Markets start hot after Gustav potential negated, gains can't hold

Hurricane Gustav came and went through the US Gulf region without anywhere near the devastation of Katrina three years ago. On this news, commodities fell, led of course by oil, dropping around $7 in the early going, before oil settled at around $110 a barrel.

The Dow led the majors with a morning gain of over 200 points (1.7%), followed closely behind by Nasdaq and the S&P. Sector-wise the morning rally was broad, except of course for Energy and Materials. Energy as a sector was down almost 5% at the end of the day.

A fall in the Supply Management Manufacturing index to 49.9, which below 50 means contraction, added to the skittish nature of nervous trading on the day. From the morning highs, the downslope of the US majors (Dow, Nasdaq and S&P) mirrored one another leading to a day filled with red quote boards. The Dow finished down 26 points, the Nasdaq down 18 and the S&P down 5.

Morning Market Musings 8/28

As the Democratic Convention rolled on with another star-studded political night, the morning Markets turned positive from the opening bell. While the majors opened nearly half a percent higher, several news points stood out.

Previous gloomy growth forecasts for the US economy were actually revised higher, as GDP for quarter 2 of the year came in at 3.3% growth versus the initially estimated 1.9%. However this result was propped up by the stimulus package provided in the quarter and economists still expect slowing growth for the rest of the year.

Freddie and Fannie continue their torrid rebound, as the 5 day tally for Fannie Mae (FNM) now stands at a 43% gain, and trying not to be outdone by it's mortgage partner in crime Freddie Mac's (FRE) 5 day tally stands at 65% in gains. As the yells of government bailouts turn into whispers and some optimism the street has rewarded these battered companies by showing Investment support. Quite the turnaround from even just a few days ago!

All is still not well with Sears Holdings (SHLD) as it continues to limp along from quarter to quarter with sales declines. Sears delivered an over 60% profit decline year over year, earning $65Million of $0.50/share all the while adding a gain that without would have pegged earnings at $0.21/share. The outlook? Not so bright either as the company predicted earnings to continue to fall compared to 2007 on a year to year basis.

iPhone comes to Russia via Vimpel Communications. The Russian mobile operator announced earnings earlier this morning and announced it had signed a deal to bring Apple's (AAPL) iconic mobile handset to Russia, being the first official carrier to do so. Russia has always been one of the largest grey-markets for iPhones, having an estimated 600,000 units floating around unofficially on local carriers. With no signs of exclusivity, Apple will likely continue negotiating an eventually offer the iPhone through other large Russian providers.

Disclosure: Author owns AAPL

Buyer Beware, Monday belongs to the Bears

Coming off the weekend and looking ahead to the start of school years the the Labor day holiday, Traders were decidedly negative with the markets today, selling off in droves. Once again uncertainty in the Financial sector was the biggest catalyst of downward pressure.

Stocks started the day lower with the major indices hitting bottoms by mid-day, staying around those levels through the rest of the trading session. AIG (AIG) stock was making the most noise after having its price target cut by an analyst at Credit Suisse, following Friday's rumblings of falling ratings against the insurance giant. AIG was down over $1 (around 5.5%) to under $19.

The debate over Financial sector strength has swung negative lately with the rumors of Lehman Brothers (LEH) potentially needing a bailout, or impending partial sale abroad. Coupled with the daily Freddie Mac (FRE)and Fannie Mae (FNM) exploits it makes for a Financial situation in the US as turbulent as any in recent memory. Although both Mac and Mae were up substantially in this session, the bottom dwelling trades have to be timed and even with slight rallies, the only real course of action for both appears to be a government-led bailout effort.

When that kind of talk is on the table not even a 3% jump in Existing Home Sales can rally this market on this day.

Hewlett-Packard's Strong Quarterly Showing

Not to be outdone by the 8 Golds won in Beijing by Michael Phelps, or Jamaica's Usain Bolt's 100-200m World Record double, Hewlett-Packard (HPQ) showed its quickness in dealing with eroding economic conditions and the apparent stagnation in technology spending. The company reported a quarter besting analyst expectations in all key metrics, sending shares higher.

The computer company reported earnings of $2.03Billion ($0.80/share and $0.86/share excluding certain costs), which compared favourably to the $0.84/share expected by analysts. On the revenue side, the street wanted $27.4Billion, but got $28Billion, another plus for HPQ. These positive kept coming for Investors in the form of guidance where HPQ was once again ahead of the curve, hitting analyst expectations for revenue and guiding profit a couple cents higher than previously anticipated.

One of the biggest growth areas, Notebooks, rose 26% for HP, keyed by demand in Europe and Asia, as the computer maker battles for the market share top dog prize with Dell (DELL). This was a big driver for the company this quarter in allowing it to post year over year profit and sales increases of 14 and 10% respectively. Now, Hewlett-Packard is a giant global company, and the attractiveness of foreign business in foreign currency has boosted the bottom line to be sure, but I for one like where management is going and what is being said. Even though a rising US Dollar may prove less favourable for foreign business results in the coming quarters HPQ is positioned in a growth area, with popular products.

While its dividend is nothing to write home about, it does pay one, and HP has I feel, significant growth in front of it, and that's where the money will be made on this investment. Even as the stock climbs several percentage points on the results, it is down about 15% from its highs of the past year, which means it'll have work to do through this quarter and next to rally back near those mid $50s ranges. But I feel much more comfortable hearing a CEO like Mark Hurd, coming out saying "We have a significant opportunity" rather than an executive group that complains about the economy or the tight wallet of today's consumer.

View the HPQ WikiChart on Wikinvest

Disclosure: Author holds no position in the above mentioned companies.

Home Improvement Retailer Earnings, Lowe's beats

Binford Tools is proud to present, quarterly earnings for America's Home Improvement retailers, starting with Lowe's (LOW). If whispers on Wall Street carry their typical pre-numbers influence, market's were looking for a confirmation that Tim Taylor's been telling his Cable TV audience Lowe's is in a better position than its bigger rival Home Depot (HD).

Many are expecting Home Depot to post another declining quarter, but for Lowe's results were mixed, skewed positive. While Profit dipped 8% to $0.64/share it was still better than analyst expectations of $0.56/share. Top Line revenue actually grew this quarter by 2.4%. An anomaly maybe, during an economic slowdown, due to the stimulus package approved by the Federal Government, but nonetheless an increase. And when considering Home Depot customers received the same stimulus, yet the street expects declines, it paints a slightly better picture for Lowe's. Granted neither company's outlook portrait will resemble the Mona Lisa anytime soon.

Lowe's had some positive to say in fact, as it increased the range of it's full year profit forecast from between $1.45-$1.55 per share to a range of $1.48-$1.56 per share. The vital thing here was raising the bottom for analysts allowing them to price Lowe's at a slightly higher multiple.

Coming from the lows, a terrible form of humour I know, Lowe's has rallied into these quarterly results. Up 23% over the last month, which is stretching both trailing P/E and forward P/E ratios away from those of HD.

While the economy is on the hearts and minds of traders, the feeling around the Home Improvement retailers is more of a wait and see approach, treating the government stimulus package as temporary relief. There isn't a growth or turn-around possibility here just yet. While Lowe's stores open more than a year had smaller sales declines than some expected, the fact remains that it's a tough investment pitch until Americans get back to comfort levels where they can renovate their homes, and with Lowe's being centralized in the US and Canada, that may be 6-12 months away yet. So until '09, I don't think so Tim.

Disclosure: Author holds no position in any of the above mentioned companies