Friday, June 22, 2012
Relief at the lower than expected downgrades of major banks by a
rating agency is expected to be a key factor in today's trading
action, as the data docket is otherwise on the thin side. In
headlines out of Europe this morning, German business confidence is
materially down, highlighting that the country is not immune from
all the negative cross-currents in its vicinity. Concerns about
global growth have taken center stage, causing the sharp sell-off
on Thursday, and are likely to replace today's temporary
bank-related positive momentum.
Moody's came through with its long-standing downgrade threat, by
lowering its ratings on more than a dozen global banks, including
five of the biggest U.S. banks. U.S. banks that suffered downgrades
of two notches each included
Morgan Stanley
(
MS
- from A2 to Baa1),
Goldman Sachs
(
GS
- from A1 to A3), Citi (C - from A3 to Baa2), and
J.P. Morgan
(
JPM
- from Aa3 to A2), while
Bank of America
(
BAC
) was lowered by one notch - from Baa1 to Baa2).
The downgrades will no doubt result in additional direct
expenses through additional collateral requirements and the need to
make termination payments. But they turned out to be less severe
than the market had been expecting. As such, we will likely see
bank stocks move up in relief that the news could have been much
worse. Some may even say that rating changes don't matter anymore,
but that is not entirely accurate - they do matter, particularly
for banks.
In corporate news,
Darden Restaurant
(
DRI
) came out with in-line earnings on modestly lower top-line
numbers. The operator of Oliver Garden and Red Lobster also
announced a 16% increase in quarterly dividend. We also got a
negative pre-announcement from
Ryder Systems
(
R
), the truck leading company, citing a lower demand environment. In
other news,
Monster Beverages
(
MNST
) joins the S&P 500, replacing
Sara Lee (
SLE
), after the market's close on June 28th. On that date, Sara Lee
will complete the spin-off of its international tea and coffee
business and will get renamed to
Hillshire Brands
(it will have a new ticker -
HSH
).
Sheraz Mian
Director of Research
BANK OF AMER CP (BAC): Free Stock Analysis
Report
DARDEN RESTRNT (DRI): Free Stock Analysis
Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
Report
MONSTER BEVERAG (MNST): Free Stock Analysis
Report
MORGAN STANLEY (MS): Free Stock Analysis Report
RYDER SYS (R): Free Stock Analysis Report
SARA LEE (SLE): Free Stock Analysis Report
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