Morning Watch, May 13
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May 13, 2008
Futures turn positive following a better than expected retail sales report. Concerns about inflation continue to be a problem for stocks with crude near record highs although down slightly again Tuesday morning. Wal-Mart ( WMT) is in the spotlight Tuesday after reporting earnings with home-builder Toll Brothers ( TOL) also in the news following its earnings report. In merger news, Hewlett-Packard ( HPQ) confirmed it would purchase EDS ( EDS) for $25 a share.
On Monday, shares of EDS soared Monday by more than 25 percent after rumors surfaced that HP would buy the company. This proved to be true with HP announcing it will buy EDS for $13.9 billion or $25 a share. On Monday, EDS shares closed at $24.13, so it will see some mild gains Tuesday. HP shares are slightly lower in pre-market trading despite the fact the company preannounced that earnings would best estimates and raising FY08 guidance.
Retail sales for April were released this morning and this provided a turnaround in futures. The headline figure was actually worse than expected, falling 0.2 percent. However, when autos are excluded, retail sales rose a solid 0.5 percent, 2-tenths more than anticipated. In the past year, retail sales are up 2.0 percent overall, but up 4.5 percent when autos are excluded.
Speaking of retail sales, the world''s largest retailer reported earnings that exceeded estimates, but provided a disappointing outlook. WMT stated that earnings in the quarter rose 6.9 percent to 76-cents a share. However, the retailing giant also stated that second-quarter profits would be in a range from 78-cents to 81-cents with analysts calling for a profit of 81-cents. Overall, WMT shares are up slightly in pre-market trading after falling 2.5 percent on Monday.
The housing sector continues to be a major concern for the economy with no end to the weakness in sight. Toll Brothers reported preliminary results for the second quarter that showed a 30 percent drop in home building revenues. Net contracts were lower by 44 percent with the dollar value off 58 percent. TOL stated that the future will still be challenging. TOL shares are down more than two percent in pre-market trading, below $23.
Import prices rose 1.8 percent in April due to the costs for oil, which rose 4.4 percent. However, even non-petroleum import prices rose a sharp 1.1 percent. During the past year, import prices are up 15.4 percent. The fact is that rising prices for petroleum and food are starting to spread into core inflation. Despite a weak dollar, exports grew at a small rate of just 0.3 percent during the month of April.
Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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