Morning Watch, August 5
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August 5, 2008
Stocks rally ahead of FOMC meeting as oil prices continue to decline. A change in rates is not expected from the committee, but the statement could impact trading. In earnings news, Proctor & Gamble (PG) and Archer Daniels Midland (ADM) both reported. Stocks have been rather volatile the past few weeks with triple digit moves for the Dow ($INDU) rather common and we can expect to see volatile moves following the Fed statement this afternoon.
Oil prices have been the story once again Tuesday with the commodity falling below $120 in early trading. Analysts feel that the commodity could easily fall back to support at $100 a barrel and this has provided some incentive for the bulls. The fact that Tropical Storm Edouard didn’t turn into a hurricane as it hit land in the Gulf was a relief and has helped push oil prices lower.
In earnings news, PG bested results on both the top and bottom line with earnings up 19 percent and sales up 10 percent. The conglomerate reported revenues of $21.27 billion. Earnings per share of 80-cents beat estimates by 2-cents and the company provided guidance that was in line with expectations. These results pushed PG shares higher with the stock up 2.5 percent to $67.50.
ADM shares are down nearly two percent after the agricultural firm reported earnings. Net sales did rise 78 percent year on year, but profits fell 33 percent. Earnings per share fell 61 percent to 58-cents. The stock is now trading near its 52-week low and is down more than 40 percent in 2008 as investors have bailed on concerns about whether demand will decline due to price increases.
In economic news, the ISM Non-Mfg. Survey for July was slightly better than expected at 49.5. However, this shows that activity is still flat at best with a reading of 50.0 the line in the sand between contraction and expansion. The July figure was slightly higher than June’s reading of 48.2, but this index has been in contraction territory in five of the last seven months.
Of course, the main focus Tuesday is the FOMC statement due out at 2:15 ET. No one expects a change in interest rates, but the committee is expected to talk tough on inflation. Inflation pressures are still way to high with the CPI showing a 4.9 percent year on year rate. However, employment is weak and the Fed has to balance pricing pressures with a slowdown in the U.S. economy. Overall, we often see a head fake following the FOMC statement, so be aware of this when making trading decisions following the news.
Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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