Archive for April, 2009

Wall St Week Ahead: Earnings deluge may stall rally (Reuters)

Sunday, April 19th, 2009 | Finance News

NEW YORK (Reuters) –
A torrent of earnings this week threatens to swamp Wall Street's impressive rally, as results so far have shown the corporate outlook remains murky and investors worry that better-than-expected results from banks still don't prove the sector is stable.

Investors will get a look at the performance of a swath of major companies, including everything from Wells Fargo(WFC.N) to Caterpillar(CAT.N), providing a broad look at the economy's health.

The market has been particularly sensitive to bank earnings after their dire straits brought the market to a 12-1/2 year low in early March. The latest quarter has come under increased scrutiny after dismal fourth-quarter results that showed the economy was gripped by panic at the end of last year.

Last week, Goldman Sachs (GS.N), JPMorgan Chase & Co (JPM.N) and Citigroup (C.N) all reported better-than-expected results for the first quarter, but analysts were wary of the results' sustainability and said they did not signal an all clear for the sector at the heart of the economic crisis.

"I think the market is somewhat skeptical on these better-than-expected financial earnings and are looking forward to getting more detail on that," said Scott Wren, senior equity strategist at Wachovia Securities in St. Louis.

Earnings for S&P 500 companies are expected to decline 37.4 percent in the quarter, according to Thomson Reuters data, with all 10 sectors taking a hit.

Economic indicators will be relatively light in the coming week, keeping earnings on center stage. But investors will be looking at data on new and existing home sales, as well as durable goods orders to see if the reports can extend the optimism sparked last month by signals that the economic slump may be waning.

BANKS AND BLUE CHIPS GALORE

Banks, which began reporting earnings last week, will continue to be in focus, with results from Bank of America (BAC.N), Wells Fargo and Bank of New York Mellon (BK.N) among the major ones.

Bank of America was among several banks that said last month they had made money at the beginning of the year, helping spark the rally that has seen the broad S&P 500 rack up six consecutive weeks of gains and an advance of close to 30 percent since early March.

Even more important than the numbers will be the guidance company executives give on their outlook going forward as market watchers try to get a handle on when the economy and corporate fortunes may improve.

"Visibility remains murky and what people are doing is trying to downplay expectations a little bit," said John Praveen, chief investment strategist at Prudential International Investments Advisers LLC in Newark, New Jersey.

"If you look at JPMorgan and Citigroup, even though they beat expectations, they said that looking ahead, times are going to be challenging."

The last earnings season was marked with companies withdrawing guidance or refusing to give any due to the inability to predict the depth and longevity of the financial crisis.

In all, 11 of the 30 blue-chip companies that make up the Dow will report this week, including International Business Machines (IBM.N), Caterpillar Inc, Merck & Co Inc (MRK.N), Boeing Co (BA.N) and McDonald's Corp (MCD.N).

Wells Fargo announced its preliminary results earlier in the month, saying it expects to post a record $3 billion profit for the quarter.

HOME SALES MAY HINT WORST IS OVER

But with so much optimism already pushing the S&P 500 up 28.5 percent from the bear market low, investors could take the opportunity to book profits this week.

"8,300 on the Dow suggests to me we've had such a nice run, the market is going to, at minimum, trade sideways for a while, if not undergo a more pronounced pullback (this week) after the expirations run its course," said Todd Clark, managing director of stock trading at Nollenberger Capital Partners in San Francisco.

Indeed, CitiFX analysts said in a note that with "so much perfection priced in," such as optimism over bank earnings and the economy, mark-to-market accounting changes, proposed changes on the uptick rule and the U.S. Treasury Department's toxic asset plan, the question is where the next piece of good news is going to come from.

Without another dose of "good news," the market could struggle to continue charging ahead from its March bear market lows, they added.

However, a pullback could be seen as a buying opportunity for investors on the sidelines who missed out on the current rally and have been waiting for a chance to get back into the market.

Reports on new and existing home sales and durable goods orders will be watched to see if they build on last month's signals that the recession may have hit bottom.

"The one focus will be on whether these green shoots that we saw last month will take deeper roots or whether they will have another cold spell that will freeze them out," Praveen said.

Other data on tap includes leading economic indicators for March and weekly initial jobless claims.

(Additional reporting by Chuck Mikolajczak; Editing by Jan Paschal)

(The Wall St Week Ahead column appears weekly. Comments or questions on this one can be e-mailed to leah.schnurr@thomsonreuters.com)

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U.S. can avoid bank nationalizations: White House (Reuters)

Sunday, April 19th, 2009 | Finance News

WASHINGTON (Reuters) –
The Obama administration thinks it can avoid nationalizing U.S. banks that are currently under scrutiny to see how well they would fare if the recession were worse than expected, the White House said on Sunday.

"I think we will be able to avoid that," White House Chief of Staff Rahm Emanuel said on ABC's "This Week with George Stephanopoulos." He added that bank nationalization was "not the goal" of the administration.

Emanuel, however, cautioned he had not seen the results of "stress tests" on 19 lenders whose balance sheets are being scrutinized by regulators. They include Citigroup Inc., Wells Fargo & Co.and Bank of America.

The findings will be used to determine who may need more government capital.

Officials have said they will take care that the test results do not damage the banks' reputations, but they are expected to give some stark orders on how the banks should rebuild as a result of the financial crisis.

(Writing by Paul Simao; Editing by Jackie Frank)

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U.S. transport Q1 earns watched for recovery signs (Reuters)

Sunday, April 19th, 2009 | Finance News

CHICAGO (Reuters) –
After an awful first quarter for the U.S. transport industry with precipitous drops in freight volumes across the board, analysts will be watching a slew of quarterly results in the coming week in hopes of seeing some sign of a recovery on the horizon.

As well as kicking the tires to see how U.S. railroads and trucking companies are weathering this recession, analysts will be parsing executive comments for any indication that the worst may be behind us.

"What we want to find out is if management teams are seeing any green shoots out there," said Todd Fowler, an analyst at KeyBanc Capital Markets. "Is there anything that might show we have shoved off the bottom of this downturn?"

The short answer is apparently no. While Fowler and other analysts say freight volumes appear to be stabilizing and that they expect the pace of decline to slow as 2009 progresses, a recovery this year is unlikely.

"Things are not getting better, but they're not really getting that much worse right now," said Lee Klaskow, an analyst at Longbow Research. "We don't think we'll see any growth until 2010."

Among the worst-affected transport stocks are those of trucking companies, which are now approaching the third anniversary of their very own "freight recession."

While most big truckers are seen surviving the downturn due to strong management and healthy balance sheets -- although No. 1 U.S. trucking company YRC Worldwide Inc (YRCW.O) is seen as more troubled -- analysts say it is till too early to buy these stocks.

HAMMER DOWN?

According to a monthly index produced by the American Trucking Association's, truck tonnage fell 9.2 percent in February. While bad, it was not as bad as January's 10.8 percent decline or December's 12.5 percent drop.

Despite the tough quarter, some truckers have reported upside results. Werner Enterprises Inc (WERN.O), for instance, beat expectations in part due to fuel-saving measures.

But while analysts say operators like these are performing well in the downturn -- the trucking downturn began back in the third quarter of 2006 -- there are too many trucks chasing too little business, which has pushed prices down. The expectation for some time has been that falling volumes would bankrupt enough small firms to lift the big operators.

However, falling fuel prices have served as a lifeline for small "mom and pop" firms.

"We're not seeing capacity exiting the market as quickly or as much as we had expected," KeyBanc's Fowler said. "This has not resulted in an improvement in pricing that the industry has been hoping for."

Truck stocks tend to do well on the leading edge of a recovery because truckers are on the front line of the economy -- the first to prosper in a boom and the first to bleed when things go south -- usually starting about six to nine months ahead of real economic growth. Analysts say that point appears to be still some way off.

"We are not ready to jump in with both feet on a large number of stocks yet," Stephens Inc analyst Thom Albrecht wrote in a note for clients.

Analysts are cautious on YRC, which is still restructuring its business and pre-reported first-quarter volume declines of 29 percent in its national network.

"We continue to recommend investors avoid the stock given the lack of stability at YRCW and concerns surrounding future financial flexibility," R.W. Baird & Co analyst Jon Langenfeld wrote in a not for clients.

CHUGGING ALONG

More analysts are bullish on the U.S. railroads as there are signs they have been able to hold the line on pricing and have, according to Klaskow, "incredibly low valuations."

Freight volumes at U.S. railroads are also off dramatically. For the first 14 weeks of 2009, volumes slid 17.2 percent, according to the Association of American Railroads

Of the four major railroads, so far only CSX Corp (CSX.N) has reported first-quarter results -- Union Pacific Corp (UNP.N), Burlington Northern Santa Fe Corp (BNI.N) and Norfolk Southern Corp (NSC.N) are yet to come -- beating analyst expectations thanks to strong pricing and cost-cutting measures, although its net income fell 23 percent.

"Is this as bad as it gets?" UBS analyst Rick Paterson wrote in a note. "If so we'll happily take it."

Morgan Stanley analyst William Greene wrote in a client note "we now expect most rails to outperform our first-quarter estimates," thanks to strong pricing and cost reductions.

Longbow's Klaskow said the railroads' long-term potential should have the stocks trading higher, but said concern over the economy and attempts by rail customers to change the way the rails are regulated have depressed their stock prices.

Burlington Northern has the highest valuation of the four and is trading at a little over 12 times estimated earnings.

But Klaskow said investor fears the railroads could face a regulatory overhaul that introduce similar conditions to those preceding rail deregulation in 1980 were overblown.

"The railroads may see a change in regulatory environment, but we're not going back to 1980," Klaskow said. "It's not going to be the end of the world."

(Editing by Matthew Lewis)

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