Market Insider

Consumers Bail Out Stocks


Surprisingly positive retail sales data changed the course of stocks this morning as Wall Street once more put its faith in the resilience of the U.S. consumer. Stocks opened higher after futures pointed lower much of the morning.

Overstated? Perhaps. But there was one key number everyone was watching today and if it had disappointed then the weak sales results from from chain stores yesterday would have helped confirm a view that the consumer is holding back. The Commerce Department repported that retail sales for September increased 0.6% from August, double what economists expected.

Global Earnings Power
McDonald's revealed it will have better than expected profits in the third quarter, helped by robust foreign sales. This is another sign that there will be positives in what Wall Street fears will be a sea of negative earnings news this quarter. McDonald's said it sees operating profits of $0.89 for the third quarter. It said same store sales rose 6.9% for the quarter and 5.9% for September, better than expected. System wide sales were up 11.5% for the month and 11.8% for the quarter. At a constant currency rate, those numbers were much lower, showing a big currency benefit for McDonald's.

General Electric , viewed as an economic bellwether, said third quartet profit rose 13.8% to $5.54 billion or $0.54 per share. Profit from continuing operations of $0.50 was in line with expectations. GE earnings were boosted by demand for heavy equipment like jet engines and strength at the financial units. NBC universal (CNBC's parent) was up 9%. GE also said it continues to review revenue recognition procedures in connection with a previously announced SEC investigation.

CEO Jeffrey Immelt said GE's "outlook for the remainder of the year is strong." GE also reaffirmed fourth quarter guidance. Shares are indicated slightly lower. On the company's investor call, GE management said its sees solid growth "everywhere" and said orders seem to be accelerating in nearly all geographies.

When the Music Stops We'll continue to watch the dynamics in the Citigroup's executive suite. Two executives lost out in the game of musical chairs at Citigroup, but traders said the market yesterday was rife with rumors that it was CEO Chuck Prince who would lose his seat. In the latest in a round of credit-related whackings on Wall Street, Citigroup said Tom Maheras, who ran its capital market operations, is leaving as is Randy Barker, co head of fixed income.

Vikram Pandit is being promoted to run all of its institutional business. Pandit, formerly with Morgan Stanley, joined Citi when it bought his hedge fund earlier this year. Citi has disclosed that its losses from the credit turbulence amount to $3.3 billion, but traders say there are rumors that there could be more.

For now, Prince is still leading the dance at Citi. The company reports earnings Monday morning and has an investor call that day, several days ahead of its usual reporting date. We all remember when he confidently told the Financial Times in July, before the worst of the credit crisis let loose, that Citigroup was in great shape and the private equity party would end at some point. "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing," he told the FT.

We'll see what tune Wall Street plays for Citigroup. Deutsche bank put a sell on the company this morning.

Love at First Sight? or was it the work of match maker investor Carl Icahn? Oracle today offered to buy BEA Systems for $17 a share, a 25% premium to yesterday's closing price. Oracle said it wants the deal to be friendly. BEA, meanwhile, has been under siege by Icahn, who was building a stake of about 13% in the company and agitating for its sale to a bigger software maker. A dream come true for Icahn, if BEA plays along.

Around the World
China said its trade surplus surged 56% in September to $23.9 billion. The growth of imports slowed in September, rising 16%, compared to 20.!% in August. The new data puts China's surplus for the first nine months of the year at $185.7 billion, already surpassing last year's $177.47 billion record surplus for 2006.

Climate of Change
Vice President Al Gore won the Nobel peace prize, adding even more prestige to his work on climate change. He already has the Oscar for his film, "An Inconvenient Truth." Gore certainly can be credited with helping turn the focus of business and government to climate change. But will he run for president?

Questions?  Comments?