MarketView for April 22

4
MarketView for Wednesday, April 22
 

 

MarketView

 

Events defining the day's trading activity on Wall Street

 

Lauren Rudd

 

Wednesday, April 22, 2009

 

 

 

Dow Jones Industrial Average

7,886.57

q

-82.99

-1.04%

Dow Jones Transportation Average

2,924.86

p

+35.64

+2.22%

Dow Jones Utilities Average

326.11

q

-4.20

-1.27%

NASDAQ Composite

1,608.21

p

+35.64

+2.22%

S&P 500

843.55

q

-6.53

-0.77%

 

 

Summary  

 

Morgan Stanley did its part to revive concerns regarding the banking sector on Wednesday after it posted its second straight quarterly loss and slashed its dividend. The result was that both the Dow Jones industrial average and the S&P 500 closed out the day in negative territory.

 

Morgan Stanley slid 9 percent to $22.44 after it posted its third loss in six quarters on real estate losses and a charge wiped out fees and trading profits. Banks have been a key component in leading the six-week rally that drove the broad S&P 500 up nearly 25 percent from March's bear market lows.

 

The Nasdaq, however, managed to eke out a gain after AT&T reported earnings that managed to exceed expectations. At the same time an analyst wrote that AT&T’s iPhone partnership with Apple is beginning to add to AT&T’s profits rather than hurt them, with the result that the entire tech sector benefitted. AT&T ended the day up 1.8 percent to close at $25.74

 

The market, which had been up much of the day as Wall Street began to take to heart comments suggesting that corporate profits were stabilizing, has been sensitive to the outlook for banks ahead of the government's "stress test" results expected in the days ahead. Before the sell-off in the last hour, the stock indexes had been driven higher by brighter outlooks from companies reporting quarterly results.

 

JPMorgan recommended that Caterpillar should make up a larger part of investors' portfolios, and Caterpillar's stock rose 3.4 percent to $32.45, making it the Dow's biggest gainer of the day.

 

After the closing bell, Apple posted stronger-than-expected quarterly results and gave a typically conservative outlook for the current quarter, sending its shares up 2.4 percent to $124.40.

 

Shares of EBay rose 6.2 percent to $15.70 in extended-hours trading after the online auctioneer reported lower quarterly earnings, sales and profit margins.  Nonetheless, the company said it was still able to exceed Street expectations.

 

Qualcomm said that it was rescheduling its quarterly results due to advanced settlement discussions with Broadcom over legal disputes, but it also said second-quarter revenue and operating income met or exceeded prior guidance. Qualcomm's stock rose 7.4 percent to $24.28 in extended-hours trading.

 

During the regular session, Gilead Sciences rose 5.7 percent to $46.22 and contributed the most to the Nasdaq's gain after its quarterly earnings number exceeded estimates on increased sales of its drugs to treat the virus that causes Aids.

 

Semiconductor stocks were a bright spot following strong quarterly results from SanDisk.

 

Boeing rose 1.8 percent to $37.30 after the aircraft manufacturer lowered its full-year outlook, but remained ahead of expectations.

 

GM Plans To Default On Bond Payment

 

General Motors is unlikely to make a $1 billion debt payment due June 1 because it expects to be in the process of restructuring its debt through a voluntary exchange or bankruptcy court by that point, a spokeswoman for the automaker said on Wednesday.

 

GM has been given until June 1 to win sweeping concessions from creditors, including bondholders and the United Auto Workers union, under the terms of its U.S. government supervised restructuring.

 

Spokeswoman Renee Rashid-Merem said GM was working to offer a bond exchange that would reduce the $28 billion in debt owed to bondholders. Such an exchange could still be in progress as of June 1, precluding the bond payment, she said.

 

"Should we be required to finish our restructuring within the court process, the June 1 bond payment would be unlikely as well," Rashid-Merem was quoted as saying.

 

GM Chief Financial Officer Ray Young earlier was quoted as telling the Wall Street Journal that the company was not planning on making its June 1 bond payment.

 

Qualcomm May Finally Settle With Broadcom

 

Qualcomm said on Wednesday that it was in advanced settlement talks with Broadcom over their legal disputes and that its quarterly results would meet or beat estimates, sending both companies shares up.

 

Qualcomm also rescheduled its quarterly earnings announcement to April 27 at the last minute on Wednesday saying that if the companies did reach a global settlement it would impact results for its second fiscal quarter ended in March.

 

The companies have been involved in legal battles, spanning several years and three continents, related to allegations of technology patent infringement and anti-competitive behavior. While Broadcom has won many of the recent court battles, it ahs been expected that the two companies would come to some kind of an agreement. Shares of Qualcomm rose 4 percent after the news and Broadcom shares rose 7 percent.

 

Qualcomm, which would not comment on the talks, said that there was no assurance it would be able to reach a final agreement with Broadcom over their disputes.

 

After Broadcom's earnings report on Tuesday, its Chief Executive Scott McGregor indicated that he was still interested in reaching an agreement with Qualcomm but that there was no news suggesting they were any closer to a deal.

 

"I've said all along that our hope is to eventually find a way to settle with Qualcomm. Someday I hope that happens, but I certainly don't have any news that would suggest we're closer," McGregor said.

 

Broadcom had said on Tuesday that it was filing a lawsuit against Emulex, a company for which it made an unsolicited acquisition bid.

 

Legal battles between Qualcomm and Broadcom include cases brought before US trade regulators, European regulators and Korean regulators as well as the California courts.

 

Last year Qualcomm settled a long-standing dispute with Nokia after they reached an agreement about patent royalties. Although Qualcomm has suffered along with its rivals from weak chip demand because of the recession, the company had been widely expected to meet quarterly targets.

 

On average, the Street had been expecting Qualcomm to report a second-quarter earnings of 41 cents per share on revenue of $2.35 billion.

 

AT&T Benefits From Apple

 

AT&T posted a smaller-than-expected drop in quarterly earnings on improved margins for its wireless service, helped by the iPhone, and strong growth for its video and high-speed Internet service. Subsidies for Apple's iPhone was a drag on earnings in recent quarters, but the partnership is now starting to help rather than hurt earnings as users of the touch-screen phone purchase increased amounts of data services.

 

AT&T's first-quarter profit fell to $3.13 billion, or 53 cents per share, from $3.46 billion, or 57 cents per share, a year earlier. AT&T reported a wireless profit margin of 40.9 percent. According to the company, 1.6 million Apple iPhone customers had activated services on the AT&T network during the quarter, more than 40 percent of whom were new to the telephone operator.

 

AT&T added 1.2 million net cell phone customers in the quarter. However, it still trails Verizon Wireless and Vodafone in mobile phone customers. There is also some concern that AT&T, the exclusive U.S. provider for the iPhone, depends too heavily on one device. It is estimated that three-quarters of AT&T’s net new monthly bill-paying customers are iPhone users.

 

AT&T has lost 155,000 prepaid customers who pay for calls in advance in the quarter, likely the result of pressure from a new $50 per month plan for unlimited services from Sprint Nextel. Chief Financial Officer Richard Lindner told analysts on a conference call that AT&T was testing new options for prepaid services including a $3 a day option for unlimited calls.

 

AT&T's revenue fell 0.6 percent to $30.57 billion, a number that was below forecasts of $31.06 billion. Lindner told analysts that wired voice services were putting pressure on revenue because business clients are paring back costs and some consumers continue to disconnect home phones.

 

"As we go forward in the year we will continue to see some pressure as we see reductions primarily in wire line voice revenues, but we're going to stay focused on costs," he said.

 

Lindner said he saw no significant change in his view of the economy from the fourth quarter to the first quarter. During the recession, AT&T will continue to focus on growth areas, both in the United States and abroad, he noted.

 

Aside from wireless data services AT&T is also pitting its U-verse video service against cable TV providers like Comcast and DirecTV. It added 284,000 U-verse subscribers in the first quarter, giving it a total subscriber base of 1.3 million. U-verse additions were ahead of three analysts' estimates that ranged from 240,000 to 281,500, and above the service's fourth-quarter additions of 264,000 subscribers.

 

AT&T added 359,000 broadband Internet subscribers in the first quarter.