Tag - Scss

After trading down for most of today's session stocks edged up toward the close to finish up.

The Dow finished at 9,108.51, up 15.27 points; the Nasdaq was up 1.93 point to close the day at 1,967.89; and the S&P 500 was up 2.92 points to end at 982.18.

The Russell 2000 was up 2.42 points to finish strong at 550.88.

Leading small-cap price gainers was Select Comfort Corp. (Nasdaq:SCSS) up 46% on news that while sales for the second quarter of 2009 were down compared to the same quarter in 2008, operation income was positive net losses were substantially less. The company reported that Q2 operating income was $1 million.

Other leading small-cap gainers include Cerus Corp. (Nasdaq:CERS) up 45%; Jazz Pharmaceuticals (Nasdaq:JAZZ) up 44%; Ariad Pharmaceuticals (Nasdaq:ARIA) up 42%; and Harleysville National Corp. (Nasdaq:HNBC) up 38% on news that it would be acquired by First Niagara (Nasdaq:FNFG) for $237 in an all stock deal. The deal values HNBC at roughly $5.50 per share, representing a 37.5% premium over Friday's closing price for HNBC.

*****Earnings season has been overwhelmingly positive so far. Only 16% of the S&P 500 companies that have reported so far has missed expectations. 75% have beaten expectations. That's what happens when earnings estimates are so low that they are virtually impossible not to beat. 

But what's happening now is very interesting…

Analysts are raising their earnings estimates considerably. Bloomberg reports that forward revisions to estimates now put the forward P/E of the S&P 500 at 13.13. That's 26% below the 50-year average 16.54.

So are we due for a 26% rally as stocks return to their historical norms?

*****If earnings season finishes with 75% of the S&P 500 exceeding expectations, that would be a record. Since 1933, no more than 72% of the S&P 500 has beaten earnings expectations.

But Bloomberg also reports that just half of the S&P 500 companies that have reported have beaten revenue expectations. That means much of the earnings surprises we've seen are a product of cost-cutting and not rising revenues.

To the bears, this suggests there is still risk for stock prices.

*****To the bulls, it's now clear that pessimism went way too far. Stocks were priced way too low for a disaster that never materialized. More and more strategist-types are coming out and saying things like the economy is stronger than the numbers show and that a V-shaped recovery is underway.

Some economists are even raising their 3rd quarter GDP estimates.

Federal Reserve Chief Ben Bernanke states that the economy will be in stronger footing. And this is an interesting point. Overinvestment in real estate is being written off and prices are falling to levels that make sense for the family budget and the business bottom line. Increased regulation will keep investors' money safer (we hope). Increased savings will put consumers on stronger footing.

In essence, the U.S. economy will, at some point, start growing from a much lower baseline. And while the stock market may only recover the gains it lost over the last two years, that recovery process would lead to some phenomenal gains from current levels.

*****The question for me is: when? I can't help but think that analysts may be overshooting on the upside, just as they overshot on the downside. And I'm pretty sure I'm not the only one who feels this way. Consider that existing home sales jumped 11% in June, and yet stocks are in the red so far today.

There can be no doubt that such a jump in home sales is unexpected good news. But stocks are ignoring it. I say that's because there's a lot of good news priced in already. 

*****So I may be cautious, but I'm going to do what I have been: buy quality stocks, watch them closely and take profits. That approach has been working great so far this year… 

*****TradeMaster Daily Stock Alerts readers just took another 19% gain on MYR Group (Nasdaq:MYRG). Nice work, Jason. If you missed Jason's video chart analysis from Friday, you can check it out HERE. 

*****Now let's have a look at the economic data for the week.

Tomorrow, Tuesday, June 28, we get the Case-Shiller Home Price Index and Consumer Confidence numbers. Wednesday, it's Durable Goods and Oil Inventories. Jobless Claims are out on Thursday.

Friday is the big one, with the release of Second Quarter GDP. This should be a major market mover.

Best Regards,

Ian Wyatt
Editor
SCI Daily

The Russell 2000 (NYSE: IWM) futures are down and the small-cap index will open lower on news of weak January retail sales.

The bears are ready to go on news that U.S. retailers reported January sales below expectations, indicating that consumer spending has declined and the economy is headed for, or already is in, a recession.

The Russell 2000 fell hard in the afternoon Wednesday, finishing down 9.09, or 1.30% at 692.49. This marked the third consecutive session that small caps closed below opening levels, the first time that has happened since the Jan. 22 low. Look for support today at 680 and 669, and resistance at 702, 712 and 721.

There are additional Federal Reserve speakers on the agenda today, but it’s unlikely they will carry the same kind of punch that we’ve seen recently. The docket includes Atlanta Fed President Dennis Lockhart at 8:30 a.m. ET, and Dallas Fed President Richard Fisher at 1:00 p.m. ET.

The Russell 2000 (NYSE: IWM) fell today on news that high energy costs led to a jump in U.S. producer prices. The small-cap index dropped 2.25 points, or 0.29%, to 769.46. The Dow Jones Industrial Average (INDU) gained 44.06 points, or 0.33%, to 13,517.96.

On a year-to-date basis, the Russell 2000 is down 2%, while the Dow has moved up 8.36% and the S&P 500 has added 5.07%.

Producer prices, the prices received by domestic producers for their output, jumped 3.2% in November, according to the U.S. Labor Department. The increase, the biggest in 34 years, was led by a 14.1% surge in the price of energy goods.

Economists were expecting to see an increase of 1.5% following October’s rise of 0.1%.

The core producer price index, which excludes food and energy, added 0.4%, also more than projected.

The statistics raised fears of an uptick in inflation, which would make it less likely that the U.S. Federal Reserve will move to lower its target interest rate in the near future.

Small and large-cap stocks opened in negative territory and stayed there throughout the morning. A cautious rally took hold in the final two hours of trading, but the Russell 2000 was incapable of clearing the flat line the way the Dow did.

The Russell 2000 (NYSE: IWM) is falling on news that U.S. producer prices for November increased the most in three decades.
 
At 10:44 a.m. ET, the small-cap index had lost 8.87 points, or 1.15%, to 762.84. The Dow Jones Industrial Average (INDU) was off 55.52 points, or 0.41%, to 13,418.38.

Producer prices, the prices received by domestic producers for their output, jumped 3.2% in November, the U.S. Labor Department reported before the start of trading. The increase, the biggest since 1973, was partially attributed to a 14.1% surge in the price of energy goods.

Producer prices increased 0.1% in October. Prices are up 7.2% on a year-to-date basis.

The core producer price index, which excludes food and energy, added 0.4%.

Both figures are well above what economists were expecting, which raises fears of inflation. An increase in inflation makes it less likely that the U.S. Federal Reserve will move to lower interest rates.

Stocks opened with a drop as investors focused on the producer price index and disregarded news that U.S. retail sales for November were surprisingly strong.

The Census Bureau reported before the opening that retail sales increased 1.2% to $385.8 billion. That’s beyond the projected increase of 0.6%. Retail sales in October rose 0.2%.

Select Comfort Corp. (Nasdaq: SCSS) shares are plunging after the maker of the Sleep Number Bed said after Wednesday’s close that it expects fourth-quarter sales below expectations.

In a conference call, CFO Jim Raabe said fourth-quarter sales “will fall short of previous guidance.”

“We expect difficult sales trends to continue into 2008 and are adjusting costs and pricing to ensure room for continued investment in growth,” Raabe said. “Our focus for 2008 is to stabilize profits and maximize cash generation, while selectively investing in opportunities to restore same-store growth and the company’s competitive advantages.”
 
Raabe said the Minneapolis, Minn.-based firm projects a year-over-year decline, due to sales that have declined since Thanksgiving weekend. In October, the company projected 2007 sales in the range of $820 million to $830 million and earnings of between $0.75 and $0.81 per share.

In response to rising costs, he said the company is raising prices in January.

“We are extremely disappointed in our operating performance this past year. At the same time, we remain confident in our ability to return the company to sales and profit growth,” he said. “As we have done before, we are taking the deliberate steps required to stabilize the business and to invest selectively in the future.”

In response to the fourth-quarter sales warning, brokerage firm Northland Securities downgraded the company to “market perform” from “outperform.”

In morning trading, SCSS shares are down 22.32%, or $2.25, at $7.83. Over the last 52 weeks, shares have ranged from $7.78 to $20.17.