Reply #57: 12:34 EST redder numbers and noon blather [View All]

[UpInArms]

Dow 11,174.63 -64.92 (-0.58%)
Nasdaq 2,349.18 -10.57 (-0.45%)
S&P 500 1,303.67 -7.89 (-0.60%)
10-Yr Bond 4.901 +0.62 (+1.28%)

NYSE Volume 1,157,848,000
Nasdaq Volume 1,101,843,000

12:00 pm : Buyers remain at bay as the second half of the session begins. There are several factors behind today's stand-offish stance. First, bond yields are again rising. Second, retailers' March same-store sales data was, overall, relatively disappointing. Third, Merck was found liable for a heart attack in its latest Vioxx suit. And last but not least, investors are exercising some caution ahead of tomorrow's much-anticipated employment data.

The Treasury market continues to occupy the equity market's spotlight. A rally in the Euro Zone had helped that market improve in the early going, but the U.S. bond market's recovery has run out of steam. The yield on the 10-year is lingering around 4.90%. That is a four-year high. Rate-sensitive areas of the market had been under pressure all morning, but with bonds' worsening has come exacerbated selling across the Financial sector. It's 0.5% loss is weighing heavily. Utilities (-1.6%) are also sinking, and homebuilders are not faring well. For the Discretionary sector (-0.2%), rising market rates underpin the bearish tone set by today's torrent of same-store sales reports.

A majority or reporting retailers missed expectations. Furthermore, several of them issued profit warnings, which are receiving increased attention as the first quarter earnings season approaches. Apparel retailers, especially teen retailers, and specialty stores delivered some of the most uninspiring results. Many blamed the calendar for Easter's later arrival this year. In light of Fed tightening concerns, the results nonetheless feed concerns over a slowdown in consumer spending. There were some exceptions, though. For example, Gymboree (GYMB 27.47 +1.25), which is one of our suggested holdings for active investors, checked in well ahead of expectations and raised its Q1 guidance in conjunction with its result. The overall batch came as somewhat less of a surprise today due to Wal-Mart's (WMT 46.51 -0.36) indication on Monday that it expected just a 1.3% gain. Wal-Mart, for its part, came in a tad higher than recently indicated. Discounters as a group have fared relatively better. Target (TGT 52.84 +0.66) performed slightly better, and Costco (COST 55.77 +0.63) announced strong results.

Merck (MRK 34.40 -1.59), at this point, is the primary drag on the Dow. A New Jersey jury handed down a split verdict in the latest Vioxx suit, by which one plaintiff (of two) was awarded $4.5 million before punitive damages. More significantly, the decision paves the way for other plaintiffs, who were long-term Vioxx users, to press their cases against the drug company. Accordingly, the Healthcare sector is weighing heavily on today's trade.

While sellers remain in control, there are a few sources of support that are helping to limit the market's decline. In the Dow, Merck's effect is somewhat offset by extended strength in Industrial components. Today, 3M (MMM 80.84 +3.38) upped its first quarter earnings and revenue forecast, and Boeing won a $1 billion order from Spain's Air Europa. Metals continue to surge, and related stocks are continuing to benefit. To that point, our portfolio pick Phelps Dodge (PD 87.61 +0.03) declared a $2 per share special dividend and raised its quarterly dividend this morning.DJ30 -56.17 NASDAQ -8.19 SP500 -7.03 NASDAQ Dec/Adv/Vol 1647/1222/991.0 mln NYSE Dec/Adv/Vol 1877/1195/702.1 mln