The name of the game in town last week was earnings, and it spelled a mixed bag for stocks.
Financial markets were closed on Monday in observance of Martin Luther King Day. Stocks reopened on Tuesday to choppy trading and strong volume. Late-afternoon buying pushed the Dow to its third consecutive record close, while the Nasdaq dipped slightly.
Inflationary worries took over on Wednesday after stronger-than-expected producer price index and industrial production reports, as well as Beige Book data indicating continued economic growth. Techs bore the brunt of the concerns, with the Nasdaq losing 18 points, and the broader market slipping only slightly.
On Thursday, amid continuing strong economic data, disappointing earnings results from tech bellwethers dragged the Nasdaq down more than 36 points, with the Dow and S&P 500 incurring only small losses. Stocks closed little changed on Friday, although the Nasdaq snapped its three-day losing streak, ending up more than eight points.
Economic data scheduled to be released this week includes leading indicators today, the State Street Investor Confidence Index tomorrow, existing home sales on Thursday, and durable goods and new home sales on Friday. President Bush also delivers his State of the Union address on Tuesday night.
Corporations releasing earnings include Bank of America, D.R. Horton, DuPont, EMC, Johnson & Johnson, Sun Microsystems, Tellabs, United Technologies, Wachovia, Xerox, and Yahoo! tomorrow, and Abbott, ConocoPhillips, General Dynamics, Novellus, Piper Jaffray, and Unisys on Wednesday. Thursday will bring reports from Amgen, Bristol-Myers Squibb, Dow Jones, Kimberly Clark, Lockheed Martin, Microsoft, Nokia, Northrop Grumman, Occidental Petroleum, St. Jude Medical, and Stryker. On Friday, we'll hear from Caterpillar, Halliburton, and Honeywell.
Stay market-tuned and Foolish!
Capital Markets Summary
| U.S. Equities |
1/19/07 Close |
Weekly Change (%) |
YTD Change (%) |
|---|---|---|---|
|
Dow |
12,565.53 |
0.0 |
0.8 |
|
Nasdaq |
2,451.31 |
(2.1) |
1.5 |
|
S&P |
1,430.50 |
0.0 |
0.9 |
Commodities
|
Price ($) |
Weekly Change (%) |
|
|---|---|---|
|
Crude oil |
51.89 |
(1.87) |
|
Gold |
635.80 |
1.24 |
Foolish Quiz
1. True or false: The Nasdaq's loss last week was the first for the index this year.
2. True or false: Shares of Motorola
3. Which Wall Street bank can claim bragging rights to a larger surge in fourth-quarter profit: JPMorgan Chase
4. Which tech's shares lost more ground last week: Apple
5. Which airline reported higher-altitude earnings: American or Continental?
6. Which company reported healthier earnings: Novartis
7. Which blue chip posted stronger earnings: General Electric or IBM?
8. Shareholders of which drugstore chain finished their shopping: CVS or Rite Aid?
9. True or false: Earnings results so far are pointing to another quarter of double-digit earnings growth.
10. True or false: Citigroup is folding up its red umbrella.
Answers
1. True. Although the Nasdaq was the only one of the big three indices to land in the red last week, its 1.5% return so far in 2007 still surpasses the 0.8% and 0.9% respective returns of the Dow and S&P 500.
2. False. On Friday, Motorola reported a 48% drop in net income and narrowing cell-phone margins. The company also forecast that 2007 sales may exceed expectations and announced a job reduction plan aimed at cutting 3,500 positions and saving the company about $400 million over the course of two years. Shares dialed up a 3% advance.
3. Neither. Both banks reported a stronger-than-expected 68% jump in fourth-quarter profit. However, shares of JPMorgan Chase climbed only 0.1% on Wednesday following its announcement before the bell, while shares of Merrill declined 1.2% after its report on Thursday, even though the company is raising its quarterly dividend by 40%.
4. Apple. Shares of Apple soured by declining 6.5% during a week in which the computer maker reported a 78% record first-quarter profit but forecast second-quarter sales below expectations. On Tuesday, Intel chipped in with a 39% decline in fourth-quarter earnings and forecast gross mrgin for the year below the prior year. Investors worried about the company's continuing pricing battle with Advanced Micro and sent shares down 5.9% for the week.
5. American. While both airlines reported their best year since 2000, AMR, the parent of American, reported on Wednesday its third consecutive profitable quarter and first profitable year since 2000, with 4.4% revenue growth. Shares still slipped 3.6% as crude advanced 2% that day. On Thursday, shares of Continental slipped 3.5% after the company reported a fourth-quarter loss narrowed by 40%.
6. UnitedHealth. Both companies reported earnings on Thursday, with health-care service provider UnitedHealth posting a 38% increase in fourth-quarter profits, while fourth-quarter profits at pharma Novartis rose 23%, below the expectations of some analysts. Shares of UnitedHealth nevertheless fell 2.7% as investors clamored for more data concerning the company's options-backdating matter, and shares of Novartis fell 2.4%.
7. GE. The bellwether conglomerate turned the lights on a doubling of net income and a forecast of continued growth when it reported earnings on Friday. The company also announced it would be restating its results from 2001 to 2005 and the first three quarters of 2006, which dimmed shares by 2.76%. Big Blue's fourth-quarter net income rose 11%, but nevertheless left some investors feeling blue, causing them to send shares into the red by 3.3% on Friday.
8. Rite Aid. On Thursday, Rite Aid shareholders approved the company's plan to purchase the Brooks and Eckerd drugstore chains from Jean Coutu Group for $2.6 million. Meanwhile, CVS shareholders continue to shop. Late Tuesday, CVS announced it would sweeten its bid for Caremark by offering a $2-per-share dividend to the mail-order pharmacy's shareholders once their $22 billion merger closes. Earlier that day, rival bidder ExpressScripts launched a tender offer for Caremark shares.
9. False. It's only the beginning of peak reporting season, but The Wall Street Journal reported Friday that Thomson Financial says the blended growth rate for S&P 500 companies that have already reported comes in at 9.1%. It's too soon to call how things will turn out, but the figure stands below the estimated 9.7% rate for the period.
10. True. What's in a name? Apparently to Citigroup, it's all about brand management. The "citi that never sleeps" is reportedly trying to arouse itself from slumber and fold its trademark red umbrella while shortening its name by dropping "group." In other news, the financial-services conglomerate reported a 26% decrease in fourth-quarter net income on Friday and shares rose 0.2%. Call it whatever you like, but you can't hide the increasing calls for dismantling the country's biggest bank.
Scoring
- 8-10 correct: Foolishly impressive.
- 6-7 correct: Almost Foolish.
- 1-5 correct: OK, but just barely.
- 0 correct: Really?! Keep reading the Fool, and watch your scores improve!
Microsoft and Intel are Motley Fool Inside Value picks. Yahoo! and United Health are Motley Fool Stock Advisor selections. Johnson & Johnson and Bank of America are Motley Fool Income Investor picks. Whatever your investing style, the Fool has a newsletter for you.
Fool contributor S.J. Caplan, a former vice president and assistant general counsel of Goldman Sachs and former vice president and derivative finance specialist at Lehman Brothers, does not own shares of the companies mentioned in this article. She serves as an arbitrator for the New York Stock Exchange and the NASD. The Fool has a disclosure policy.
