Once again stocks have stalled at the top of their trading range. Investors are reacting to a mix of economic data. The NY Empire State economic index came in much worse than expected. Wholesale inflation numbers were higher. BBY's earnings were strong. WFC has announced it will pay back the TARP funds. All together there are lots of headlines but not a lot of movement in the market.
Asian markets were lower across the board. The Japanese NIKKEI index lost 0.22% as it struggled with a rising yen, which puts pressure on exporters. The Chinese Shanghai index lost 0.8% and the Hong Kong Hang Seng fell 1.2% as investors reacted to news that the Chinese government said it will make policy changes to slow down the current real estate boom in an attempt to avoid a bubble and its eventually pop. Traders are also worried that Beijing will also try and slow down the pace of lending at domestic banks.
Meanwhile European stock markets dove to their lows of the day on the NY Empire State report. Investors were already cautious as concerns rose over the strength of Greece's debt and Austria's banking industry. Austrian banks were big lenders to smaller Eastern Europe countries. The English FTSE lost 0.5%. The German DAX and the French CAC-40 managed a bounce back to positive territory with a +0.16% and +0.1% gains, respectively.
The big surprise today is the New York Federal Reserve's "Empire State" general business conditions index. Economists were expecting a rise to 24.0. Instead the index produced the biggest one-month decline in history with a drop from November's 23.51 to a reading of 2.55 in December. October was a five-year high at 34.6. Numbers over zero (0.0) indicate growth. December's report saw declines in new orders, sales, and employment. This definitely raises concern over the pace and strength of the economic rebound.
Elsewhere the Labor Department said wholesale prices jumped 1.8% in November, which was significantly higher than the +0.8% expected by analysts. The core-rate of wholesale inflation rose +0.5%. While no one expects the Fed to raise rates at their two-day meeting that began today but this rise in inflation does fan the flames that an interest rate hike could be coming sooner than expected.
In corporate news Best Buy (BBY) reported earnings this morning. The giant electronics retailers saw its quarterly profits soar now that rival Circuit City is out of business. Year over year profits rose from nearly 300% to 53 cents a share. Analysts were expecting a profit of 43 cents. BBY's quarterly revenues came in at $12.02 billion, which also beat Wall Street's expectations. U.S. sales rose 9% with domestic same-store sales rising 4.6%. Management is optimistic about 2010 and raised their earnings guidance from $2.70-3.00 to $3.00-3.15 per share. Yet they're slightly cautious that consumers are buying less expensive items this year, which could put pressure on margins. The stock had hit new one-year highs yesterday but traders are taking profits today with the stock down 9% near $41.25.
Paying back the TARP seems to be the fashionable thing to do this holiday session. Yesterday the big news was Citigroup's plans to pay back the TARP funds. Not to be left out in the cold Wells Fargo (WFC) has now announced plans to pay back the Troubled Asset Relief Program. WFC announced it will sell $10.65 billion worth of new stock at $25.00 a share to help raise money to pay back the TARP. That's about 426 million shares of new stock versus the current 4.69 billion shares already outstanding. WFC is also caving into peer pressure and will be handing out company stock instead of cash to pay employee bonuses. Shares of WFC are up 1% but the banking sector indices are down between 1.2% and 2.6% (BIX and BKX).
General Motors (GM) also announced plans to pay back the government. Currently GM is not a publically traded company after filing for bankruptcy but Wall Street expects that GM will eventually IPO again. GM received $52 billion in bailout funds from the government and has converted $45.3 billion of that into "equity" that gives the government a 61% ownership stake in the company. GM says it will repay the remaining $6.7 billion by the end of June.
Elsewhere in the transportation world Boeing (BA) just held the maiden flight of its 787 Dreamliner. This project has been plagued with delays. The original plan was five years in development. It's taken seven years. Currently the company has more than 800 orders for the plane, which is supposed to be 15 to 20% more fuel efficient.
Currently a bounce in the U.S. dollar is putting pressure on commodities. Yet oil is bucking the trend. We're seeing an oversold bounce in crude oil, which is snapping a nine-day losing streak. Oil is up about $1 near $70.60 a barrel. Gold futures are down about $1 near $1,122.50 an ounce.
At the moment the major U.S. averages are trying to bounce after retesting their morning lows in the last 30 minutes. The S&P 500 index is off less than five points at 1110. The NASDAQ is down less than one point at 2211. The Dow Industrials are down about 35 points near 10,465. The Russell 2000 is in positive territory with a minor gain at 611.
Chart of the S&P 500:
Chart of the NASDAQ:
Chart of the Dow Industrials:
Chart of the Russell 2000 index:
A quick scan of the OptionInvestor.com play list reveals that BUCY continues to rally with a 2.4% gain. The high for BUCY is 54.54. Our target to exit is $54.90. CPLA is hitting new highs with a 1.7% gain. EQIX, FDX, INFY, UNH, UTX, are all hitting new 2009 highs. Goldman Sachs (GS) is still under performing the market.