Markets Lower, Closing News 8/16/11

Markets fell today (Dow down 76 points) ending the three session winning streak.  Markets were lower because of a report from Europe that GDP has slowed sharply in the second quarter, the proposals coming out of the meeting between Sarkozy and Merkel, as well as lackluster economic data reported this morning.

The 17-nation Euro-zone economy grew just 0.2% in the second quarter, well below the 0.8% pace from the first quarter of 2011, reigniting concerns over sovereign default in the region.  Even Germany, one of the Euro-zone’s strongest economies, reported that its economy grew just 0.1%, the lowest reading in over two years.

The meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy resulted in the two countries will send a joint letter to European Union President Herman Van Rompuy proposing the establishment of a Euro-zone Economic council, a tax on financial transactions, and a balanced budget requirement for EU countries.  Also Merkel did not move from her opposition to the “Euro-bonds”, claiming they would harm the financially healthy countries in the Euro-zone. 

Fitch reaffirmed the AAA rating for US credit, saying the key pillars of the U.S.’s exceptional creditworthiness remain intact.  While the decision stands in stark contrast to the downgrade by S&P on August 5, Fitch said the decision could be revisited by the end of the year.

Housing starts fell to 604k in July, although the drop was less than economists had been forecasting for.  The inventory of unused homes, and consumers preference for rentals are weighing on the new homes market.  Housing starts for multi-family homes (rental units) rose 7.8% to 179k, the higher rate since January.

Import prices rose 0.3%, led by food, feed, and drink (up 0.5% vs. -1.7% in June), higher than the -0.1% that economists were forecasting for.  Exports fell 0.4%, the first decrease in a year, led down by agricultural prices (down 4.3% in July vs. up 0.7% in June).

Author and radio host, Dave Ramsey, scaled the US government debt to a household level, and the results are a little surprising.  “If the U.S. Government was a family, they would be making $58K a year, they spend $75K a year, and are $327K in credit card debt. They are currently proposing BIG spending cuts to reduce their spending to $72K a year.”

BONUS BULLET!  - Reuters is reporting that the Glazer family, owners of Manchester United, are planning a $1 billion initial public offering in Singapore depending on market conditions.  The Glazer family took the team private in 2005 for $1.3 billion, but could be looking to sell as much as 25% of their stake in the team.

Market Indices/Statistics:

  • Dow closed down 76.97 pts/-0.67% to 11,405.93

  • S&P closed down 12.15 pts/-1.01% to 1,192.34

  • Nasdaq closed down 31.75 pts/-1.24% to 2,523.45

  • 27 of the 30 Dow stocks closed lower / HD, HPQ, and WMT were higher

  • 9 of the 10 S&P 500 sectors closed lower

  • Consumer Staples was the only positive sector (up 0.21%)

  • Financials was the worst performing sector (down 1.75%)

  • The VIX was up 1.25 points to 33.10

  • Oil is down $0.96 to $87.18

  • Nat Gas is down $0.078 to $4.106

  • Gold is up $30.70 to $1,788.70

  • Euro vs. Dollar down $0.0039 to $1.4408

  • Dollar vs. Yen down $0.10 to $76.74

Companies in the News:

Kinetic Concepts Inc. traded higher today (+2.82% to $67.84) after Bloomberg reported that Bain Capital and Avista Capital Partners are seeking financing for a bid that would top Apax Partners LLC’s $5 billion bid for the global medical technology company.

Shares of JM Smucker Co. fell (-1.34% to $74.89) in trading today after announcing that it decreased the list price for the majority of its coffee products sold in the United States.  The price decrease is being driven by declines in the green coffee futures market.

KAR Auction Services announced that it has agreed to acquire automotive remarketing company OPENLANE, Inc.  for $210 million in cash.  KAR anticipates that OPENLANE will generate $100 million in revenue in 2011, and shares of KAR traded higher (+3.70% to $14.59) in trading today.


Home Depot reported Q2 earnings per share of $0.86 on $20.2 billion revenue, compared to analysts expectations of $0.83 per share on $19.9 billion revenue.  Shares were also pushed higher by HD’s FY outlook, seeing FY earnings per share around $2.34, just ahead of consensus of $2.30.  Shares of HD traded 5.28% higher to close at $33.12

Wal-Mart also traded higher (+3.88% to $51.92) after reporting Q2 earnings before the opening bell this morning.  The retailer reported Q2 earnings per share of $1.09 on $108 billion revenue, in-line with analysts’ expectations.  Shares were boosted because WMT raised their FY guidance to $4.41-4.51 from $4.35-4.51 vs. analysts’ consensus of $4.47.

Kid Brands Inc. tumbled (-18.71% to $3.65) in trading today after reporting Q2 earnings per share of $0.09 (Non-GAAP) vs. expectations of $0.08 per share.  Shares were lower because management now sees FY earnings per share $0.40-0.42, well below consensus of $0.64, and now sees FY sales down 7-8%. 

Coming Wednesday:

Economic Reports: Mortgage Applications at 7:30 am, PPI (expected to be +0.1) and Core PPI (expected to be +0.2%) at 8:30 am; Earnings from Abercrombie, BJ’s Wholesale Club, Deere & Co., Eaton Vance, and Target