Tuesday, December 2, 2008

Weak Earnings, Economic Data Haunt Market

Although equity futures are higher in pre-market trading, most of the earnings releases this morning are marginal, at best.  Yesterday was a brutal day for the market, with all indices down sharply.  The day began with China reporting a steep decline in manufacturing and ended with Bernanke admitting he was ready to initiate Japanese-style monetary policy.  As a quick aside, is anyone else perplexed by the Fed's announcement to purchase long term treasuries during a period when it needs to be issuing all kinds of treasuries to finance these purchases?  I'm not an economist, but perhaps someone can explain how this makes sense.  Why not purchase corporate debt and fund it with treasuries?  Aren't widening spreads and risk aversion the real problem?  But I digress.  Back to the headlines:   
  • Sears swung to a larger than expected loss of $146 million.  Revenue declined 7.8% to $10.7 billion.  The company will close more stores and continue buying back stock. Great idea!  Because all of that stock that Sears paid $135 for last year in its buyback program has worked out really well for them.
  • Staples third-quarter profit fell 43% on costs to acquire Corporate Express.  Revenue rose 34% to $6.95 billion, but declined excluding the acquisition.
  • GE announced that profits at its GE Capital finance unit will decline to $8 billion this year, and $5 billion in 2009, lower than previous guidance.  Profit excluding charges at GE Capital will be around $9 billion, as forecast.  The company plans to keep the $1.24 dividend in 2009 and protect its AAA credit rating.  It seems highly unlikely to me that it can do both and I suspect that the dividend will have to be cut at some point down the line.
  • Beazer Homes posted yet another loss and a sharp decline in revenues.  The company wrote down deferred tax assets by $398.6 million, indicating that it had no plans to ever make money again.  The builder reported a net loss of $473.9 million or $12.29 a share.  Revenue decreased 35% to $712.6 million.
With news like this, it seems hard to imagine that the indexes can muster more than a anemic rally.  Although, in a crazy volatile market such as the one we're stuck with, anything is possible.

1 comment:

MyInvestorsPlace said...

THE dollar came under intense pressure and oil prices soared as foreign exchange and commodity markets suffered from a bout of extreme nervousness brought on by a combination of rumour and hard economic data.

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