There's no way around it: stocks are set to start the week with startling losses, as traders spent the weekend digesting Friday's devastating ratings downgrade by S&P. After the close on Friday -- when the Dow actually managed to eke out an eleventh-hour victory -- Standard & Poor's downgraded the U.S. government's treasured AAA debt rating to AA+, and smacked it with a negative outlook. S&P said the U.S. government had become less stable, and last week's "solution" to the debt ceiling was, essentially, not good enough. The aforementioned debt ceiling dilemma had taken its toll on the market during the past several sessions -- and some analysts believe that a certain amount of pessimism may already be priced into the market. However, traders don't seem to be aware of this, as futures on all three major indexes are pointing starkly lower, with the the Dow Jones Industrial Average (DJIA ) down over 233 points.
Dollar Thrifty (DTG - 67.38) said its second-quarter net profit rose 0.6% to $42.5 million, from $42.3 million a year ago, while revenue for the quarter fell 0.3% to $395.1 million. The firm reported a profit of $1.36 per share, with adjusted earnings arriving at $1.35 per share. Analysts had been expecting earnings of $1.37 per share from the car rental concern. Dollar Thrifty also said that it has not reached any agreements with Avis Budget Group or Hertz Global Holdings, both of which have bid for the firm. Looking ahead, DTG forecast revenue to be flat in 2011, as rental rates remain under pressure.
Tyson Foods, Inc. (TSN - 16.31) reported a third-quarter profit of 56 cents per share, easily surpassing the Street's prediction for a profit of 41 cents per share. Meanwhile, revenue for the quarter came in at $8.25 billion, lower than analysts' expectation for revenue of $8.3 billion. Looking ahead, the firm said it expected its chicken unit to post a loss in the fourth quarter as a result of higher food costs.
The Scotts Miracle-Gro Company (SMG - 45.85) said third-quarter profit fell 37% to $111.6 million, or $1.69 per share, from $175.9 million, or $2.65 per share, in the year-ago period. Adjusted earnings came in at $1.91 per share, while revenue arrived at $1.06 billion. Analysts had expected the firm to report a much higher profit of $2.24 per share on revenue of $1.12 billion. Scotts Miracle-Gro sees 2011 earnings between $2.95 and $3.05 per share, lower than analysts' forecast for 2011 earnings of $3.19 per share, as a result of increased competition. SMG's CEO Jim Hagedorn said he was "disappointed" by the results, but remains "confident" in the company's brand. Finally, the company upped its quarterly dividend to 30 cents per share from 25 cents a share, payable Sept. 9 to shareholders on record as of Aug. 26.
Finally, American International Group, Inc. (AIG - 25.10) plans to sue Bank of America Corporation, according to a report published in The New York Times today. According to the report, AIG is arguing that BAC and its Merrill Lynch and Countrywide units misrepresented the quality of mortgage securities they sold the insurer. AIG is attempting to recover approximately $10 billion of the $28 billion invested. The Times attributed the story to "three people with knowledge of the complaint." AIG is down 4.4% in pre-market trading.
Earnings Preview
Today's earnings docket will feature reports from 99 Cents Only Stores ( NDN ), Assured Guaranty ( AGO ), Brigham Exploration Co. ( BEXP ), Coeur d'Alene Mines ( CDE ), Silver Wheaton ( SLW ), Clean Energy Fuels (CLNE), Live Nation Entertainment (LYV), MGM Resorts (MGM), CardioNet (BEAT), and Youku.com (YOKU). Keep your browser at SchaeffersResearch.com for more news as it breaks.
Economic Calendar
There are no major economic reports scheduled for today. Tuesday's docket features a report on second-quarter productivity and labor costs from the Bureau of Labor Statistics (BLS). However, traders will likely be holding their collective breath ahead of the latest monetary policy decision from the Federal Open Market Committee (FOMC), which is due out in the afternoon. On Wednesday, we'll hear reports on wholesale inventories for June, the July Treasury budget, and weekly petroleum inventories. Initial and continuing jobless claims are due out on Thursday, along with June's trade balance. The economic calendar concludes on Friday with the release of retail sales for July, June's business inventories, and the preliminary Reuters/University of Michigan consumer sentiment index for August.
Market Statistics
Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,785,419 call contracts traded on Friday, compared to 1,666,080 put contracts. The resultant single-session put/call ratio arrived at 0.93, while the 21-day moving average was 0.70.
The summer 2011 issue of SENTIMENT magazine is now available here.
Overseas Trading
Stocks in Asia ended broadly lower today, as traders responded to S&P's debt downgrade. In the wake of this confidence-shaking move, the bears seemed totally unimpressed by Sunday night's joint statement from G-7 finance heads, wherein leaders of the top world economies voiced their commitment "to taking coordinated action where needed, to ensuring liquidity, and to supporting financial market functioning, financial stability and economic growth." Brokerage firms were hit hard in Seoul, where trading on the main exchange was suspended briefly amid aggressive selling. Meanwhile, exporters and banking stocks helped pace the decline throughout the rest of the region. By the close, South Korea's Kospi and China's Shanghai Composite each lost 3.8%, while Hong Kong's Hang Seng and Japan's Nikkei gave up 2.2% apiece.
European indexes have given back their morning gains at midday. Investors initially cheered the European Central Bank's (ECB) decision to step in and buy Italian and Spanish bonds, but concerns about the potential ripple effect of the U.S. debt downgrade have erased that early optimism. At last check, the German DAX is down 2.1%, London's FTSE 100 is 1.6% lower, and the French CAC 40 is off 1.6%.
Currencies and Commodities
The big story today -- aside from the S&P downgrade, of course -- is gold, which has vaulted to record-high territory above $1,710 this morning. Friday's downgrade only helped solidify gold's "safe-haven" status -- and this morning, the precious metal is up nearly 59 points, or 3.6%. Elsewhere, the greenback has backtracked 0.1 point, or 0.2%, this morning, as a result of diminished confidence in the U.S. economy. Similarly, black gold is down nearly 3 points, or 3.4%, this morning, as traders reduce their exposure to "risky" investments. In fact, economists believe there are greater losses in store for oil, as traders flee the dollar-denominated asset.
Unusual Put and Call Activity:
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