MORNING WATCH, Apr. 20
By Frederic Ruffy, Optionetics.com
4/20/2005 6:00 AM EST
Stock index futures fell Wednesday morning after a report on consumer prices came in much stronger than expected and the news renewed concerns about inflation. Nevertheless, stocks are seen opening higher on optimism about corporate earnings. Technology stocks might show strength following solid earnings reports from Intel (INTC) and Yahoo (YHOO).
Approximately, thirty minutes before the opening bell, stock index futures suggested that the Dow Jones Industrial Average ($INDU) might gain 30 or 40 points in the early trading, while the tech-heavy Nasdaq ($COMPQ) could bounce ten to fifteen points higher.
Consumer prices rose faster than expected during the month of March. According to the latest data from the Labor Department, the Consumer Price Index [CPI] rose at a brisk .6% pace last month. Economists were looking for a rise of .5%. Moreover, the core-CPI, which excludes food and energy, rose .4%, compared to expectations for a .2% gain.
The CPI report sparked concerns about rising inflation, which might put some investors on edge that the Federal Reserve will become more aggressive with interest rate hikes. Stock index futures, which were in positive territory ahead of the CPI report, fell into the red following the news.
Concerns about inflation and interest rates might be offset, however, by solid earnings reports from corporate America. Indeed, stock index futures quickly recovered shortly after the CPI numbers were released.
Shares of Intel are set to trade higher after the world’s largest semiconductor company reported profits after the close of trading yesterday that topped analyst estimates. Intel posted earnings per share of 34 cents on sales of $9.43 billion, compared to expectations for 31 cents on $9.3 billion.
Internet stocks might head higher after Yahoo topped estimates. The company said profits rose to 14 cents a share, and three cents better than expectations. Shares of Yahoo gained $2.00 to $35.22 and Google (GOOG) rallied $10.00 to $201.40 on the news. Several Dow components are also out with strong earnings this morning. JP Morgan (JPM), United Technology (UTX), and Altria (MO) all posted profits that topped analyst estimates.
Oil prices might also affect trading today. Crude was up for the third day and trading at $52.85. Prices might show some volatility after oil inventory data is released shortly after the opening bell. The Federal Reserve’s Beige Book, which offers a qualitative look at economic conditions, might also garner some attention. The report is due out at 2:00 a.m. ET.
Overall, the earnings news during the past few days has been enough to offset recent worries about energy prices, inflation, and the economy. In contrast to last week, when stocks tumbled and the Dow fell 427 points in just three days, the market has been holding steady. Nevertheless, some investors worry that the earnings news reflects past information, while recent data on retail sales, housing, and employment indicate that the economy is slowing. Meanwhile, higher inflation data is likely to keep rates moving higher while rising gasoline prices might continue to affect consumer spending. If so, the economy is likely to continue slowing and that in turn will have a negative impact on corporate profits going forward.
Frederic Ruffy
Senior Writer
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