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Opening View: DJIA Set to Drop as Euro-Zone Bond Yields Soar

By: Schaeffer's Investment Research
Posted: 11/16/2011 8:20:00 AM
Referenced Stocks: AMAT;ANF;DELL;HOTT;TGT

U.S. stocks are set to erase Tuesday's modest gains , as the fiscal crisis in Europe once again takes center stage. Most notably, concerns about contagion are weighing on Wall Street ahead of the bell, after the Bank of England warned that the U.K. is on the verge of economic contraction due to the broader euro-zone debt drama, and after Bank of Japan Governor Masaaki Shirakawa said Europe's issues have been felt as far as Japan. Further reflecting those fears were the yields of even triple-A government bonds, with notes from France, Austria, and the Netherlands rising in tandem with Italian and Spanish bonds . On the home front, meanwhile, investors are digesting the latest earnings from Dell ( DELL ) and Target ( TGT ), the latter of which kicked off a session peppered with quarterly reports from the retail sector. Against this backdrop, the Dow Jones Industrial Average (DJIA) could find itself testing the waters in the 12,000 region, while the S&P 500 Index (SPX) is bracing for an 11-point dip out of the gate.

Dow, S&P and Nasdaq futures

In earnings news, Dell (DELL - 15.63) said its third-quarter profit grew 8.6% to $893 million, or 49 cents per share, from $822 million, or 42 cents per share, in the same period last year. Excluding items, earnings increased to 54 cents from 45 cents per share. Revenue was essentially flat at $15.37 billion. The Texas-based tech company's results were mixed, as Wall Street predicted adjusted earnings of 47 cents per share on $15.65 billion in revenue. For fiscal 2012, DELL believes its revenue will arrive at the lower end of its growth forecast of 1% to 5%, thanks to an industry-wide hard-drive shortage. At last check, DELL is headed 2.4% lower.

Meanwhile, Target (TGT - 53.18) reported third-quarter earnings of $555 million, or 82 cents per share, up from the $535 million, or 74 cents per share, earned a year ago. Excluding items, the retailer logged a per-share profit of 87 cents. Total revenue for the quarter jumped 3.7% to $16.4 billion. Analysts, on average, were projecting third-quarter earnings of 74 cents per share on revenue of $16.28 billion. Looking forward, TGT forecast adjusted fourth-quarter earnings of $1.43 to $1.53 per share, encompassing Wall Street's consensus estimate for current-quarter earnings of $1.47 per share. In pre-market trading, TGT is pointed 2.5% higher.

Elsewhere, Agilent Technologies (A - 38.25) reported a fiscal fourth-quarter profit of $289 million, or 82 cents per share, down 1% from $292 million, or 83 cents per share, in the year-ago period. Excluding items, A earned 84 cents per share, up from 65 cents per share in the previous year. Meanwhile, revenue rose by 9.6% to $1.73 billion. Analysts, on average, were expecting an adjusted profit of 81 cents per share on revenue of $1.75 billion. Looking ahead, the company is predicting an adjusted fiscal first-quarter profit of 67 cents to 69 cents per share, with revenue ranging between $1.65 billion and $1.67 billion. Analysts are expecting a first-quarter profit of 70 cents per share on revenue of $1.65 billion. For fiscal 2012, A is forecasting earnings of $3.00 to $3.35 per share, excluding items, on revenue of $6.85 billion to $7.15 billion, which is roughly in line with the consensus estimate for a profit of $3.14 per share on revenue of $6.97 billion. At last look, A is bracing for a 2% drop.

Finally, Bob Evans Farms, Inc. (BOBE - 33.70) reported fiscal second-quarter earnings after the bell sounded last night. BOBE recorded a profit of $12.7 million, or 42 cents per share, up 64% from last year's profit of $7.8 million, or 26 cents per share. Excluding items, earnings arrived at $23.4 million, or 47 cents per share. Revenue, on the other hand, decreased 2.4% to $407.2 million. The results fell well below analyst expectations for a per-share profit of 53 cents on sales of $411.5 million. In spite of a revenue dip and continued cost and sales challenges, BOBE maintained its fiscal 2012 outlook for a profit of $2.36 to $2.44 per share.

Earnings Preview

Today's earnings docket will also feature reports from Abercrombie & Fitch ( ANF ), Applied Materials ( AMAT ), Hot Topic ( HOTT ), NetApp (NTAP), NetEase.com (NTES), PetSmart (PETM), and Tyco International (TYC). Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

The consumer price index (CPI), core CPI, and NAHB housing market index are on today's docket, as well as the latest stats on industrial production and capacity utilization. Thursday brings us the regularly scheduled weekly report on jobless claims, the Philadelphia Fed manufacturing index, and housing starts. The economic calendar concludes on Friday with the Conference Board's index of leading indicators.

Market Statistics

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 876,327 call contracts traded on Tuesday, compared to 617,732 put contracts. The resultant single-session put/call ratio arrived at 0.70, while the 21-day moving average was 0.69.

NYSE and Nasdaq summary

Volatility indices

Overseas Trading

Stocks in Asia slipped today, pressured by pervasive fears about Europe's sovereign debt crisis. With bond yields on the rise in Italy, Spain, and even France, banking issues helped lead the regional decline -- particularly after the International Monetary Fund (IMF) warned of potential systemic risks within China's financial system. Meanwhile, the yen continued to gain ground against the downtrodden euro, which kept major Japanese exporters, such as Sony, firmly in the red. By the close, China's Shanghai Composite fell 2.5%, Hong Kong's Hang Seng dropped 2%, South Korea's Kospi gave up 1.6%, and Japan's Nikkei lost 0.9%.

The major European indexes are mixed at midday, after Bank of England Governor Mervyn King and European Commission President Jose Manuel Barroso both offered some gloomy commentary regarding the dire debt situation. However, cooling euro-zone yields have helped equities climb out of the basement, with traders hopeful that the European Central Bank (ECB) is scooping up bonds. At last check, the French CAC 40 is up 0.1%, London's FTSE 100 has shed 0.7%, and the German DAX is off 0.9%.

Overseas markets

Currencies and Commodities

The greenback is on the rise this morning, with the U.S. dollar up 0.4%. On the other hand, crude futures have pulled back from multi-month highs, with the front-month contract down 0.4% at $99.04 per barrel. Finally, gold futures are also in the red, with the malleable metal last seen 0.3% lower at $1,777.60 an ounce.

Currencies and commodities

Unusual Put and Call Activity:

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Unusual options activity - puts

Unusual options activity - calls

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