Back to main

Opening View: Stocks Surrender Wednesday's Gains as Street Awaits Jobless Claims

Posted
8/4/2011 8:01:00 AM
By: Schaeffer's Investment Research
Referenced Stocks:AIG;CBOE;DF;GM;PCLN

Investors seem unimpressed by Wednesday's eleventh-hour victory, which resulted in minor gains by all three major indexes. While an upbeat ADP payrolls report may have helped the bulls' cause on Wednesday, traders don't seem too hopeful ahead of today's report on jobless claims. Meanwhile, despite being in the midst of a generally strong earnings season, these corporate reports have also done little to inspire optimism. In other words, with larger economic and political issues weighing on the Street, the bulls seem to be searching for greater assurance than can be found from corporate earnings. That being said, ahead of today's jobs data, futures on the Dow Jones Industrial Average (DJIA ) are 90 points lower, while the S&P 500 Index (SPX ) is hovering nearly 11 points below fair value.

Dow, S&P and Nasdaq futures

Turning to this morning's breaking news, Kraft Foods Inc. (KFT - 34.30) will be splitting into two separate entities, the blue chip announced this morning. Due to the increased global demand for snack foods, KFT will be dividing its brand into two, publicly traded companies: one focused solely on snack foods, and one geared toward grocery and beverages. As Chairwoman and CEO Irene Rosenfeld explained, "The global snacks business has tremendous opportunities for growth as consumer demand for snacks increases around the world. The North American grocery business has a remarkable set of iconic brands, industry-leading margins and the clear ability to generate significant cash flow."

The blue chip also reported earnings, boasting a second-quarter profit of $976 million, or 55 cents per share, up 4% from $937 million, or 53 cents per share, a year earlier. Revenue grew 13% to $13.88 billion, and operating earnings arrived at 62 cents per share. Analysts had expected KFT to report a slimmer profit of 58 cents a share on revenue of $13.08 billion. KFT is up 4.7% ahead of the open.

GT Solar (SOLR - 13.06) banked a fiscal first-quarter profit of $52.1 million, or 41 cents per share, more than tripling its year-ago earnings of $16.5 million, or 11 cents per share. Revenue surged 71% to $231.1 million, while gross margin expanded to 49.1% from 34.0%. Thanks to a flood of new orders, SOLR's backlog ballooned to $2.3 billion at the end of the quarter. The results crushed consensus estimates, which called for a profit of 31 cents per share on $226 million in revenue. Separately, investors should note that SOLR will begin trading under the name GT Advanced Technologies effective next Monday, Aug. 8, and its Nasdaq ticker symbol will change to GTAT on that same date.

MEMC Electronic Materials (MEMC - 6.99) earned a second-quarter profit of $47.3 million, or 21 cents per share, representing quite an improvement over its year-ago profit of $13.8 million, or 6 cents per share. On an adjusted basis, WFR raked in earnings of 29 cents per share, while revenue jumped 66% to $745.6 million. Analysts, by contrast, expected earnings of just 5 cents per share on $684 million in revenue. CEO Ahmad Chatila asserted that "300mm wafer output is now at pre-earthquake levels," but WFR was still forced to lower its full-year earnings forecast to a range between 80 cents and $1 per share. The company attributed the lowered guidance to "the downturn in the solar upstream supply chain and the softening of semiconductor demand." Previously, WFR had predicted fiscal 2011 earnings of $1 to $1.30 per share.

Earnings Preview

Today's earnings docket will feature reports from American International Group ( AIG ), General Motors ( GM ), Dean Foods ( DF ), CBOE Holdings ( CBOE ), Priceline.com ( PCLN ), Southwest Airlines (LUV), Alpha Natural Resources (ANR), DirecTV (DTV), and A123 Systems (AONE). Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

Today's lone economic report is the regularly scheduled update on weekly jobless claims. On Friday, all eyes will be on the Labor Department's nonfarm payrolls report for July. Later in the session, the Fed weighs in on June's consumer credit trends.

Market Statistics

Equity option activity on the Chicago Board Options Exchange ( CBOE ) saw 1,149,196 call contracts traded on Wednesday, compared to 907,911 put contracts. The resultant single-session put/call ratio docked at 0.79, while the 21-day moving average was 0.67.

NYSE and Nasdaq summary

Volatility indices

The summer 2011 issue of SENTIMENT magazine is now available here.

Overseas Trading

Japanese exporters finally caught a break today, after finance officials in Tokyo intervened to tamp down the soaring yen. The government sold one trillion yen today, shortly before the Bank of Japan upped its commitment to buying stocks and bonds in a monetary-easing effort. As a result, companies with heavy international exposure, such as Toyota, helped pull the Nikkei to a positive finish. Likewise, stocks on the Chinese mainland edged higher, recovering from recently steep losses -- but other regional markets slipped, weighed down by lingering concerns over the still-fragile state of the global economy. By the close, Japan's Nikkei and the Shanghai Composite each added 0.2%, Hong Kong's Hang Seng lost 0.5%, and South Korea's Kospi dropped 2.3%.

European stocks are trading south of breakeven at midday, after both the Bank of England and the European Central Bank opted to stand pat on interest rates. Miners are a particular pocket of weakness, after Rio Tinto CEO Tom Albanese warned that "the pace of credit tightening in developing countries and the threat of financial crises arising from sovereign-debt problems in Europe and the U.S. ... could destabilize commodity markets." Lofty yields on a 3.3-billion-euro auction of short-term Spanish bonds only served to underscore investors' economic jitters. At last check, London's FTSE 100 is down 1%, France's CAC 40 is off 0.6%, and the German DAX has shed 0.4%.

Overseas markets

Currencies and Commodities

The dollar has edged higher this morning, buoyed by a weaker yen after Japanese finance officials took steps to rein in the soaring safe-haven currency. As a result, the greenback is trading 0.8 point, or 1%, higher. Meanwhile, gold has continued to beat a path into the black, with the precious metal up 0.6 point, or 0.04%, ahead of the open. However, it's a different story for black gold, which has slipped 1 point, or 1%, as a result of continued economic anxieties and Wednesday's downbeat EIA report.

Currencies and commodities

Unusual Put and Call Activity:

For an explanation of how to use this information, check out our Education Center topics on Option Volume and Open Interest Configurations .

Unusual options activity - puts

Unusual options activity - calls

Every morning, our research staff analyzes the prior day and the overnight markets, and monitors the morning wires to give you an accurate preview of the day to come. If you enjoyed today's edition of Opening View, sign up here for free daily delivery, straight to your inbox, before the opening bell.