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Trader Talk with Bob Pisani

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  Friday, 25 Jul 2008 | 9:30 AM ET

Financials: Can They Get Back Their Momentum?

Posted By: Bob Pisani

Bob is out today. This post is from his producer, Robert Hum, who is helping to cover the markets in Bob's absence.

Futures point towards a fairly flat open this morning, despite a much stronger durable goods number. After yesterday’s drop, the markets lost all of their gains for the week, as the Dow is now down 1.3% this week, heading into Friday’s trading. Continue to keep an eye on the financials today, as we wait to see more direction from them.

Can they regain the momentum that they had earlier in the week or will they instead continue to show signs that they are perhaps overbought? Also in focus later this morning are the home builders. Look to see if there’s any reaction to the New Home Sales number that is released at 10 am ET. This follows their dismal performance yesterday – the S&P Homebuilding Index had its worst day ever, falling 10%.

Elsewhere:

Crocsdramatically slashed its Q2 and full-year revenue and earnings forecasts after the close yesterday. The company has seen a “challenging” environment in the U.S. and overseas this quarter. The CEO noted that retailers were “extremely cautious with their level of reorders” and preferred maintaining lower inventories of their products. Stock is down nearly 50% in pre-market trading.

Burlington Northern Santa Fe beat estimates, but only after it had previously cut its guidance for the quarter last month. The company was impacted by Midwest storm flooding, a weaker economy, and higher fuel prices.

Eastman Chemical results were inline with expectations. Revenue growth was a result of the higher prices the company charged to offset the increase in raw materials and energy costs. The company continues to see these cost pressures into the third quarter, as its guidance is below estimates.

American Axleposted at large loss of $12.49 per share (including items). It was hurt by the UAW strike, but is also feeling the ripple effects affecting the broader auto industry. It noted that weaker truck and SUV demand dramatically affected its production volumes for those vehicles. In fact, production volume for GM and Chrysler SUV and light trucks was down 51% from a year ago.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 24 Jul 2008 | 4:02 PM ET

Why The Market Was Weak Today

Posted By: Bob Pisani

There are several reasons the market was weak today:

1) The brief rally in financials has ended, as many traders are betting that the bear market is not over, this means that taking profits or placing additional short bets on potentially weak players is a prudent play;

2) Major consumer discretionary companies like Ford (autos), Starwood(hotels), Ryland , and Chipotle (restaurants) had negative earnings and/or negative commentary about the second half, so most stocks in these sectors are weak today;

3) Even though oil is up modestly today, most energy stocks remain down. Energy stocks have dropped 15 percent this month; Birinyi noted this afternoon that "the sector was the most oversold it has been since the market bottom on 7/23/02."

4) Economic conditions continue to be soft in Japan and Europe, so big stocks that figure in the global economy (international banks, and materials like steel and metals) are also trading down

Bottom line: when you have consumer discretionary, financials, energy and materials all weak, it's little wonder the markets are down.


Questions? Comments? tradertalk@cnbc.com

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  Thursday, 24 Jul 2008 | 11:41 AM ET

Market Feeling Consumer Spending Slowdown

Posted By: Bob Pisani

This is not a good day for consumer discretionary stocks. From housing to restaurants to hotels to autos, companies are reporting notably slower sales, and they are not anticipating much of a rebound in the second half of the year.

Consider:

In hotels, Starwoodlowers guidance, and notes that timeshare sales declined 25 percent in the second quarter, with average prices down 19 percent.

In builders, Ryland reported a large loss, with large writedowns continuing for land and inventory,while existing home sales in June were just dismal--the lowest level going back to January 1999. The inventory level rose to 11.1 months, near its highest level since 1985.

In autos, autos, Fordreported a large loss , North American sales were worse than expected. One analyst noted that Ford burned through $3.1 billion in the last quarter, with $26.6 b left.

In restaurants, Chipotlemissed earnings and estimates and noted that sales were slowing in June and July.


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  Thursday, 24 Jul 2008 | 9:36 AM ET

Fannie Mae Gets Boost -- Mixed Results Elsewhere

Posted By: Bob Pisani

Fannie Mae up 6 percent pre-open as the House overwhelmingly passed the housing bill. It will get new regulators for Fannie and Freddie, and authorizes the federal government to potentially invest billions in the two companies.

A couple consumer companies indicated slower sales for the second half of the year:

1) Hotel giant Starwood reported earnings above expectations, but guidance for the second half of the year is below expectations, due largely to expected shortfalls in timeshares (timeshare sales declined 25 percent in the second quarter, with average prices down 19 percent).

2) Chipotle Mexican Grill was a bit light, and I'll leave it to Raymond James to describe why the stock is trading down 14 percent pre-open: "Management indicated that comps decelerated as the quarter progressed and have slowed further in July on the first visible signs that its sales are being impacted by macro headwinds. Management also increased its caution about food inflation through next year -the combination of slowing sales and rising cost pressures should bring 2009 Street estimates down sharply from the $3.40 level."

Elsewhere:

1) MMM reported earnings just a tad below expectations, but here's the remarkable stat: they made $1.33 in the second quarter, but they made $1.25 for the same period last year. How many companies INCREASED their earnings from the same period last year. How did they do it? International sales now account for two-thirds of MMM's total revenues. Latin America up 32 percent, Europe 18 percent, Canada 14 percent, Asia Pacific up only 1 percent. They reaffirmed their full year guidance.

2) Speaking of rising profits...Dow Chemical's $14.89 b top line was up 23 percent, thanks to double-digit price increases. But raw material and energy costs increased 42 percent; that's why earnings at $0.81 was below expectations of $0.85. CEO Andrew Liveris said he believed the U.S. economy would continue to weaken for the rest of 2008, and the outlook for the global economy was uncertain.

3) Things are not getting better for homebuilder Ryland . They reported earnings of a loss of $5.70, well below the expectations of a loss of $0.79, due largely to impairment charges. In this case, the value of the land and inventory dropped--a lot. How much? According to Raymond James, "the land and inventory charges of $180 million are more than 6x the amount charged off in 1Q:08 and Ryland's second largest quarterly write-off to date."

4) In Europe, Credit Suisse earnings stronger than expected ($1.17 b) --in fact about double what was expected. Up 6 percent pre-open.

Also in Europe, GM and Ford aren't the only ones having problems: Daimler issued a profit warning, citing higher raw material costs.


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 23 Jul 2008 | 4:06 PM ET

Reminders Of Just How Bad Things Are

Posted By: Bob Pisani

We had a couple reminders midday about how poor economic conditions are:

1) the Fed Beige Book describes the economy as having 'slowed;"

2) JD Power cut their outlook for auto sales, projecting a 12 percent dip in sales for 2008 compared to 2007 (to 14.2 million cars and trucks), which would be the lowest level since 1993

Still, a number of factors helped stocks today:

1) housing bill near passage in the House of Representatives
2) commodities decline
3) dollar up
4) bonds downs
5) earnings affirmations from companies like Pfizerand Whirlpool
6) FDIC Chairperson Sheila Bair saying she did not see another IndyMac-size bank failure

However, there is considerable debate about the financial rally that began last week. There are bulls and bears here, but here is the consensus:

--a floor is in, but financial stocks are now overbought
--the 6-day rally is running out of steam
--fundamentals for financials are still poor, sideways trading is likely for the next several months

Home builder Pulte reports after the bell; MMM, Ford and Potash report tomorrow before the bell.

Update: I noted that there was considerable debate today about where financials might be going. Most agree that they are overbought short term. After the close, here’s what Birinyi had to say:

“Six days ago we highlighted the fact that the financial sector was the most oversold since the Crash of 1987 (the second most oversold ever). While the sector is technically not overbought, at just .65% above its 50-day average, (overbought would require a reading of approximately +15%) we would caution that the sector has just had its greatest six trading day change ever at +30.79%.”


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 23 Jul 2008 | 11:34 AM ET

Rally: We're At A Very Important Point

Posted By: Bob Pisani

A number of trends are providing modest boost to stocks this morning: congressional legislation, a continuing modest dollar rally, commodities like oil and metals continuing to decline, and bonds down, earnings reaffirmations.

We are at a very important point in the rally, the point where bulls start questioning whether the bear market is over or not. Short-term it can be argued that we are overbought, certainly in financials. But overbought in a bear market is different than overbought in a bull market.

In a bull market, as Lowry has noted, overbought readings are considered a sign of strength. However, in a bear market overbought readings are clearly a signal to take profits.

So which is it? If the bear market is over, then these signs of strength are good. If the bear market continues, this is a classic bull trap that will end badly for those who have gotten in during the last week.

The bears can argue that while we did have strong volume and a reversal last week, we had no 90 percent upside days, i.e. days where the ratio of upside to downside volume exceeds 90 percent. This is the classic sign of a surge in investor demand and often looked for at market bottoms.

The lack of a 90 percent upside day is a problem for bulls.

Bulls argue that the selling climax in the XLF, the ETF that is the financials index, was sufficient for a bottom in financials.

The S&P is now sitting at the closing low levels for March (1277 or so).


Questions? Comments? tradertalk@cnbc.com

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  Wednesday, 23 Jul 2008 | 9:15 AM ET

Key Earnings Phrase: Reaffirms Full Year Guidance

Posted By: Bob Pisani

Several factors helping stocks this morning: oil continues to drop, lots of legislation moving through Congress, and several important companies reaffirming full year earnings.

After the close, Washington Mutual reported earnings notably below expectations. The bad news is that there is more credit deterioration, which is creating more provisions for losses. The good news is the company felt they had "sufficient capital", with $40 b of available liquidity at the end of the quarter, and that 2008 would be the peak year of loss provisioning.

Elsewhere, earnings are coming in fast, and what you want to look for here is the frequent recurrence of the word, "reaffirms full year guidance."

1) Two slightly different results from two aerospace giants. Boeing was a bit light on top and bottom line in what one analyst called a "messy" quarter, though they did reaffirm their full year guidance for 2008 and 2009. They had previously announced they would take a charge for a delayed military plane contract. They cited strong global demand for their products and services.

General Dynamicsdid beat on top and bottom line, and guided higher for the full year, $6.00-$6.05 from $5.55-$5.65.

2) Whirlpool beat on top and bottom line and reaffirmed full year guidance (they had lowered guidance in April). Still, this was impressive, given that they had significantly higher material and oil costs. North American sales declined 4 percent from the prior year. But sales in Europe were up 17 percent, much of it due to currency gains. Up 8 percent pre-open.

3) Pfizerbeat by a penny and beat on the topline , they too reaffirmed full year guidance.

4) McDonald'sbeat, and international sales continue strong . U.S. comp sales were up 3.4 percent, Europe up 7.4 percent, Asia/Pacific, Middle East and Africa up 5.5 percent.

5) A bit of a surprise from wholesaler Costco. They pre-announced earnings "well below" consensus of $1.00, due largely to higher inflation costs . They particularly noted the pressure to hold prices, despite cost increases. This is creating pressure on rival BJ's Wholesale, which is down 9 percent pre-open.

6) Finally, watch the housing bill. The House is expected to vote on it today, and the President has dropped his opposition to it. Fannie and Freddie trading up, as they would be beneficiaries.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 22 Jul 2008 | 4:36 PM ET

Financials Rally A "Violent" One

Posted By: Bob Pisani

A wild trading day in financials. How confusing was it? After the close, Washington Mutual reported what initially looked like disappointing earnings (the stock traded down), then when everyone looked a little more carefully, noting the company said it had “sufficient capital”, with $40 billion of available liquidity at the end of the quarter, and that 2008 would be the peak year of provisioning, the stock turned around and is now trading up.

For the trading day, there was two separate rallies, one early in the morning on oil dropping to 6 week lows, a dollar rally, and a move up in financials, was followed late in the day by another broad rally that lifted stocks to their highs of the day.

Banks had held their gains since mid-morning, when Wachovia Bankturned around as the CEO said he was not going to issue more common stock as a capital raising plan (no word on preferred).

Financials gained a bit of steam late in the day as influential bank analyst Mike Mayo at Deutsche Bank put out a note where he seemed to get a little less bearish: "We now would reduce the degree of our underweighting on the group," he said.

The reason:

1) no new capital issuance for most banks in Q2

2) margins improved more than expected

3) problems have not spread as much as feared

Still, the rally in financials was a violent one: the Bank Index, for example, moved in a nearly 15 percent trading range from its low to its high.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 22 Jul 2008 | 11:24 AM ET

Repeat Of Financials Selloff Seems In Doubt

Posted By: Bob Pisani

Stocks are rallying, as oil has come down on a growing sense that Tropical Storm Dolly will miss the Gulf oil refineries.

Financials are also moving up; for all the disappointments associated with

Wachovia

missing big and cutting dividends, there is a sense that the downside might be limited here, a sense that financials are in buy the dip mode.

There's no doubt last week's trifecta of financial news (bank earnings above expectations, new limitations on naked short selling for select financials, and the Fed/Treasury helping out Fannie/Freddie) was the major factor in this new line of thinking. So today, for example, we are seeing considerable buyers on weakness in financials.

Will we see the kind of selloff in financials we saw in June? Not clear, but some are again betting we will not.


Questions? Comments? tradertalk@cnbc.com

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  Tuesday, 22 Jul 2008 | 9:12 AM ET

Earnings: Glass Half Empty Or Half Full?

Posted By: Bob Pisani

A very mixed earnings picture in the last twelve hours. Yes, AmEx, Apple, and Merck and Texas Instruments disappointed. But DuPont, Suntrust and Packaging Corp. were better than expected. But UPS hit the estimate, and Caterpillar's strong report helped turn the futures up at 7:30 am ET, though we are still down.

Banks:
Wachovia,as feared, slashed its quarterly dividend 86 percent , however there was no capital raise. The Golden West deal has turned out to be a mess, as there are large losses there. Down 9 percent. They weren't the only ones cutting the dividend. Regions Financial cut their dividend, to $0.10 from $0.38. They reported earnings below expectations, $0.39 vs $0.43 analyst estimate.

KeyCorp reported a loss, though not as great as expected. They had previously cut their dividend.

Bottom line: as expected, the regional banks are continuing to increase provisions for loan losses.

Elsewhere:
1) With the disappointment from AmEx, expect the rest of the credit card companies--Visa, Discovery, Capital One, Mastercard--to trade down, at least at the open.

2) Not great news for the communications sector this morning, as Texas Instruments disappointing results and guidance below expectations, combined with Vodaphone cutting its revenue outlook, is weighing on the whole sector. Vodaphone and TI down 13 percent pre-open, Erickson trading down.

3) Caterpillarbeat on top and bottom line , and raised full year guidance. Again, the mix of sales is continuing to move overseas: sales outside North America increased 30 percent, while sales in North America increased 7 percent. The 2008 guidance reflects "considerable strength in sales to the developing world."

4) DuPontbeat ontop and bottom line, and raised their full year guidance slightly, though the gain seems to be coming from the beat in the second quarter. How much are higher costs hurting them? Local selling prices increased 7 percent, but energy, raw material and freight costs increased 15 percent.

5) Our parent company GE announcing an $8 billion joint venture with Abu Dhabi investing agency Mubadala Investment; says they see becoming one of GE's 10 biggest shareholders; stock trading up pre-open. CEO Jeff Immelt will be on "The Call" at 11 am ET.

6) UPScame in in-line, but guidance had already been lowered . The new guidance for the full year is $3.50-$3.70, but they had given $3.90-$4.20 previously.

7) Friedman Billings Ramsey making an interesting call on Microsoft,noting that the current buyback is expiring, and urging the company to consider a leveraged buyout, which would take advantage of its $23 billion cash balance and be nicely accretive.


Questions? Comments? tradertalk@cnbc.com

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About Trader Talk with Bob Pisani

  • Direct from the floor of the NYSE, Trader Talk with Bob Pisani provides a dynamic look at the reasons for the day’s actions on Wall Street. If you want to go beyond the latest numbers— Bob will tell you why the market does what it does and what it means for the next day’s trading.

 

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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