Stocks are set to trade lower Thursday following disappointing news on the economic front and after earnings from Yahoo! (YHOO) and Genentech (DNA) were not as high as some investors had hoped. Forty-five minutes before the start of trading, index futures were pointing to a 60-point decline in the Dow Jones Industrial Average ($INDU) and a 17-point drop in the Nasdaq Composite Index ($COMPQ).
The employment situation continues to be a thorn in the side of bullish investors. Although many areas of the economy have begun to show improvement, the rate of unemployment has not. That trend continued Thursday after a report on weekly jobless claims showed a larger-than-expected increase. According to the Labor Department, weekly jobless claims rose by 5,000 to 439,000 in the week ended. Economists were expecting no change in jobless claims. Weekly jobless claims have been above the key 400,000 level for several months now and continues to cause concern—especially after last week’s June unemployment report was much worse than economist estimates. In other economic news scheduled for Thursday, June sales will be released throughout the early morning from individual retailers. The results could set the stage for next week’s key readings on retail sales. In addition, Federal Reserve Chairman Alan Greenspan will speak to a Senate committee at 10:00 a.m. ET. The topic will be the high cost of natural gas. Rising natural gas prices have been a persistent worry for manufacturers.
Shares of Yahoo! (YHOO) are set to move lower after the Internet media giant reported earnings after the close of trading Wednesday. The company said that net income in the second quarter more than doubled to 8 cents a share from 3 cents. Some were expecting Yahoo! to earn 9 cents, and the stock slid on the news. Meanwhile, shares of PepsiCo (PEP) were moving modestly higher overseas after the soft-drink maker said second-quarter profit rose 15% to $1.01 billion and earnings matched analyst estimates. Finally, Genentech (DNA) gave their latest results after the close of trading today. The company said it swung to a profit in the quarter thanks to higher sales of two key cancer drugs. However, the stock traded modestly lower following the news in after hours trading Thursday.
Shares of Motorola (MOT) were also moving lower after the Wall Street Journal reported that rival Nokia (NOK) is gaining market share in the US. Shares of chipmaker Micron Technology (MU) could also experience weakness on news that Texas Instruments (TXN) sold 24.7 million Micron shares.
General Electric (GE) reports earnings before the start of trading tomorrow. In addition, Friday’s Producer Price Index [PPI] and International Trade reports could grab the market’s attention. Overall, after the stock market’s recent ascent during the past few months, there is little margin for error from the economic and earnings data. Indeed, some market watchers now worry that certain sectors of the stock market are “priced for perfection”. If so, the result is likely to be some interesting and volatile trading, and an ideal environment for straddles, strangles, backspreads, or other options strategies that make money whether stocks move higher or lower.
Frederic Ruffy Senior Writer & Index Strategist Optionetics.com ~ Your Options Education Site
Be patient. The stocks will come to you at a buy point you feel comfortable with.
From Briefing.com: SWIR Sierra Wireless -- Small Cap Profile (7.75 +0.38) Sierra Wireless just broke out to a new 52-week high. The co makes wireless data communications equipment such as modems and OEM modules. Its equipment allows handheld computing devices, notebook computers, PDAs, vehicle-based systems etc. to access a wireless data communications network... The wireless equipment space has been moving up since AT&T said yesterday that it would move forward on its WiFi rollout... Analysts expect the co's 2003 EPS will rise to $0.13 (P/E 60x) vs a loss of $(0.35) last year, and expect the co to grow 2004 EPS by 69% to $0.22 (P/E 35x). Mkt cap: $127 mln, float: 9.8 mln shares, avg daily volume: 288k shares, short interest: 1%.... Novatel (NVTL 3.75) is a smaller competitor ($27 mln mkt cap) that's also been moving higher.
8:20AM Micron upgraded at UBS (MU) 14.40: -- Update -- UBS upgrades to Buy from Neutral based on the following factors: 1) the likelihood of continued strong pricing for 2H03, 2) probability of better supply-demand dynamics in 2H03 and throughout much of 2004, and 3) potential margin and earnings upside from the ramp of more efficient 110nm process technology. Raises target to $18 from $12.
8:06AM Rambus derivative suit dismissed by Delaware (RMBS) 18.39: Announces that the Court of Chancery of the State of Delaware has issued a stipulated order dismissing without prejudice the amended complaint in a consolidated derivative case against Rambus. The dismissed derivative case arose from allegations concerning Rambus' 1991 - 1995 attendance at a standard setting body called JEDEC. The plaintiffs in this case agreed to stipulate to dismissal without prejudice following rulings favoring Rambus from the Court of Appeals for the Federal Circuit.
8:03AM TXN sells 24.7 mln shares of stake in MU (TXN) 19.49: TXN sold 24.7 mln shares of its stake in MU, which provides the co with pre-tax gain in accordance with GAAP of $106 mln with the sale. This transaction will be recorded in other income in Texas Instruments Q3 results. In addition, the co will also recognize a reserved tax benefit of $162 mln in Q3, which is attributed to the realization of a tax loss carryback due to the sale.
8:03AM Yahoo! cut to Neutral at First Albany on valuation (YHOO) 35.29: The downgrade from Buy is based on valuation and a tepid upward guidance revision for FY03.
6:33AM European Summary : European indexes fell sharply on the open but have stabilized over the past few hours. Total (TOT), Europe's third-largest oil company, and L'Oreal are the latest companies to say the U.S. currency's decline is eating into sales and profit. On the positive side Infineon Technologies AG (IFX), Europe's second-biggest chipmaker was up after UBS raised its rating on the stock to Buy from Reduce. Also AstraZeneca Plc (AZN), Europe's second-biggest drugmaker was up close to 5% as the FDA panel voted 9 to 0 to recommend that the agency approve AstraZeneca's Crestor cholesterol medicine in doses of 5 milligrams to 40 milligrams.... Germany -1.06%, France -0.86%, UK -0.39%.
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