Which is the Street more worried about--declining stock prices, particularly for financials, or inflation? It's both, and this morning's action illustrates that concern.
It's been a roller coaster of a morning, up on Wells Fargo, down on consumer inflation higher than expected.
Futures rose at 8 am ET as Wells Fargo announced earnings better than expected, and they raised the dividend 10 percent. They noted that their Net Interest Margin (the difference between the interest on assets and the interest paid on liabilities like deposits) increase, offsetting higher charge-offs. Up 13 percent pre-open.
Then the CPI report comes in hotter than expected, and we give up much of our gains.
Still, financial stock prices are a big worry. How bad is it? Consider that, according to one trader I spoke with, Lehman has raised $12.1 billion in capital in the past 3 months, but now has a market cap of only $9.18 b.
Dollar weak again today. Freddie Macand Fannie Mae both up about 8 percent pre-open.
1) Another large merger: iron ore producer Cleveland Cliffs is buying coal producer Alpha Natural Resources for $10 b in cash and stock. It amounts to about $128 a share, about a 35 percent premium to Alpha’s closing price of $94.92. The combined company will be called Cliffs Natural Resources, and will be one of the largest U.S. mining companies.
This is the THIRD fairly large deal done at a substantial premium in the last week after Dow Chemical-Rohm and Haas and Ashland-Hercules.
2) Mortgage applications rose for a third consecutive week, with a 30-year fixed rate mortgage at 6.22 percent.
3) Abbott Labs($0.84) was 6 cents ahead of expectations, and is also raising its full year guidance.
4) As noted yesterday, healthcare now has a higher market cap than financials in the S&P 500, for the first time since 1992.
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