their session high, finishing with a gain of 5.6%.

There was some notable economic data on Wednesday, though it didn't appear to have much of an impact on trading. The March CPI mirrored the PPI data from the previous day in that energy prices fell a surprising 3.0%. This is probably not sustainable given recent trends in commodity prices. The CPI core rate trend differed from PPI, however. The core rate increase of 0.2% marked the third straight month of such an increase. There is at least a partial explanation for this from likely one-time impacts. Separately, Industrial Production came in negative for a fifth straight time, declining 1.5% in March. The March number was worse than the expected 0.9% decline and, notably, it rounded out a quarter in which output dropped at an annual rate of 20%.

Thursday proved to be the biggest session of the week for the stock market. Despite a slow, choppy start, stocks climbed in afternoon trading and finished with healthy gains. The Nasdaq outperformed the other major indices as shares of large-cap tech stocks rebounded from their losses in the prior session. Financial stocks also closed higher, but they lagged the broader market. Before the open, JP Morgan reported a beat of $0.08 on better-than-expected revenue ($25.0 billion vs. $23.0 billion consensus).

The reason for the slow start was disappointing housing data. Starts dropped 10.8% to a 510,000 annual rate from 572,000 in February. The level is not as low as the 488,000 dismal January number, but still the second lowest of this cycle. The March level is well below expectations of about a 540,000 level and below the three-month average of 539,000. Housing Permits fell 9.0% to a 513,000 annual rate, the lowest level of the current cycle and below the 547,000 average of the three prior months.

That brings us to expiration Friday, where stocks spent the session trading in mixed fashion, despite better-than-expected earnings reports from a trio of heavy hitters.

Google (GOOG) beat by $0.23 in Q1 as paid clicks increased ~17% y/y and the company lowered it operating expenses to $1.52 billion from $1.65 billion in the prior quarter. However, shares gave up initial gains as management made cautious comments about slowing revenue growth, saying it is still in uncertain territory in terms of the economy as users are buying less and advertisers are lowering their bids, and reminded analysts that the second and third quarters are seasonally weaker.

Citigroup beat by $0.16 as revenue came in better-than-expected ($24.8 billion vs. $22.0 billion consensus). However, shares also gave up their initial gains as the company said it didn't believe its improvement in credit costs in the quarter would continue, and said it would not change the conversion price of its upcoming preferred/common stock exchange offering ($3.25) despite the stock trading above $4. Shares ended down 9% to $3.65.

Finally, General Electric (GE) beat by nickel despite missing on the top line ($38.4 billion vs. $39.8 billion consensus). GECS revenues fell 20% y/y to $14.4 billion, but despite profit falling 58% the segment earned $1.1 billion in the quarter and the company said it remains on track to be profitable for the full year. It also said that estimated stress test results showed that the company does not need to raise additional capital, even in the Fed's adverse-case scenario.

Earnings season will pick up even more next week, with dozens of companies reporting each day, including such heavy hitters as Bank of America (BAC) and IBM (IBM) on Monday (4/20) and Apple (AAPL), Boeing (BA) and Morgan Stanley (MS) on Wednesday (4/22). But it will be a much slower week for economic data, with the exception of Existing Home Sales on Thursday (4/23) and Durable Goods Orders on Friday (4/24). The last day of the week will also be important as the preliminary assumptions from the banking industry stress tests are expected to be released.

 
 Index       Started Week Ended Week  Change % Change YTD % 
 DJIA	       8083.38	  8131.33    47.95     0.6  -7.3 
 Nasdaq	        1652.54	  1673.07    20.53     1.2   6.1 
 S&P 500	        856.56	   869.60    13.04     1.5  -3.7 
 Russell 2000	468.20	   479.37    11.17     2.4  -4.0

09:15 am General Electric (GE)

General Electric (GE 12.27) reported first quarter earnings that topped analyst expectations, but the company saw revenue declines and lower profit in many of its segments.

For the quarter, GE reported earnings from continuing operations of $0.26 per share, $0.05 better than the First Call consensus of $0.21. Earnings of $2.8 billion were down 35% year-over-year.

Revenues slipped 9.0% year-over-year to $38.41 billion, shy of the $39.83 billion consensus.

GE said segment profit fell 27% in the quarter, as strong 19% growth at Energy Infrastructure was more than offset by a 58% decline at Capital Finance and a 45% decrease at NBC Universal.

"Revenues and profitability declined year-over-year in our financial services business and we continue to experience rising delinquencies," said CEO Jeff Immelt. "However, we have taken prudent actions to address these challenges, including tightening risk requirements, improving liquidity and reducing leverage. Also, questions about credit ratings have been resolved. We still have a strong rating and our outlook is stable."

Immelt said the company is aggressively managing its cost structure and will reduce its costs by more than $5 billion in 2009.

Shares of GE are down 0.8% in premarket trading.

08:50 am Citigroup (C)

Citigroup (C 4.01) reported a smaller-than-expected loss for the first quarter helped by cost controls and strong trading results, sending shares of the struggling bank higher in Friday's premarket action.

Citigroup reported a first quarter loss of $0.18 per share, $0.16 better than the First Call consensus that expected a loss of $0.34 per share. Citi's earnings per share figures reflect a January 2009 reset of the conversion price of $12.5 billion convertible preferred stock issued in January 2008. Citi said the reset of the conversion price reduced income available to shareholders by $1.3 billion, or $0.24 per share. Preferred stock dividends also reduced net income by another $1.3 billion.

Revenues rose 99.3% year-over-year to $24.8 billion, topping the $21.95 billion consensus.

Citi said operating expenses fell 23% and its workforce shrank by 13,000 in the quarter to 309,000.

The company said its results include $7.3 billion in net credit losses and a $2.7 billion net loan loss reserve build.

Citi's Tier 1 capital ratio declined sequentially to 11.8% from 11.9% in the fourth quarter, largely due to the consolidation of $82 billion of card-related securitization assets for regulatory capital purposes, largely offset by higher Tier 1 capital and a reduction in other risk-weighted assets.

Overall, CEO Vikram Pandit said he was "pleased with our performance" and that the company had its best overall quarter since the second quarter of 2007, but admitted that Citi "face(s) challenges in the coming quarter as we work through the weak economy."

Shares of C are on the rise in premarket trading, up nearly 7.5% about 45 minutes before the opening bell.

08:19 am Google (GOOG)

Google (GOOG 388.74) beat first quarter earnings expectations, but the company posted slower revenue growth as it faced tough economic headwinds.

For the first quarter, Google posted earnings of $5.16 per share, excluding items, $0.23 better than the First Call consensus of $4.93.

Revenues after deducting traffic acquisition costs (TAC) rose 10.1% year-over-year to $4.07 billion, in-line with the $4.08 billion consensus. Revenues actually dropped 3.6% sequentially, the first quarter-over-quarter drop in the company's history.

Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of its AdSense partners, increased approximately 17% over the first quarter of 2008 and increased approximately 3% over the fourth quarter of 2008.

Google also reined in its spending a bit in the quarter, as operating expenses, other than cost of revenues, were $1.52 billion in the first quarter, or 28% of revenues, compared to $1.65 billion in the fourth quarter of 2008, or 29% of revenues.

Shares of GOOG are currently down 0.6% in premarket trading.