Reply #131: Closing Blather [View All]

[RawMaterials]

Close: Broad-based selling spurred by a discouraging combination of slowing economic growth and rising inflation weighed on sentiment throughout the session as the major averages all lost more than 1.0%... Casting a shadow that loomed over the market all day was report from the Commerce Dept. that showed the economy grew at a weaker than expected 3.1% - its slowest pace in two years... Economists were looking for growth of 3.5%, versus Q4 growth of 3.8%, but many consensus estimates most likely were not revised lower to factor in yesterday's weak durable orders data...

Adding insult to injury was the chain deflator - a key inflation component of the GDP report - which climbed to 3.2%, much higher that the 2.3% rise in Q4 and well above recent trends... Meanwhile, today marked the biggest day for quarterly earnings reports... But even though the majority (24 of 39) of S&P companies out with Q1 earnings this morning (i.e. PG, AET, DOW, GP, NCR, K, RTN, CSX, R and CMCSA) beat analysts' forecasts, lower than expected Q1 earnings from ExxonMobil (XOM 56.30 -2.08) overshadowed the fact that aggregate S&P earnings growth continue to run about 5% above expectations...

And while such strong Q1 earnings gains should push the P/E on S&P operating earnings down to about 16.4, the greater risk premium now being placed on stocks due to the mixture of rising price pressures in a weak economy added a sense of uncertainty that helped all 10 economic sectors close in negative territory... A spike in crude oil futures ($51.77/bbl +$0.16) that retraced a 3.5% decline to the upside and lifted the commodity into positive territory late in the day, only weakened an already bearish sentiment...

Oil prices were weak most of the day amid President Bush's push for alternate energy sources and yesterday's large inventory build, but renewed buying interest amid reports of a tanker accident in Texas and possible short-covering only exacerbated inflation concerns... Treasurys, however, added to early gains initially prompted by the disappointing GDP data in the wake of the widespread sell-off in stocks, as the 10-year note finished up 14 ticks to yield 4.16%... But even bond yields falling to levels not seen since mid-February could not help interest-rate sensitive sectors like Financial (-1.1%) and Utility (-0.7%)...

For the second consecutive session, Energy (-2.6%) paced the way lower, exceeding yesterday's 2.2% sell-off... Materials (-1.0%) and Industrials (-1.3%) - whose earnings are closely linked to economic growth - were also under pressure... Technology (-1.2%) was also an influential leader to the downside, amid weakness in Software (-1.6%) ahead of Microsoft's (MSFT 24.45 -0.54) after the bell... Health Care was also weak, but losses were arguably minimized by modest strength in Drugs following a 15% surge in GlaxoSmithKline's (GSK 49.76 +2.35) Q1 profits...

While Consumer Staples (-0.5%) failed to hold onto gains into the close, strong Q1 earnings of $0.63 and upside FY05 EPS guidance from Procter & Gamble (PG 54.04 +0.51) as well as an earnings surprise and dividend increase from Kellogg (K 43.51 +0.71) surely minimized some of the weakness... Separately, weekly jobless claims rose 21K to 320K, matching forecasts, but with a more complete representation of employment due out one week from tomorrow, the report has garnered little fanfare in the face of the weaker than expected GDP data... NYSE Adv/Dec 1055/2191, Nasdaq Adv/Dec 838/2222