Raising the Minimum Wage
Europe Close -Ouch!
FTSE -2.2pc , 5,595.55 points, CAC – 3.1pc, DAX- 2.5pc.
Canadian Stocks Fall on Weak China Import Data
Bernanke says financial stability a work in progress
Bernanke Wants to Ensure Volcker Rule Doesn’t Impair Liquidity
Federal Reserve Chairman Ben S. Bernanke said the Fed will attempt to ensure a regulation aimed at limiting risk-taking by banks doesn’t impede liquidity in global financial markets.
“The Volcker rule raises a lot of complexities, including some international differences,” Bernanke said today in reply to audience questions after a speech in Stone Mountain, Georgia.
“We have heard a number of concerns made” from regulators outside the U.S. that liquidity in foreign government securities could be impaired, Bernanke said. The Fed will “support the market making function and the liquidity in critical financial markets,” he said.
The so-called Volcker rule, named for its original champion, former Fed Chairman Paul Volcker, is aimed at reducing the odds that banks will make risky investments with their own capital and put depositors’ money at risk.
Bernanke said on Feb. 29 that the central bank and other regulators won’t meet the July deadline to complete work on the Volcker rule. The Fed has received over 17,000 comment letters on the proposal.
U.S. Stocks Decline Before First-Quarter Earnings Season
U.S. stocks fell a fifth day, giving the Standard & Poor’s 500 Index its longest decline since November, before the start of the first-quarter earnings season.
Alcoa Inc. (AA) slid 1.4 percent as it becomes the first company in the Dow Jones Industrial Average to report results. PPL Corp. (PPL) fell 1.7 percent as the energy and utility holding company will sell 9.9 million shares. Best Buy Co. (BBY) reversed a gain of as much as 4.8 percent after the electronics retailer said Chief Executive Officer Brian Dunn would resign. Dell Inc. (DELL) rose 2.2 percent as it’s teaming up with Lockheed Martin Corp. to pursue the U.S. government’s biggest information technology contract.
The S&P 500 retreated 0.5 percent to 1,375.87 at 10:25 a.m. New York time. The benchmark measure for American equities has fallen 3.1 percent in five days. The Dow average decreased 71.03 points, or 0.6 percent, to 12,858.56 today.
“We’re in a temporary slowdown,” James Swanson, who oversees about $250 billion as chief investment strategist at Boston-based MFS Investment Management, said in a telephone interview. “I don’t think there’s any rush to be involved in the market here. This will be a soft quarter in earnings. Yet it’s not time to freak out. The market has come a long way, but it is not overvalued and earnings will continue to come back.”
The S&P 500 has risen 9.4 percent so far this year amid better-than-estimated economic and corporate earnings reports. While S&P 500 per-share profit growth slowed to 0.8 percent during the first three months of the year from 4.9 percent in the fourth quarter and 15 percent in the three months ended in September, it will accelerate to 8.3 percent during all of 2012, according to analyst estimates compiled by Bloomberg.
The benchmark gauge dropped 1.1 percent yesterday after employers added fewer jobs than forecast in March. Federal Reserve Chairman Ben S. Bernanke yesterday said the U.S. economy hasn’t fully recovered. Spain’s efforts to calm investors with an additional 10 billion euros ($13 billion) of budget cuts in education and health failed to stem concerns the nation may be the fourth euro member to need a bailout. The yield on Spain’s 10-year benchmark bond surged today.
Alcoa, the largest U.S. aluminum producer, lost 1.4 percent to $9.47. It is scheduled to release its first-quarter results after the market close.
PPL declined 1.7 percent to $27.19.
Best Buy lost 4.1 percent to $21.73. The company said board member G. Mike Mikan would take over the CEO position on an interim basis. The change was a “mutual agreement” that new leadership was needed, the Richfield, Minnesota-based company said today in a statement. A committee of directors has been created to search for a new CEO, the company said.
Dell gained 2.2 percent to $16.58. The company would provide computers and support services as part of the five-year, $7.5 billion Navy agreement, said George Newstrom, general manager of Dell Services’ federal government business.
Supervalu Inc. (SVU) surged 8.3 percent to $5.76. The supermarket and pharmacy chain forecast 2013 earnings excluding some items of at least $1.27 a share, beating the average analyst forecast of $1.19.
American International Group Inc. (AIG) increased 0.9 percent to $32.29. The insurer was raised to the equivalent of buy at Wells Fargo & Co., which cited a “likelihood that the company will be independent from the U.S. government over the course of the next year.”
“A significant disconnect” between stock valuations and bond yields in the U.S. has made equities relatively cheap, according to Binky Chadha, Deutsche Bank AG’s chief global strategist.
Ten-year Treasury yields would have to rise about 120 basis points to track the estimated price-earnings ratio for the S&P 500 as they did during the first three quarters of 2011, Chadha wrote in an April 5 report. Each basis point amounts to 0.01 percentage point. The government security yielded 2.04 percent as of yesterday.
The differential primarily reflects the Federal Reserve’s plan to keep its benchmark interest rate close to zero at least through late 2014, in his view.
“The Fed’s outlook for unemployment and inflation is therefore key” in determining when the gap might close, Chadha wrote. Policy makers for the central bank are scheduled to meet on April 24-25.
Stocks are a bargain with the S&P 500 at about 13 times analysts’ projected earnings for this year, the New York-based strategist wrote. He cited a December report in which he called the index fairly valued at 15.4 times future profit.
Bernanke Calls on Regulators to Curb Shadow Banking Risks
Profit Growth Stalls as European Slump Hampers Recovery
Earnings at Standard & Poor’s 500 Index companies, excluding financials, are seen gaining 0.6 percent in the first and the second quarter from a year earlier, according to analysts’ estimates compiled by Bloomberg, the slowest growth rate since 2009.
he European debt crisis and a slowdown in China are hurting S&P 500 companies, which derive about 40 percent of profits from abroad. At home, where the S&P 500 Index had its biggest first-quarter rallysince 1998, consumer confidence is improving along with the job market — boosting demand for construction companies and retailers.
“While the U.S. economy is the cleanest shirt in the hamper at the moment, we’re only talking about an economy that’s motoring along at a subpar pace,” said Mark Luschini, chief investment strategist for Philadelphia-based Janney Montgomery Scott LLC, which manages about $54 billion. “The only way you’re going to see higher profitability is through faster growth.”
The U.S. economy will accelerate 2.2 percent this year, up from 1.7 percent in 2011, according to the average of 72 estimates compiled by Bloomberg.
Full Recovery ‘Far’
Federal Reserve Chairman Ben S. Bernanke said yesterday the economy hasn’t fully recovered.
“About three and a half years have passed since the darkest days of the financial crisis, but our economy is still far from having fully recovered from its effects,” Bernanke said in a speech in Stone Mountain, Georgia.
Last month, China pared its growth target to 7.5 percent from an 8 percent set in 2005. The 17-nation euro economy is projected to contract 0.4 percent in 2012, with recessions in countries including Greece and Spain.
“If you do business in Europe, that’s going to be hurting,” Jim Paulsen, who helps oversee about $333 billion as chief investment strategist at Wells Capital Management in Minneapolis, said in a phone interview last week. “You certainly are seeing some slowing trends in the emerging world.”
Alcoa Inc. (AA), the biggest U.S. aluminum producer, will be the first company in the Dow Jones Industrial Average to announce results when it reports today. The New York-based company is projected to post a loss of 4 cents a share, according to the average of 19 analysts’ estimates, compared with profit of 28 cents a year earlier, hurt by an average 12 percent aluminum- price decline in the quarter.
Earnings growth will speed up in the second half for S&P 500 companies, with a projected gain of 6.9 percent for 2012, driven by an accelerating recovery in the U.S. and improving emerging markets.
“Some of the emerging market economies that have been weak, like China for example, should start to rebound,” Barry Knapp, head of equity strategy at Barclays Capital Inc. in New York, said in an interview last week. “The numbers could be a little better in the second half.”
Europe is crimping General Electric Co.’s (GE) health-care sales and demand for 3M’s consumer products. GE, the world’s largest maker of medical imaging equipment, may see sales drop 10 percent at its health-care unit in Europe as governments cut spending as part of austerity measures.
GE, 3M Estimates
“Health care is going to be pretty challenging,” Jeff Sprague, co-founder of Vertical Research Partners in New York, said in a telephone interview. “That’s where the impact is going to be most visible and in other businesses it’s going to be felt more around the margins.”
GE, based in Fairfield, Connecticut, is projected to report earnings of $3.43 billion, according to analysts, down 2.3 percent from a year earlier.
3M Chief Financial Officer David Meline said in January that the St Paul, Minnesota-based company anticipated from China “continued below-trend growth in the first half of 2012 with stronger growth returning in the second half.” Net income at 3M, which gets more than 20 percent of its sales from Europe and about 31 percent from Asia Pacific, will fall 5.2 percent to $1.05 billion, according to analysts’ estimates.
Declining demand in Europe is prompting Dow Chemical Co. (DOW), the largest U.S. chemical maker, to shut five factories and cut 900 jobs. Analysts project the Midland, Michigan-based company to post earnings of 58 cents a share, down from 82 cents a year earlier.
McDonald’s, the world’s largest restaurant chain, posted same-store sales for February that trailed analysts’ estimates after consumers cut spending in Europe. First-quarter net income at the Oak Brook, Illinois-based company may have increased 5 percent to $1.27 billion, according to analysts’ estimates, less than half the growth of the fourth quarter.
Analysts’ estimates for S&P 500 earnings growth have declined to 0.6 percent from 4.4 percent in the first week of January, according to data compiled by Bloomberg.
“Expectations have been coming down,” said Todd Lowenstein, a fund manager with Highmark Capital Management in Los Angeles, which oversees about $17 billion. “Companies have managed them down pretty well. This could set the table for some good beats for the quarter.”
Parker Hannifin Corp. (PH), a Cleveland-based manufacturer of fluid power systems, in January cut its full-year forecast as international demand slowed. Analysts predict earnings for the quarter that ended in March to drop 4.7 percent to $268 million, the average of eight estimates compiled by Bloomberg.
Apple Inc. (AAPL), the world’s most valuable company, will help boost S&P 500 earnings growth with an estimated 53 percent jump in quarterly profit to $9.2 billion. Since 2008, sales at the Cupertino, California-based company have quadrupled, driven by demand for the iPhone and iPad.
Other technology companies are posting unchanged sales and sagging profits as corporate purchases of equipment to boost productivity fail to make up for lower consumer sales.
Intel Corp. (INTC), the world’s largest chipmaker, may report that first-quarter sales were little changed from a year earlier at about $12.8 billion, according to the average of analysts’ estimates. Demand for its processors is beginning to recover from a slump in orders for computer parts caused by production shortages of hard disk drives, according to Suji De Silva, an analyst at ThinkEquity LLC.
Share repurchases will help Microsoft Corp.’s (MSFT) earnings per share to increase to 57 cents from 56 cents, according to analysts’ estimates. Net income will drop 6.9 percent to $4.87 billion. The world’s largest software company, based in Redmond, Washington, began a $40 billion, five-year share repurchase plan in 2008.
The yen strengthened today after Japan kept its key overnight rate unchanged and Bernanke made his comments about the U.S. economy not having fully recovered.
The Stoxx Europe 600 Index decreased 1.3 percent at 8:43 a.m. in New York as trading resumed after most European markets were closed yesterday. Standard & Poor’s 500 Index futures rose 0.1 percent after the gauge declined 1.1 percent yesterday.
Sony Corp. (6758JT) today posted a record loss of 520 billion yen ($6.4 billion) for the year ended March 31, more than double what it had predicted in February, after taking a charge to write down deferred tax assets. Kazuo Hirai, who replaced Howard Stringer as president and CEO, is set to unveil details of his strategy to turn around the company April 12.
Sharp Corp. (6753JT), Japan’s largest maker of LCD panels, also posted a record loss of 380 billion yen in the year ended March 31, more than its earlier forecast. Sharp in February predicted a loss on slumping prices for its Aquos televisions, an economic slowdown and a tax charge.
Toyota Motor Corp.’s (7203) earnings per share may more than quadruple to 39 yen for the three months ended March 31, from about 8 yen a year earlier, according to the average of three analysts’ estimates compiled by Bloomberg.
The automaker is working to increase U.S. sales 15 percent this year, which would bring it to about 1.89 million vehicles, or about 600,000 fewer than General Motors Co. sold last year in its home market.
German automakers Daimler AG (DAI) and Volkswagen AG in 2012 may match last year’s record operating profit as increasing sales in the U.S. and China offset a market slump in Europe, where industrywide deliveries are expected to drop for a fifth straight year.
Bayerische Motoren Werke AG (BMW), the world’s largest maker of luxury cars, forecast last month that pretax profit this year will beat 2011’s result on demand for the next-generation 3- Series sedan.
Daimler, the world’s third-largest maker of luxury cars, boosted Mercedes-Benz brand sales in the first quarter 12 percent to 313,902.
GM will probably report first-quarter earnings, excluding some items, fell to 83 cents a share from 95 cents a year earlier as the automaker struggled with losses in Europe and saw U.S. market share decline.
The U.S. economy is powering profits of companies such as Caterpillar Inc. (CAT), the world’s largest maker of construction and mining equipment, as North American customers replace aging fleets after delaying purchases during the recession. Caterpillar, based in Peoria, Illinois, is expected to report earnings per share of $2.12 in the first quarter, a gain of 15 percent from a year earlier.
“The industrial recovery continues despite macro worries,” Stephen Volkmann, a New York-based analyst for Jefferies & Co. who has a buy rating on the shares, said in a report March 20.
Banks may see about 10 percent less revenue from trading than in the first quarter of 2011, according to Keith Horowitz, an analyst at Citigroup (C) Inc. Low interest rates may also continue to put pressure on lenders’ net interest margins, the difference between what banks pay on deposits and charge for loans, KBW Inc. analysts led by David Konrad said in a note.
Outsized Profit Gains
JPMorgan Chase & Co. (JPM), the largest U.S. bank by assets, is estimated to report earnings of $4.53 billion, an 18 percent drop from the $5.56 billion it posted a year earlier. Citigroup will probably report a 1 percent increase in its earnings, while Bank of America Corp. (BAC)’s are estimated to be unchanged.
Banks will also see loan growth for the first time in three years, according to Chris Kotowski, an analyst at Oppenheimer & Co.
The S&P 500 Index (SPX) posted a 12 percent gain in the first three months of the year to 1,408.47, the biggest first-quarter increase since 1998. Stocks rallied following Greece’s bailout and on optimism about the U.S. recovery, Wells Capital’s Paulsen said.
“We’re already at record earnings and didn’t get paid for them,” Paulsen said of the profit gains in the last two years. “We don’t really need a lot of earnings from here. We just need them not to fall apart.”
Investors shouldn’t get too excited about 2 percent growth in the U.S., said Savita Subramanian, chief equity strategist with Bank of America in New York. That kind of growth won’t support the outsized profit gains that analysts had grown accustomed to as companies rebounded from recession, she said.
“We’re getting to a normal economy where earnings growth is getting a little more to the 6 to 7 percent range,” said Subramanian, who estimates that about 40 percent of S&P 500 Index profits come from overseas. “Analyst expectations are still a little too high.