MarketView for October 30

 

 

Summary

 

The stock market was closed for a second straight day on Tuesday due to Hurricane Sandy. This was the first time weather had resulted in a two-day market shutdown since the Great Blizzard of 1888. Exchanges expect to reopen on Wednesday.

 

NYSE Euronext said the New York Stock Exchange would open, although it will switch to fully electronic trading if necessary. The Nasdaq Stock Market will also be operating on Wednesday. Meanwhile, index futures stopped trading electronically at 9:15 a.m. on Tuesday and ended the session largely flat. S&P index futures ended 0.2 percent higher. Futures will reopen at 7 p.m. for the overnight session during European and Asian hours, closing again at 9:15 a.m. Wednesday morning.

 

Heightened volatility is expected when the markets do reopen, the result of pent-up demand. Certain sectors are seen as especially tied to the fallout from the storm, which caused major flooding from storm surge during high tides, along with extensive damage from high winds and lashing rain. Disaster-modeling company Eqecat estimates Sandy caused between $10 billion and $20 billion in total economic damages, with $5 billion to $10 billion in insured losses.

 

Construction sectors as well as retailers such as Home Depot may see a increase from the eventual rebuilding effort, though airlines, which were forced to cancel thousands of flights, could see sharp declines. Insurance companies will also be in focus.

 

Compounding the issue, Sandy arrived in the middle of the corporate earnings season. While some companies, including Pfizer, delayed releasing their results until the storm passed, others released theirs on schedule, including Ford and TD Ameritrade. With their results out but investors unable to trade on them, those stocks may see particular interest on Wednesday.

 

Chrysler Not Moving to China

 

Chrysler CEO Sergio Marchionne reaffirmed on Tuesday that the company is not moving Jeep vehicle production out of the United States to China after it became an issue in the U.S. presidential campaign.

 

Chrysler in an October 25 blog post had already rejected a statement made that day to a crowd in Ohio by Republican presidential candidate Mitt Romney that Chrysler was thinking of moving all Jeep production from Ohio to China.

 

Marchionne told employees by email on Tuesday, "I feel obliged to unambiguously restate our position: Jeep production will not be moved from the United States to China."

 

Romney, speaking last week to a crowd in Defiance, Ohio, said that he had read a news article that said Chrysler's Jeep brand is considering moving "all production to China."

 

Later, the Romney campaign aired an advertisement that did not repeat the move of production from Ohio but said that Chrysler is considering making Jeeps in China, which Chrysler has said.

 

U.S. President Barack Obama's campaign, in its own ad, said Romney was making a "false claim" and noted that Chrysler had challenged Romney's statement.

 

Ohio is seen by many political pollsters one of several key "swing" states in next Tuesday's presidential election.

 

Chrysler has been managed by Fiat since it emerged from its 2009 bankruptcy, when the Italian company took 20-percent ownership. Marchionne is chief executive of both Chrysler and Fiat.

 

Fiat has since increased its ownership to 58.5 percent after achieving several goals, including building a fuel-efficient compact car made in the United States and increasing Chrysler sales outside its North American base.

 

Romney's ad and his comments in Defiance state that Chrysler has been taken over by an Italian company. Chrysler is based in Auburn Hills, Michigan, outside Detroit. Defiance is about an hour's drive to the main Jeep plant in Toledo, Ohio.

                          

Chrysler as early as June 2011 had said it was considering adding Jeep production in China.

 

"We are working to establish a global enterprise and previously announced our intent to return Jeep production to China, the world's largest auto market, in order to satisfy local market demand, which would not otherwise be accessible," said Marchionne in the email on Tuesday.

 

And he also reaffirmed previous Chrysler announcements about increasing its Jeep production at plants in Ohio, Illinois and Detroit.

 

"We will invest more than $1.7 billion to develop and produce the next-generation Jeep SUV, the successor of the Jeep Liberty -- including $500 million directly to tool and expand our Toledo Assembly Complex and will be adding about 1,100 jobs on a second shift by 2013," his email to employees said.

 

Marchionne said that Chrysler, including Jeep, has added 11,200 jobs in the United States since 2009.

 

"Jeep assembly lines will remain in operation in the United States and will constitute the backbone of the brand," said Marchionne in the email. "It is inaccurate to suggest anything different."

 

Disney to Acquire Lucasfilm

 

Walt Disney has agreed to acquire George Lucas's Lucasfilm and its "Star Wars" franchise for $4.05 billion in cash and stock, a deal that includes the promise of a new film in the series in 2015. Disney will pay about half the purchase price in cash and issue about 40 million shares at closing. 

 

Disney Chief Executive Bob Iger told analysts on Tuesday that the plan is to release a new movie in the series every two to three years thereafter. The last "Star Wars" picture was "Revenge of the Sith" in 2005, and Lucas has in the past denied any plans for more.

 

"It's now time for me to pass 'Star Wars' on to a new generation of filmmakers," he said in a statement. Lucas will become the second-largest individual holder of Disney shares, with a 2.2 percent stake. Lucas will remain as a creative consultant on the new films.

 

"This is one of the greatest entertainment properties of all time," Iger said. Like Disney's purchases of Marvel Entertainment and Pixar studio, LucasFilm will "drive long-term value to our shareholders," he said.

 

Chief Financial Officer Jay Rasulo said the deal would lower Disney's earnings per share by a low single-digits percentage in fiscal 2013 and 2014. He also said Disney would repurchase all of the issued shares on the open market within the next two years, on top of planned buybacks.

 

This agreement marks the third time in less than seven years that Disney has signed a massive deal to take over a beloved studio or character portfolio, part of its strategy to acquire brands that can be stretched across TV, movies, theme parks and the Internet.

 

In early 2006, Disney struck a deal to acquire "Toy Story" creator Pixar, and in the summer of 2009 it bought the comic book powerhouse Marvel.

 

Iger said he and Lucas first discussed a possible sale about 18 months ago. Lucas was pondering his retirement, and Iger was looking to add another well-known brand. The two signed the deal on Tuesday.

 

Iger told analysts he believed there was "substantial pent-up demand" for new "Star Wars" movies. Each of the last three films in the series would have grossed $1.5 billion in today's dollars at the box office, CFO Rasulo estimated.

 

The film's iconic characters also will boost Disney's sales of toys and other consumer products, particularly overseas, executives said. Sales of "Star Wars" items such as Darth Vader and Yoda action figures total roughly $215 million a year, Rasulo said.

In 2005, the year the last "Star Wars" film was released, LucasFilm generated $550 million in operating income, Rasulo said.

 

Disney also will be able to extend the presence of the franchise at its theme parks around the globe, Iger said. The company's parks already feature rides based on "Star Wars" and "Indiana Jones," another Lucas property.

 

Iger wouldn't commit to keeping the "Star Wars" operation separate from Disney, as he did with Pixar and Marvel. And Lucas will not join the Disney board despite his 2.2 percent stake in the company, Iger said. The late Apple CEO Steve Jobs, who held a large stake in Disney after it bought his Pixar studio, had a seat on the Disney board.