The major U.S. index futures are pointing to a lower opening on Thursday. More evidence of a serious setback to the economy has been unfolding and has been causing extreme anxiety among traders. Corporate profits are dwindling, while a private report showed that foreclosures rose at a record year-over-year pace in the third quarter. A government report showed that jobless claims rose by more than what economists had expected. Negative sentiment that blanketed the rest of the global markets on the back of the macro economic worries may also ail the U.S. markets.
U.S. stocks opened lower in Wednesday's session and remained below the unchanged line throughout the session, as traders shifted focus to disappointing earnings news. Fear sentiment that was ruling high on the prospect of the economy slipping into a longer V-shaped recession intensified as the setback manifested in the form of a profit recession and lackluster guidance from companies. The commodity prices rout also triggered selling in the commodity-related stocks, while the dollar's strength pressured exporters.
Consequently, the Dow Industrials ended down 514.45 points or 5.69% at 8,519 and the S&P 500 receded 58.27 points or 6.10% to 897, while the Nasdaq Composite Index fell 80.93 points or 4.77% to 1,616. The Nasdaq and the S&P 500 ended the session at new five-year closing lows.
All 30 of the Dow components ended the session lower, with Alcoa (AA) (down 13.42%), Boeing (BA) (down 7.52%), Chevron (CVX) (down 7.57%), Disney (DIS) (down 8.93%), Hewlett-Packard (HPQ) (down 7.41%), Microsoft (MSFT) (down 7.83%), AT&T (T) (down 7.58%), Verizon Communications (VZ) (down 8.07%) and Exxon Mobil (XOM) (down 9.69%) among the notable decliners.
Among the sector indexes, the Amex Oil Index and the Philadelphia Oil Service Sector Index fell 10.16% and 13.35%, respectively, while the Amex Gold Bugs Index tumbled 16.32%. The Dow Jones Transportation Average receded 4.37% compared to a 6.06% decline by the Dow Jones Utility Average. Financial stocks also came under selling pressure, with the Amex Securities Broker/Dealer Index slumping 7.91% and the KBW Bank Index slipping 5.79%. The S&P Retail Index and the Philadelphia Housing Sector Index lost in excess of 5% each.
Technology stocks also saw weakness despite Apple's (AAPL) forecast-beating results. The Philadelphia Semiconductor Index fell 6.15% and the Amex Disk Drive declined 8.52%. The Amex Computer Hardware Index was down a more modest 3.08%, while the Amex Software Holders Index and the Amex Networking Index were down 5.73% and 4.33%, respectively.
The Nasdaq Composite Index has lost about 44% from its late October peak of 2859.12. After the steep gap-down opening on October 16th, the index has been forming a congestion pattern, which is giving a semblance of a triangle formation. Although a breakout in either direction is a possibility, the extreme volatility we have been witnessing in recent sessions, as reflected by the sharp spike in the CBOE Volatility Index, makes the prediction a hazardous guess. The key support levels for the index are 1,538 and 1,258, while the overhead resistance levels are 1,752, 1,898 and 2,155.
Currency, Commodity Markets
Crude oil futures are trading down $0.39 at $66.36 a barrel after declining $5.43 to $66.75 a barrel in Wednesday's session. The previous session's weakness, which was premised mainly on the dollar's strength and expectations of slower demand curbing consumption was, exacerbated by the release of the weekly oil inventory report of the Energy Information Administration showed a 3.2 million-barrel increase in crude oil stockpiles in the week ended October 17th. Inventories of crude oil are now in the upper half of the average range for this time of the year.
Gasoline inventories increased by 2.7 million barrels and distillate inventories climbed by 2.2 million barrels. Refinery capacity utilization averaged 80% over the four-weeks ended October 17th, significantly higher than 75.5% in the previous week. Meanwhile, demand has been sliding, with the demand for gasoline and distillate fuel dropping by at a year-over-year rate of 8.5% and 5.8%, respectively over the four-week period ended October 17th.
Meanwhile, gold futures, which tumbled $32.80, to $735.20 an ounce in the previous session, are currently receding $28.10 to $707.10 an ounce.
Among currencies, the U.S. dollar is trading at 97.595 yen, weaker than 97.655 yen it was worth at the close of New York trading on Wednesday. The dollar is currently valued at $1.2817 versus the euro.
Asia
Stock markets across the Asia-Pacific region closed lower on Thursday as a barrage of downbeat company forecasts deepened fears of a global recession. However, the regional markets pared some of their early losses in afternoon trading after a Wall Street Journal report said that the Bush administration is considering a $40 billion plan to help limit home foreclosures.
Japan's Nikkei 225 average opened lower and dipped sharply in early trading. After trading sideways till the afternoon, the index recouped some of its losses to closed down 213.71 points or 2.46% at 8,461.
Earlier in the day, the Ministry of Finance said that Japan's merchandise trade surplus fell to 95.1 billion yen in September, plummeting 94.1% from the year-ago period. The drop was steeper than analysts' expectation that called for a decline of 33.9%. In August, the surplus was 327.56 billion yen. Imports soared 28.8% year-over-year, while exports were up 1.5%.
Export, commodity and steel stocks declined in the session. In the banking space, Mizuho Financial Group plunged 7.5% after a newspaper report said that the bank might delay previously planned share buybacks to preserve capital in the face of global financial turmoil and sliding profits. Mitsubishi UFJ Financial Group shed 3.8% and Sumitomo Mitsui Financial Group dropped 4.2%.
Hitachi Construction Machinery and Mazda Motor, heavily reliant on the European market, lost ground as the euro temporarily fell to the 123-yen level. KDDI Corp jumped 6.3% after the telecom operator reported a 27% increase in its quarterly profit on lower handset subsidies and maintained its full-year forecast.
South Korea's Kospi gap-opened significantly lower and moved sideways for the rest of the session. The key index closed down 84.88 points or 7.5% at 1,050 after plunging as much as 9.4% in early trading. Program selling was halted for five minutes in the morning due to heavy selling in futures.
Stocks fell across the board. Market leader Samsung Electronics plunged 7.0% and tech giant Hynix Semiconductor plummeted by the daily limit of 15%. Builders and lenders also lost ground. Bucking the trend, top carmaker Hyundai Motor gained 1.2% despite reporting weaker third-quarter earnings.
The Chinese stock market closed lower amid a fresh wave of sell-offs in global markets. Investor sentiment took a beating after China Railway Group and China Railway Construction Corp reported losses due to adverse foreign exchange movements. The benchmark Shanghai Composite Index closed lower for a third day, falling 20.26 points or 1.07% to 1,876.
Hong Kong's Hang Seng Index opened notably lower and showed sideways movement for the rest of the session. The index closed down 506.11 points at 13,761. Jiangxi Copper fell 7.9% on concerns about its bleak earnings outlook and an investment loss in the third quarter. HSBC Holdings shed 3.1%.
Shares of China Railway Group plunged 7.1% after the biggest railway and construction builder on the mainland reported losses of 1.9 billion yuan in foreign exchange transactions for the first nine months of 2008. Bucking the trend, China Overseas Land jumped 8.1% after the government announced measures on Wednesday to boost flagging property prices in the mainland. Guangzhou R&F Properties climbed 4.6%.
Australia's All Ordinaries opened lower and saw further downside in early trading. Thereafter, the index moved sideways to close near the lows of the session at 3,939, representing a loss of 180.8 points or 4.39%.
Among big miners, Rio Tinto slumped 14.6%, its worst one-day fall since the 1987 market crash, after it dismissed rumors that it was warming to rival BHP Billiton's takeover offer worth A$64 billion. BHP Billiton tumbled 9.4% as metals prices plummeted and Fotescue Metals Group lost 6.1%.
The big four banks were led down by Australia and New Zealand Banking Group after it reported disappointing full-year results. ANZ plunged 5.2% after it reported a bigger-than-expected 32% drop in second-half cash earnings due to a sharp rise in bad debt provisions. National Australia Bank lost 0.6%. Gold miners were also hit hard.
Europe
The major European markets are trading lower on Thursday, with the French CAC 40 Index and the U.K.'s FTSE 100 Index declining 2.56% and1.63%, respectively, while the German DAX 30 Index is receding 3%.
In corporate news, Credit Suisse (CS) reported a third quarter net loss of 1.22 Swiss francs per share compared to a profit of 1.18 Swiss francs per share last year. Net revenues declined 60% to 2.77 billion Swiss francs. The results were impacted by write-downs in the company's investment banking business.
On the economic front, the French National Institute for Statistics and Economic Studies said that French household consumption expenditures rose 0.6% in September from the previous month. Spending on durables, including automobiles, rose 0.4%, while spending on textile leather climbed 2.8%. Another report released by the agency showed that the synthetic indicator of the industrial economic climate fell to 88 in October from 91 in September.
Meanwhile, the U.K. Office of National Statistics said the U.K.'s retail sales fell 0.4% month-over-month in September, with the weakness primarily due to declines in sales by household goods stores and clothing and footwear stores. In August, sales had risen at a revised 1.1% rate. On a year-over-year basis, retail sales increased 1.8%, marking the weakest performance since February 2006.
Euorstat's industrial orders report showed that the euro zone's industrial new orders declined by 1.2% in August from the previous month. In July, orders rose by 2%. Annually, industrial new orders declined a steeper 6.6%
U.S. Economic Reports
A Labor Department report showed that the number of individuals claiming unemployment benefits increased 15,000 in the week ended October 18th to 478,000 from the previous week's revised average of 463,000. Economists had been expecting jobless claims to increase to 465,000 from the 461,000 originally reported for the previous week.
At the same time, the report showed that the less volatile four-week moving average declined to 480,250 from the previous week's revised average of 482,500. The report also showed a decline in continuing claims in the week ended October 11th, which fell to 3.72 million from the preceding week's revised level of 3.726 million.
Earnings
Eli Lilly (LLY) reported third quarter adjusted net income of $1.135 billion or $1.04 per share compared to $996.4 million or 91 cents per share in the same period last year. Net sales for the quarter rose 14% to $5.209 billion compared to $4.586 billion in the same quarter last year. Analysts polled by First Call/Thomson Financial expected the company to report earnings for the quarter of $1.02 per share on sales of $5.09 billion.
Dow Chemical Co. (DOW) reported third quarter net income of $428 million or 46 cents per share compared to $403 million or $0.42 per share in the same quarter last year. Excluding special items, the company posted net earnings for the quarter of 60 cents per share that declined from 84 cents per share in the comparable quarter last year. Quarterly net sales grew to $15.41 billion from $13.59 billion in the year-ago quarter. Analysts expected earnings of $0.57 per share and revenue of $15.63 billion for the quarter.
Stocks in Focus
Amazon (AMZN) could come under selling pressure after it lowered its full year sales estimate to $18.46-$19.46 billion from its earlier estimate of $19.35-$20.10 billion, while the consensus estimate calls for sales of $19.52 billion. The company expects fourth quarter sales of $6-$7 billion compared to the $7.05 billion consensus estimate. The online retailer also reported third quarter results, which showed that net sales rose 31% to $4.26 billion. The company's net income increased to 27 cents per share from 19 cents per share last year. Analysts had estimated earnings of 25 cents per share on revenues of $4.27 billion.
Allstate (ALL) traded higher in Wednesday's after hours session despite reporting a third quarter loss of $1.71 per share compared with a profit of $1.70 per share in the year-ago period, as revenues declined to $7.3 billion from $9 billion last year. The company reported an operating loss of 35 cents per share, trailing the analysts' profit estimate 72 cents per share.
Amerigroup (AGP) is likely to gain ground after it reported a third quarter profit of 74 cents per share, higher than 58 cents per share in the year-ago period, as revenues climbed to $1.12 billion from $1.03 billion in the same period last year. Analysts, on average, estimated earnings of 51 cents per share on revenues of $1.13 billion.
Amgen (AMGN) could also see buying interest after it reported that its third quarter adjusted earnings rose 14% to $1.23 per share and revenues moved up 7% to $3.88 billion. The consensus estimates had called for earnings of $1.08 per share on revenues of $3.70 billion. The company also raised its 2008 earnings per share estimate to $4.45-$4.55 per share from its earlier estimate of $4.25-$4.45 per share.
Citrix Systems (CTXS) could gain ground after it said its third quarter adjusted earnings of 43 cents per share came in ahead of the consensus estimate. Revenues climbed 14% to $398.9 million, also exceeding the $391.5 million consensus estimate. The company guided fourth quarter adjusted earnings to 46-48 cents per share compared to the 45 cents per share consensus estimate. Revenues are expected to be $425-$440 million, surrounding the consensus estimate of $434.5 million.
Con-way (CNW) may trade higher after it reported that its third quarter earnings rose to 81 cents per share from 78 cents per share last year. Revenues were up 23.3% to $1.37 billion. Analysts, on average, estimated earnings of 65 cents per share on revenues of $1.29 billion. The company maintains its full year earnings estimate at $2.60-$2.80 per share.
Lam Research (LRCX) could see some weakness after it reported third quarter adjusted earnings of 26 cents per share on a 36% drop in revenues to $440.4 million. The Street had estimated earnings of 25 cents per share on revenues of $440.8 million.
However, LSI Corp. (LSI) may edge higher after it said its third quarter adjusted earnings of 14 cents per share and revenues of $714 million exceeded the consensus estimates that called for earnings of 13 cents per share on revenues of $710.82 million.
Seagate Technology (STX) is likely to come under selling pressure after it reported that its first quarter earnings declined to 12 cents per share from 64 cents per share last year. The company's adjusted earnings of 26 cents per share were above the mean analysts' estimate of 22 cents per share. Revenues declined 8% to $3.03 billion and trailed the consensus estimate of $3.29 billion.
Pulte Homes (PHM) could be in focus after it reported a third quarter loss of $1.11 per share, narrower than the loss of $3.12 per share last year. The recent quarter's earnings included a charge of $266.6 million. Revenues declined 37% to $1.6 billion. Analysts had expected a loss of 37 cents per share on revenues of $1.53 billion.
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