Trader Talk

Several Issues Weighing on Stocks

Several issues Thursday morning weighing on stocks:

1. CPI hotter than expected, making a third round of quantitative easing much more difficult.

2. Wall Street Journal article on federal regulators scrutinizing the operations of the U.S. arms of European banks.

3, Interbank lending in the euro zone appears to be slowing to a dribble.

4. The Austrians are asking for more collateral from the Greeks in exchange for supporting new emergency loans.

5. The Federal Reserve's Plosser and Fisher have been saying that Wall Street should not mistake that Fed language is aimed at stock support.

6. Morgan Stanley's Global Economics Team cut its global domestic growth forecast to 3.9 percent for 2011 (down from 4.2 percent), and 3.8 percent for 2012 (down from 4.5 percent).

Why the downgrade? Not just disappointing incoming data: Morgan blames it on "recent policy errors in the U.S. and Europe, plus the prospect of further fiscal tightening there in 2012."

The most widely quoted line undoubtedly will be that the U.S. and euro zone are "dangerously close to a recession," but few will likely read on: "recession is not our base case because: i) the corporate sector looks healthy; ii) household real incomes will be supported by lower headline inflation; and iii) we expect more action from central banks..."

Perhaps more importantly, the team notes that emerging markets, which generate 80 percent of global growth, is expected to decelerate this year to 6.4 percent (from a previous 7.8 percent forecast).


1. The World Gold Council has just released its Gold Demand Trends for the second quarter of 2011. Demand is still strong, but the way gold is being bought—and who is buying it—is changing. See my prior TraderTalk blog for more.

2. A couple of secondaries did price, from AvalonBay and Invesco.?

3. Limited Brands beat estimates by 2 cents on a big 9 percent jump in same-store sales thanks in part to greater full-priced selling. Following its strong first half, the women’s apparel retailer raises full-year guidance (to $2.35 a share to $2.50 a share, but below $2.47 a share consensus). However, although it boosts its August sales outlook, guidance of 17 cents a share to 22 cents a share for the current quarter falls mostly below the 22 cents a share the Street is expecting.

4. J.M. Smucker tops estimates ($1.12 a share vs. $1.09 a share consensus) despite a top-line miss. Although commodity costs rose, price increases and some cuts in other expenses helped mitigate those pressures. But higher prices also negatively impacted its volumes in the quarter (coffee volumes down 8 percent, other consumer foods volumes down 3 percent).

The foodmaker is hoping to reverse that trend since it announced plans last week to cut coffee prices with coffee costs now easing. Earnings guidance for the year was reaffirmed ($5.00 a share to $5.15 a share vs. $5.13 a share consensus).

5. Even though earnings beat estimates by a penny, Gamestop falls 5 percent on weaker-than-expected sales. Same-store sales dropped 9 percent as videogame hardware sales struggled and introductions of new videogames slowed from a year ago. The videogame retailer is cautiously optimistic in the second half, with more titles expected. Earnings are seen between 38 cents a share to 41 cents a share vs. 39 cents a share consensus in the current quarter as same-store sales are predicted to rise 2 percent to 4 percent.

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