Thursday, June 24, 2010

Stock Today - Worries Set In

U.S. equity futures are slumping in tandem with investors' conviction this morning. The dour mood comes on the heels of yet another dovish FOMC meeting in which the fed funds rate was left unchanged at 0.00% to 0.25%. 

While no one was expecting a change in the rate, verbiage in the FOMC statement underscored increasing concerns over the strength of the economic recovery. Specifically, the Fed stated that financial conditions have become less supportive of growth, where before it had said they were "supportive". 

Fed watchers surmised that the Fed would make such a statement so as not to appear completely naive about the seriousness of a situation that has clearly caught the attention of global stock and bond markets. In other words, the Fed did its part not to repeat Jean Claude Trichet's mistake. 

In the Treasury market, the 2-year is at its lowest level in a year at 0.65%. The 10-year is holding at 3.066%.

Asian trading was volatile and mixed. The strength in the yen weighed on Japan, while mixed messages in China continues to add to uncertainty. The mining sector received a bit of good news after Julia Gillard was sworn in as Prime Minister of Australia. She is widely expected to soften the so-called ?super tax? on mining profits.
The euro turned modest gains into losses as fears over Greece persist. European markets are broadly lower today. Weighing on trading was poor industrial production figure for the eurozone in April, which came in at 0.9% against expectations well above 1%.

Futures have rebounded off their worst levels, however, following this morning?s economic data.

Initial claims came in at 457,000, just shy of the consensus estimate. While the prior was revised a few points higher, continuing claims fell to 4,548,000 from 4,593,000.

Also out premarket was May durable orders. The headline figures came in mixed, as orders fell 1.1% vs. the -1.3% estimate, but excluding transportation only rose 0.9% vs. the 1.3% estimate. However, nondefense capital goods ex. aircraft, a proxy for business spending, saw new orders up 2.1%, which offset a decline of 2.7% last month.

The earnings calendar picked up the pace since yesterday?s close. Dell (DELL) provided in-line FY11 guidance, expecting growth of 14-19% driven by an enterprise PC refresh cycle. A disappointing result hit shares of Bed Bath & Beyond (BBBY). 
This morning, ConAgra (CAG) reported a miss as well. McCormick (MKC) spiced it up a bit with a $0.04 upside beat on 5% revenue growth, raising full year estimates. Lennar (LEN) posted earnings of $0.21 despite a 8.7% y/y revenue decline. Gross margins improved to 20.6%, but new orders were down 10% and the cancellation rate came in at 17% -- up year-over-year and quarter-over-quarter. Deliveries declined by 8%. 

The government's expected financial regulations continue to take their toll on bank's profits. Wells Fargo (WFC),Goldman Sachs (GS) and Citigroup (C) have all lowered estimates for second quarter earnings for the banks this week. Banks' bottom line would take a hit if so-called "Volker Rule," which bars banks from proprietary trading and sponsoring hedge funds and private equity, goes into effect. The debate continues today in Washington.

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