17 September, 2007

Markets Drift Lower Day Before Fed Announcement

North American markets took a breather today drifting steady but lower throughout the day. The major indices were all off less than 0.8% in both American and Canadian Trading. All eyes are going to be on the Fed announcement tomorrow as market watchers prepare for anticipated interest rate cuts.

Of note in today's session was the early news out of Europe that the EU (European Union) upheld previous court ruling against Microsoft (MSFT) in their anti-competitive practices case. The software giant was accused of bundling Windows Media Player with its Operating System thus shutting out competitors. It was also accused of not allowing competition in the server space by not allowing competitors to properly design software so Servers and Computers could communicate as well as Microsoft only solutions.

The ruling was a big loss for Microsoft and it included over $600Million in fines. It also opens a door of precedent for other big firms who dominate their industries, especially in technology, to potentially be caught in the EU sights.

Bad News came after the market closed for investors of NovaStar Financial (NFI) as the firm deleted its dividend for this calendar year. The company is set up as a Real Estate Income Trust and had to pay shareholders but it has now lost that REIT status and shocked investors by totally cutting off this year's payout. This poses a dire outlook for the company as it tries to stay in business being a mortgage lender at a time when companies in its industry seem to be cutting jobs and falling left and right by the wayside. Shares of NFI were down almost 20% after hours.

While the Federal Reserve rate decision remains the focal point of trading this week, Apple (AAPL) its own special event in London. Most rumors suggest that the company is ready to unveil its partners in Europe for the iPhone. The announcement is taking place well before American markets open tomorrow and will be another catalyst for a company that is itching to break out to new highs as soon as the credit crisis subsides. All that comes from this announcement may be lost if the market perceives any Fed action as negative.

Investor should stay on the sidelines till the market can find a direction either way after the Fed announcement. While analysts and stock market experts are predicting a fall no matter what the Fed does, I am cautiously optimistic that the markets will recover from this rather quickly and would use dips as buying opportunities in fundamentally solid growth companies.

Disclosure: Author owns AAPL, NFI


Mike Carpenter said...

Interesting. Who else do you see the EU possibly focusing on?

Novastar is done. Good riddance.

And what do you expect out of the big investment banks this week? I find it interesting that none of them have issued any earning warnings thusfar.

Bank America did say that their earnings would be impacted today though.

Chris Krasowski said...

It's been talked about in the news throughout the day but the EU I think will be very watchful of the AMD complaint over Intel and its price fixing practices. Also Apple is being questioned over its iTunes pricing in different countries. Although I don't think this will be a hiccup as iTunes pricing is mainly based on what the record labels want as a percentage. Also pricing between countries in Europe is tough as the Euro is strong as is the British Pound.

NovaStar is indeed struggling and I'm cautious on the Banks and Investment Banks. Although I like the comebacks from the lows that some of the IB's have made I think the losses have piled up over the last months and expectations will be tough to meet. However I think traders know this and will be looking to guidance for assurances.

Chris Krasowski