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Opening View: DJIA Set for Second Triple-Digit Drop as J.P. Morgan Warns of Recession

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The Dow Jones Industrial Average (DJIA ) fell over 400 points on Thursday, as economists at Morgan Stanley cut their growth forecasts for the struggling global economy. The situation looks even worse today, as J.P. Morgan has put another nail in the bulls' coffin. This morning, J.P. Morgan cut estimates for U.S. economic growth, while also warning that recession risks are "clearly elevated." Specifically, the firm slashed its outlook for fourth-quarter growth to 1% from 2.5%, while lowering its first-quarter 2012 growth forecast to 0.5% from 1.5%. "Declining energy prices should help to cushion some of the weakness in the economy, and the still-low levels of cyclically-sensitive spending could reduce the chances of getting a negative GDP quarter. Nonetheless, the risks of a recession are clearly elevated," the firm said. Meanwhile, a disappointing earnings report from Hewlett-Packard (HPQ - 29.51) has only fanned the bearish flames, putting all three major indexes in position to open substantially lower this Friday morning.

Jumping right in... HPQ announced that its fiscal third-quarter profit rose 8.6% to $1.93 billion, or 93 cents per share, while revenue edged up 1.5% to $31.19 billion. Excluding items, HPQ earned $1.10 per share. The results fell roughly in line with analysts' expectations, which called for a profit of $1.09 per share on $31.17 billion in revenue. For the full year, the tech giant slashed its earnings forecast to a range between $4.82 and $4.86 per share, down from its prior view for a profit of at least $5 per share. Fiscal 2011 revenue is expected to weigh in between $127.2 billion and $127.6 billion, compared to HPQ's previous guidance of $129 billion to $130 billion. HPQ also unveiled plans to acquire U.K.-based Autonomy Corp. for approximately $42.11 per share, and confirmed reports that it's "evaluating strategic alternatives" for its PC business. Ahead of the open, HPQ is down nearly 11%.

Retailer Ann Inc. (ANN - 19.27) confessed to a second-quarter profit 47 cents per share on revenue of $558.2 million. These figures easily topped analysts' predictions, which called for a profit of 45 cents per share on revenue of $550.22 million. Looking ahead, ANN forecast third-quarter sales of $565 million, with fiscal-year sales coming in around $2.23 billion. Analysts had forecast third-quarter sales of $560.5 million, with fiscal 2011 sales arriving at $2.21 billion. Kay Krill, ANN's CEO, said the strong results reflected the success of its LOFT and Ann Taylor brands. "Looking ahead to the third quarter, we are pleased by client response to our new pre-Fall product assortments, and we fully expect to deliver positive comparable sales performance at both brands in all channels," the CEO said.

Salesforce.com (CRM - 114.06) swung to a second-quarter loss of $4.3 million, or 3 cents per share, from its year-ago profit of $14.7 million, or 11 cents per share. Excluding items, CRM earned 30 cents per share, while revenue improved 38% to $546 million. Analysts were looking for a profit of 30 cents per share on $528.8 million in revenue. For the full year, the tech firm raised its revenue forecast to a range between $2.22 billion and $2.23 billion, up from its May guidance of $2.15 billion to $2.17 billion. CRM has been hit this morning with price-target cuts from UBS, Susquehanna, J.P. Morgan, and Jefferies, but the stock is up 4.9% in pre-market trading.

Elsewhere, BP plc (BP - 39.32) is down some 2% this morning on suspicions of a possible spill in the Gulf of Mexico. On Thursday, BP said that it had been asked by the U.S. Coast Guard to investigate a reported sheen seen in the area. "Based on the initial investigation, it does not appear that the sheen was from a BP source," BP said in a statement. Last year, BP was one of the parties involved in the Deepwater Horizon disaster, which quickly became the largest oil spill in U.S. history.

Earnings Preview

Today's earnings docket will feature reports from China Sunergy ( CSUN ) and Yingli Green Energy ( YGE ). Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

There are no major economic reports on for today.

Market Statistics

Equity option activity on the Chicago Board Options Exchange ( CBOE ) saw 1,167,915 call contracts traded on Thursday, compared to 1,137,881 put contracts. The resultant single-session put/call ratio arrived at 0.97, while the 21-day moving average was 0.77.

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

Overseas Trading

Asian markets ended broadly lower today, as recession fears rippled around the globe. Deutsche Bank cut its growth outlook for China, with the firm asserting that weakness in the U.S. and Europe now poses a greater threat to the economy than monetary tightening. Meanwhile, a 6.8-magnitude earthquake -- as well as a related tsunami advisory -- kept traders on edge in Tokyo. However, Seoul-listed equities paced the decline, with trading briefly halted in the face of heavy selling. By the close, South Korea's Kospi lost 6.2%, enduring its largest single-day percentage drop in nearly three years. Hong Kong's Hang Seng gave up 3.1%, Japan's Nikkei fell 2.5%, and China's Shanghai Composite gave up about 1%.

European stocks are swimming in red ink at midday, led lower by the banking sector. Activity in the European Central Bank's (ECB) overnight lending program has prompted fresh liquidity concerns, with Italy's Intesa SanPaolo and UniCredit among the top decliners. Elsewhere, BP shares backpedaled in London as a result of the aforementioned oil sheen suspicions. At last check, the German DAX is down 3.2%, the French CAC 40 is down 2.1%, and London's FTSE 100 is off 1.4%.

Currencies and Commodities

Despite all of the "downgrade" and "recession" talk on the Street, the U.S. dollar index is flat this morning. Meanwhile, the "R" word has taken a toll on oil, with crude futures down 2.3 points, or 2.8%. Amid this backdrop, gold has continued its record-breaking ascent, as traders flock to the precious metal's "safe-haven" arms. Ahead of the open, gold futures are up nearly 56 points, or 3%, to trade at $1,877.90 an ounce.

Unusual Put and Call Activity:

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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