The $810 billion bailout plan was just approved by the House of Representatives after a second vote by a margin of 263-171. That's a lot of taxpayer money for a plan that misses the target. And with stocks falling well off the highest levels of the day, I gather that investors are not too surprised that it passed.
To put this in perspective, the Dow now trades 631 points below where it was on the morning of the record 778 point decline on Monday. That's when the House voted thumbs down on the original plan. I guess taxpayers will need to spend a few trillion dollars to get more of those triple digit gains.
Meanwhile, I think that unless the Treasury can solve the thorny problem of setting a price for the mortgage-backed securities (MBS) and collateralized debt obligations (CDOs), then it will fail to solve the real economic problem -- which is a lack of trust in the financial system. I've proposed what I thought would be a better solution.
Maybe we can try that one next week if stocks drop another 700 points. There seems to be no limit to the amount of taxpayer money the government is willing to throw at this financial crisis.
The good news is that today's decline is not going to be the biggest in history on a percentage basis. The record that still stands was set in October 1987, when the Dow fell 22.6% -- 508 points really meant something back then -- that's because the Dow was trading at 2,248 before the crash. It would take at least a 2,519 point decline in the Dow to beat that crash. But 21 years ago, the economy was in nowhere near as bad shape as it is today.
I hope I'm wrong but I would not be shocked if Sovereign and National City were no longer independent banks by the end of the week.
Oil declines by $30 from record highs. Other commodity prices moderate. The dollar rallies. The nation records better-than-expected GDP growth in Q2.
All are positive data points that suggest that the U.S. economy, while it's certainly not in the midst of robust growth, has not run totally into a ditch, either.
What do the latest economic data points mean for the Dow Jones Industrial Average, and U.S. stocks, in general, for the next six to nine months? Here's the bullish and bearish cases:
Bullish case: Technical analysts would cite the Dow's close above the 50-day moving average for three consecutive days, the fact that the Dow held support at the 11,000 level, and a series of higher closing highs and higher closing lows in the past two months.
Further, technical analysts would also cite the fact that the Dow has completed the volume-light June-July-August summer season (typically bearish for stocks) during a period of anemic growth (if the U.S. economy isn't already in a recession), without plunging to nerve-wracking lows. True, the Dow fell from about 12,400 in June to 11,000 in July, but technicians would cite the aforementioned positive technicals as an argument that a bottom is in place.
Bearish case: Technical analysts would cite the fact that the Dow, although above the 50-day moving average, nevertheless remains below the 200-day moving average -- the toughest moving average line to break in trading. Also, market 'up days' have lacked sustained buying strength as measured by the MACD Histogram.
Further, and equally important, Dow bears would say that although the Dow has risen from its 11,000 low, the roughly 600-point increase is still well within the range of a correction -- or in this case short-covering -- in a long-term bearish trend. In other words, the Dow's recent rise could be Pyrrhic or false -- a classic example of a 'dead cat bounce.'
Market Analysis: With all due respect to technical analysts and their indicators, the view here argues that investors/ traders should take their cue from the U.S. economy's fundamentals: specifically, corporate profits and job growth. Absent substantial, sustained gains in each, any Dow rally is viewed with skepticism.
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What's your view of the Dow? Is this stock market rally real? Or is it temporary? Let us know what you think.
For all practical purposes, today was a win when you consider how Hurricane Gustav's threat to the oil infrastructure in the Gulf of Mexico is looking like a real scare. The August 5 FOMC Minutes showed very little chance that rate hikes are imminent, but they showed a clueless Fed.
Surprisingly, there was a slight improvement in consumer confidence, and new home sales in July rose slightly on falling prices. Below are today's unofficial closing bell levels: DJIA 11,413.11 (+26.86) NASDAQ 2,361.97 (-3.62) S&P 500 1,271.39 (+4.55) 10YR T-NOTE 3.784% (-0.007%) 52-week lows Top Analyst Calls
Anadarko Petroleum (NYSE: APC) rose 6% to $61.54 after the company said that it was going to buy back up to $5 billion common stock, or 18% of the company, out to August 2011. The company is also increasing its capital spending plan for 2009 and beyond. Clean Energy Fuels Corp. (NASDAQ: CLNE) rose more than 10% to $15.65 after the close because Jim Cramer called this one as having government backing since Speaker Nancy Pelosi and her husband invested $50,000 to $100,000 in this stock in 2007.
Coach Inc. (NYSE: COH) traded higher by more than 6% to $28.18 after announcing that it was going to buy back up to $1 billion in common stock after its $1 billion buy-back plan from November 2007 has already been utilized.
Today felt like a mini-me version of yesterday's 180-point DJIA sell-off. Again, thin volume persisted. Perhaps the oil traders got an upper hand on some weather forecasting models, putting Tropical Storm Fay back into the Gulf of Mexico with a very promising 25% chance of happening. This would put the oil infrastructure at risk. A super-high PPI report put wholesale inflation up 1.2% (double estimates) at the highest level since late 2006.
Below are the unofficial closing bell levels: DJIA 11,348.47 (-130.92) S&P500 1,266.86 (-11.74) NASDAQ 2,383.52 (-33.46) 10YR T-Note 3.842% (+0.026%) 52-WEEK LOWS Top Analyst Calls
Home Depot Inc. (NYSE: HD) showed a 24% decline in earnings with results at $0.71 EPS on a 5.4% drop in revenues to $21 billion. Estimates were $0.61 EPS and $20.6 billion. The home repair supplies and hardware retail beast shares were actually down almost 4% at $25.95 in today's final minutes after the sellers overpowered the bulls at the open.
Lehman Brothers Holdings Inc. (NYSE: LEH) felt the wrath of traders after reports that it would also sell a stake in its Neuberger Berman money management unit and on reports that CEO Dick Fuld was passing down some responsibilities to his #2. Shares were down 13% in today's final minutes.
Major U.S. stock indices moved higher on Tuesday. As of 2 pm, the Dow was up 200 points or 1.7%, the Nasdaq was up 45 (2%) and the S&P 500 was up 20 (1.6%).
The declining price of oil was a significant factor, as crude futures fell $3 to the $122 per barrel level. The dollar rose against the major currencies, gaining 1% on the euro.
The big question, of course, is whether today's rally reflects a turn in the market. More likely, we are seeing a burst of enthusiasm driven by lower oil prices. But plenty of bad news hangs over the market, with more likely to come.
The macro-economic picture is still bleak, and getting bleaker. Layoffs are increasing -- Starbucks (NASDAQ: SBUX) announced that it will cut 1,000 jobs, while Bennigan's and Steak & Ale filed for bankruptcy -- and the credit crisis shows no signs of abating. Housing prices continue to drop at an alarming rate.
So beware this and all the other rallies we've seen lately. This bear market is not over yet.
Stock futures were mixed Thursday morning, indicating a similar start to U.S. stocks. While the S&P 500 showed weakness ahead of housing data to be released at 10:00 a.m. EDT, the Nasdaq composite was slightly positive after Amazon.com reported strong earnings Wednesday. Investors also braced for Ford's earnings, which indeed posted double the estimated loss. The earnings wave continues. Meanwhile, oil prices edged a little higher, but remained around $124 a barrel.
Starting with Ford (NYSE: F) then, the world's third largest automaker posted (after items) a loss of $1.38 billion, or 62 cents. Analysts surveyed by Bloomberg expected Ford to report a loss of 28 cents a share. The headlines scream of a loss of $8.7 billion though, which includes $8 billion in pretax writedowns of North American plants and assets of Ford Motor Credit Co. Ford also said it will convert three truck factories to produce small cars as rising gasoline prices sap U.S. truck sales. Dow Chemical (NYSE: DOW) couldn't manage to offset higher costs of energy and raw materials with the recent price increases it announced, and posted a 27% decrease in profit for the period. Net income was $762 million, or 81 cents a share. Revenue is up 23% to $16.38 billion. Earnings were below analyst expectation according to Thomson Financial of 85 cents per share, but better than the sales estimates of $14.9 billion. DOW shares are dropping some 9.5% in premarket trading as the company said it expects the economy to weaken.
Amazon.com Inc. (NASDAQ: AMZN) posted strong earnings Wednesday after the close, proving its growth days aren't over in this weakened economy hurt by high gas prices. Not only did it beat estimates -- with a 41% climb in revenue to $4.06 billion compared to $3.96 expected, and EPS of 37 cents compared to expectations of 26 cents -- but it also raised its full-year revenue projections. AMZN shares are climbing about 6.5% in premarket trading.
DuPont (NYSE: DD), a competitor of Dow Chemical (NYSE: DOW), reported earnings for the second quarter today, and as Melly Alazraki stated in her Before the Bell article, agriculture helped drive results and earnings. Expectations were not just met, they were beaten by four pennies. The call was for $1.07 in earnings per share by analysts, and DuPont delivered, on an adjusted basis (excluding $0.07 related to a litigation benefit and a better tax rate), $1.11 per share. Last year at this time, DuPont reported $1.04 per share for the bottom line, giving the company about a 7% growth rate.
Shares are up as of this writing by a little under 2%. Not a bad increase considering DuPont is a stodgy Dow Jones component. But it's not exactly an exciting price rally, and it basically reflects my feelings for the earnings results. They were decent enough, but they weren't so overpoweringly good that I'd want to initiate a position in DuPont. And that's saying something, because the business is cheap on a forward-looking basis and from a dividend-yield point of view, in my opinion. DuPont thinks it can do somewhere between $3.45 and $3.55 per share for the fiscal year. With shares trading around $45, that gives the stock a decent valuation.
Yet, DuPont used cash for operations in its first six months, and capital expenditures have increased. Will the economy be kind to DuPont in the coming months? That's the wild card these days, the dreaded economy. Yes, DuPont may have done all right this quarter, but I don't need to buy it. I can look elsewhere for more compelling ideas.
Disclosure: I don't own any company mentioned; positions can change at any time.
Again this week, in a list of earnings expectations for some prominent companies in a variety of sectors, we see an apparent optimism. That is, analysts are anticipating more earnings growth than earnings declines.
Analysts surveyed by Thomson Financial expect the following companies to report a rise in earnings when compared to the same period of the previous year.
The credit crunch is not going away, and as a result, there has been a sharp fall-off in leveraged buyouts (LBOs). Basically, only relatively small LBOs -- between $1 billion to $2 billion -- are getting done.
But there is a bright spot: strategic acquisitions. If anything, we are seeing a variety of mega deals in this category. A survey from Dealogic shows that – as of June 25 – there were $597 billion in strategic M&A transactions, only 2% down from last year's total.
U.S. stock futures were lower Friday morning after General Electric (NYSE: GE) reported its flat quarterly profits and as concerns remain over the problems at government sponsored mortgage companies Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). Some economic data is also on tap, but barring any breaking announcements, it seems stocks will drop at the start of trading, especially if oil continues its way up.
On Thursday, U.S. stocks managed to post gains. What might have given a big push to stocks, a large multi-billion takeover of Rohm and Haas by Dow Chemical, was offset somewhat by concerns over the solvency of Fannie Mae and Freddie Mac and another surge in oil prices. The Dow industrials ended 81 points higher, or 0.73%, the S&P 500 rose 8 points, or 0.7%, and the Nasdaq Composite added 22 points, or 1.03%.
Oil concerns may very well continue today as crude oil rose for a third day, to within $1 of a record, on supply concerns rising from a possible strike on Brazil oil platforms coupled with further unrest in the Middle East and Nigeria. Oil already soared $5.60 Thursday, or 4.1%, to settle at $141.65 a barrel. Today, crude oil for August delivery rose as much as $3.45, or 2.4%, to $145.10 a barrel on the New York Mercantile Exchange
On the economic front, May trade balance is due out at 8:30 a.m. EDT. At the same time, import and export prices in June will be released. The University of Michigan also is due to release at 10:00 a.m. a preliminary reading on consumer sentiment in July.
That things aren't going well for the economy, the informed investor / reader does not have to be reminded about.
You don't need to be a financial editor with a Ph.D. in international economics to detect that.
Or, as CNN's Larry King would say, "For this, he went to school?...To tell me that things aren't going too well for the United States, these days, economically?"
Further, you can cite a dozen or more statistics that can give you a pretty good evaluation or thumb nail sketch of the U.S. economy's health - - gross domestic product, or GDP, being one of the best - - and prudent investors / traders monitor them.
But if you want a quick, summary indicator - - a snapshot of the health of the U.S. economy in-an-instant, if you will, check one index: the Dow Jones Industrial Average - - the most cited and widely recognized stock market index in the world. It's also still the most important stock market index in the world.
The industrials set the tone
During faddish or frenzied times or during the financial world's latest fascination with a new sector or sector index, Wall Street veteran Michael Metz, chief investment strategist at Oppenheimer & Co., undoubtedly will be seen saying something like this, "Friends, it is called the Dow Jones INDUS-TRI-AL Average, not the biotech average."
Metz's point is obvious enough, but somehow regularly forgotten by typical investors and professional market participants, alike: to gauge the health of the economy, monitor the industrials, and for a snapshot of the above, monitor the Dow.
In the decades since its inception, many indexes and indicators, all relevant and illuminating, have followed - - the S & P 500,Nasdaq,Russell 2000, and countless sector indexes - - but if you want to take the pulse of the U.S. economy, and more broadly, and by extension, the health of United States / the state of the union, keep your eye on the Dow.
TheStreet.com's Jim Cramer says its stunning buy of Rohm & Haas will get people thinking about an energy top.
Just when you thought it was safe to short anything, particularly anything with any commodity exposure, Dow Chemical (NYSE: DOW) (Cramer's Take) comes along and inexplicably pays a gigantic amount of money, $78 in cash, for Rohm & Haas (NYSE: ROH) (Cramer's Take)? My first thought was that it must be a joke. That is inconceivable. A hoax. Something perpetrated by frustrated longs to spook the shorts.
I mean, a chemical company? Two chemical companies? Ground Zero for slowing economic activity and raw costs? People unsure if Dow could even pay its nearly 5% yield? I mean, even last night on my show, I made fun of the idea that people are confusing Becton Dickinson (NYSE: BDX) (Cramer's Take), a medical supply company, with a chemical company because it uses resin.
The $810 billion bailout plan was just approved by the House of Representatives after a second vote by a margin of 263-171. That's a lot of taxpayer money for a plan that misses the target. And with stocks falling well off the highest levels of the day, I gather that investors are not too surprised that it passed.
All are positive data points that suggest that the U.S. economy, while it's certainly not in the midst of robust growth, has not run totally into a ditch, either. 
For all practical purposes, today was a win when you consider how Hurricane Gustav's threat to the oil infrastructure in the Gulf of Mexico is looking like a real scare. The August 5 
Today felt like a mini-me version of yesterday's 180-point DJIA sell-off. Again, thin volume persisted. Perhaps the oil traders got an upper hand on some weather forecasting models, putting Tropical Storm Fay back into the Gulf of Mexico with a very promising 25% chance of happening. This would put the oil infrastructure at risk. A super-high PPI report put wholesale inflation up 1.2% (double estimates) at the 
Major U.S. stock indices moved higher on Tuesday. As of 2 pm, the Dow was up 200 points or 1.7%, the Nasdaq was up 45 (2%) and the S&P 500 was up 20 (1.6%). 
Stock futures were mixed Thursday morning, indicating a similar start to U.S. stocks. While the S&P 500 showed weakness ahead of housing data to be released at 10:00 a.m. EDT, the Nasdaq composite was slightly positive after Amazon.com reported strong earnings Wednesday. Investors also braced for Ford's earnings, which indeed posted double the estimated loss. The 
DuPont
The credit crunch is not going away, and as a result, there has been a sharp fall-off in leveraged buyouts (LBOs). Basically, only relatively small LBOs -- between $1 billion to $2 billion -- are getting done.
That things aren't going well for the economy, the informed investor / reader does not have to be reminded about. 
Dow Chemical (NYSE: DOW) announced it will acquire Rohm and Haas (NYSE: ROH) for $78 per share. 
Should you sell into today's rally? Yes, if you think there are more surprises to come (I do)
The week in preview: Mulling over techs, financials
'Crash-and-burn economy?' 'Bailout beer bust?' What should we call America's economic disaster?
