Opening View: DJIA Braces for Triple-Digit Drop as Morgan Stanley Cuts Global Growth Outlook
While stocks struggled to pick a direction on Wednesday, the bears have emerged in full force ahead of the bell this morning. Lingering concerns about the economic health of Europe were exacerbated by comments from economists at Morgan Stanley, who cautioned that the U.S. and the euro zone are flirting with a recession, and slashed their gross domestic product ( GDP ) forecasts for this year and next. On the home front, the latest batch of tech-sector earnings have failed to impress, with both JDS Uniphase ( JDSU ) and NetApp ( NTAP ) pacing the post-earnings decliners. Against this backdrop -- and ahead of another round of inflation data and the latest jobless figures -- the Dow Jones Industrial Average (DJIA ) is headed for a triple-digit drop out of the gate.
As alluded to earlier, economists at Morgan Stanley are expecting the European Central Bank (ECB) to cut interest rates in 2012, which they expect to present a "dire growth backdrop." Furthermore, thanks to lackluster GDP growth across the pond in the second quarter, as well as the prospect of fiscal tightening both at home and overseas, the economists slashed their 2012 global growth forecast to 3.8% from 4.5%, and cut their current-year growth outlook to 3.9% from 4.2%.
In earnings news, JDS Uniphase (JDSU - 11.70) reported fiscal fourth-quarter earnings of $9.3 million, or 4 cents per share, compared to net income of $1.5 million, or a penny per share, a year earlier. On a non-GAAP basis, the company said it earned $53.9 million, or 23 cents per share, matching analysts' expectations. Meanwhile, revenue rose a year-over-year 21% to $471.8 million, topping estimates for sales of $466.4 million. However, JDSU predicted current-quarter revenue between $400 million and $425 million, on an adjusted basis, falling short of the Street's forecast for fiscal first-quarter sales of $470.3 million. At last check, the shares of JDSU are poised for a 2% dip out of the gate.
NetApp (NTAP - 41.66) reported an adjusted per-share profit of 55 cents for its fiscal first quarter, matching analysts' average estimate. However, while quarterly revenue rose to $1.46 billion from $1.15 billion in the year-ago quarter, the figures missed the Street's expectations for sales of $1.51 billion. Meanwhile, the company also forecast current-quarter revenue of $1.5 billion to $1.6 billion, compared to analysts' projections for sales of $1.61 billion, and announced the retirement of CFO Steve Gomo. In pre-market trading, NTAP is lingering about 13% south of breakeven.
PetSmart (PETM - 41.56) posted a second-quarter profit of $61.2 million, or 54 cents per share, up from $48.4 million, or 41 cents per share, a year earlier. In May, the company predicted second-quarter earnings of 47 cents to 51 cents per share. Meanwhile, revenue increased 7% to $1.49 billion, just topping the Street's forecast for sales of $1.48 billion. In addition, PETM upwardly revised its full-year earnings guidance to a range of $2.40 to $2.48 per share, from its previous outlook for a per-share profit of $2.32 to $2.42. Ahead of the bell, the shares of PETM were last seen roughly 0.9% lower.
Today's earnings docket will feature reports from Hewlett-Packard ( HPQ ), Salesforce.com ( CRM ), Brocade Communications Systems (BRCD), Autodesk (ADSK), Marvell Technology (MRVL), Aeropostale (ARO), Dollar Tree (DLTR), GameStop (GME), Foot Locker (FL), Children's Place (PLCE), Buckle (BKE), JA Solar (JASO), and J.M. Smucker (SJM). Keep your browser at SchaeffersResearch.com for more news as it breaks.
Initial and continuing jobless claims are on the calendar for today, along with the consumer price index (CPI) and core CPI for July. Traders will also hear about existing home sales and the Conference Board's index of leading economic indicators for July, as well as the August Philadelphia Fed index. There are no major economic reports on Friday.
Equity option activity on the Chicago Board Options Exchange (CBOE) saw 913,260 call contracts traded on Wednesday, compared to 757,149 put contracts. The resultant single-session put/call ratio arrived at 0.83, while the 21-day moving average was 0.75.
Asian markets ended lower today, pressured by lackluster earnings and economic data from around the globe. In China, traders were dismayed by data showing another uptick in annual housing inflation, which raised the prospect of additional policy-tightening measures. As a result, property stocks led the laggards in Hong Kong and on the mainland. Meanwhile, the yen's continued strength against the U.S. dollar pressured Japanese exporters, such as Nissan and Toshiba. By the close, South Korea's Kospi gave up 1.7% and China's Shanghai Composite lost 1.6%, while Hong Kong's Hang Seng and Japan's Nikkei each fell 1.3%.
Stocks in Europe are getting hammered at midday, thanks in part to Morgan Stanley's warning that the euro zone is "hovering dangerously close to recession." Elsewhere, weak quarterly results from Swiss cement producer Holcim weighed on its sector peers, including Germany's HeidelbergCement AG. At last check, the German DAX is down 3.7%, the French CAC 40 is off 2.6%, and London's FTSE 100 is 2.3% lower.
Currencies and Commodities
The greenback is gaining ground this morning, with the U.S. dollar index last seen about 0.4 point, or 0.6%, higher. Meanwhile, crude oil futures have retreated, with the front-month contract down $1.50, or 1.7%, to trade around $86.23 per barrel. Finally, gold futures have extended their recent quest for record highs, with the malleable metal up $16.20, or 0.9%, to flirt with $1,810 an ounce.
Unusual Put and Call Activity:
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