While the public is continuing to obsess over the generally better than expected earnings and the two-week, 100 point rise in the S&P 500 (11 percent), stock traders are nervously eyeing the $200 billion in new Treasury debt that is coming this week.
Half of this ($90 billion) is short-term debt that is fairly routine, but the rest will be a real test of demand-$109 billion in two-, five- and seven-year notes, and $6 billion in 20-year inflation-linked securities.
This could be serious competition for stocks in the middle of the best win streak since the March lows. The S&P is poised to end July with its 5th straight monthly gain; Dow seeks to finish the month with its best month since October 2002.
The most important economic data will be second-quarter GDP, which is expected to decline 1.5 percent, a notable improvement over the prior two quarters.
1) Tough times at Aetna, down 10 percent pre-open. HMOs have a double risk: they are leveraged to healthcare reform, but higher costs are also hurting them badly.
Aetna is a good example of those risks. They pre-announced disappointing earnings ($0.68 vs. prior guidance of $0.76-80) and lowered guidance for the full year, to $2.75-$2.90, well below the prior guidance of $3.55-$3.70.
The main problem: increased claims. The medical loss ratio (MLR, the cost of services provided compared to the revenues received) rose to 86.8 percent. UnitedHealth also reported a higher MLR last week, which they partly attributed to swine flu.
What will HMOs do to stem higher costs and increased claims? There's talk of raising prices, but that may result in membership losses. They may have no choice.
Humana down 4.5 percent pre-open. Wellpoint down 3 percent.
2) Shares of Corning fall 3 percent pre-open. Q2 earnings beat estimates (39 cents vs. 32 cents est.) after posting stronger than expected revenues. LCD glass volume picked up notably in the quarter allowing the company to raise its full-year glass market volume for the second time this year.
3) Telecom Verizon is down 1.5 percent in pre-market trading after Q2 results were inline with estimates. Although wireline revenues declined 5 percent, the Dow component's wireless revenues helped offset the weakness. Additionally, the telephone carrier's customer base continued to grow, adding 1.1 million subscribers in the quarter - inline with analyst forecasts.
4) Honeywell down about 2 percent after reporting earnings inline with estimates, but revenues fell short of the Street's expectations.
The diversified manufactured warned that full year sales will also disappoint, while expected 2009 earnings of $2.85 would be at the low end of its previously-issued forecast. CEO Dave Cote cautioned that conditions "remain challenging" and the company is "not planning for any recovery" this year.
5) Radio Shack is up 4 percent after earnings beat estimates as a 10.6 percent reduction in expenses offset sales declines. The retailer's top-line results missed expectations, however, as same-store sales fell 4 percent.
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