Yahoo!, Genentech earnings, Dell outlook may boost market Thursday after Wednesday's brutal selloff.
April 7, 2004: 6:49 PM EDT
By Alexandra Twin, CNN/Money Staff Writer
NEW YORK (CNN/Money) - A series of bullish after-hours earnings reports set the stock market up for a likely rally early Thursday, but the concerns that weighed on Wednesday's trade remained in place.
A spike in oil prices, renewed geopolitical concerns, particularly in Iraq, and selling pressure after a three-session rally all had an impact on the markets, but in particular, a slow start to the first-quarter earnings reporting period seemed to unnerve.
But strong after-hours reports from Yahoo! and Genentech, and news that Dell has boosted its quarterly outlook propelled those issues and other technology and biotech stocks after-hours, setting up the market for a higher open Thursday.
"Earnings season started off kind of soggy, but Yahoo! tonight was terrific, Genentech was good, and you had Dell raise its forecast," said Donald Selkin, director of research at Joseph Stevens. "Tech should be very strong tomorrow and futures are pointing to a strong start. The only thing that could mess us up tomorrow is if something happens on the geopolitical front."
After the bell Wednesday, Yahoo! (YHOO: Research, Estimates) reported earning of 13 cents per share, up from 8 cents a year earlier and two cents more than what analysts were expecting. The company also announced a 2-for-1 stock split. Share surged more than 8 percent in after-hours trade and gave a lift to other Internet issues.
Genentech (DNA: Research, Estimates) reported earnings of 38 cents per share, excluding items, more than what analysts were expecting and up from a year earlier. The company also issued higher-than-expected revenue that grew from a year earlier, due in part to continued strong sales of its blockbuster drug Avastin. Genentech is the second biggest biotech, next to Amgen (AMGN: Research, Estimates). Genentech shares gained more than 3 percent in after-hours trade.
In addition, Dell (DELL: Research, Estimates) raised its first-quarter revenue forecast, although it kept its earnings per share outlook unchanged. The news sent the shares up 2 percent after-hours and also gave a lift to Intel (INTC: Research, Estimates).
The other major earnings report of the week is General Electric (GE: Research, Estimates), due before the open Thursday. GE is thought to have earned 32 cents per share, unchanged from a year earlier, according to a consensus of analysts surveyed by First Call. (For other stocks to watch Thursday, click here.)
"I think it's going to be hard for GE to miss," said Art Hogan, chief market analyst at Jefferies & Co. "They never miss. And they also don't have one division in particular that's at risk to take them down. It's also going to be hard to be disappointed by GE after they just got the Boeing contract."
In addition, the previously announced reshuffling of the Dow 30 goes into effect at the start of trading Thursday. Three components -- International Paper (IP: Research, Estimates), AT&T (T: Research, Estimates) and Eastman Kodak (EK: Research, Estimates) -- will exit the industrials. They will be replaced by Verizon Communications (VZ: Research, Estimates), Pfizer (PFE: Research, Estimates) and American International Group (AIG: Research, Estimates). This will likely provide a boost for the market, Joseph Stevens' Selkin said.
What could challenge stock gains early Thursday are the ongoing developments in Iraq and the reaction to National Security Advisor Condoleezza Rice's testimony before the September 11 commission on President Bush's anti-terror policy, the analysts said.
Wednesday's market
On Wednesday, the Dow Jones industrial average (down 90.66 to 10480.15, Charts) lost almost 0.9 percent. The Standard & Poor's 500 (down 7.63 to 1140.53, Charts) index lost 0.65 percent and the Nasdaq composite (down 9.66 to 2050.24, Charts) fell 0.5 percent, both declining for the second session in a row.
Investors and market watchers alike have been banking that exceptionally strong first-quarter earnings will support current stock valuations and bring on new rallies. As such, less bullish-than-hoped for results from Alcoa, the first Dow component to report, and recent profit warnings from Nokia and Seagate Technologies sparked worries.
"We had a pretty strong run up in anticipation of the earnings season," said John Davidson, president and CEO of PartnersRe Asset Management. "But because of that run, if any company reports declining results or results that are less than what was expected, you're going to see a strong reaction."
Investors may have also been selling through most of Wednesday in response to the three-session rally that preceded the selloff, in which the Nasdaq surged 4.5 percent. Davidson said that the uncertainty about the Iraq situation also weighed.
Geopolitical worries had fallen into the background for the stock market of late, even as they had moved to the forefront elsewhere. Some analysts speculated that the stock market's brief attempt at a recovery around 3:00 p.m. ET related to hopes that Secretary of Defense Donald Rumsfeld might offer some encouraging news about Iraq at an afternoon press conference. However, when the conference did not yield such results, the markets turned lower again.
Earnings optimism remains, however, market watchers say. Analysts surveyed by the tracking firm First Call predict first-quarter earnings rose 17 percent from a year earlier, the best first quarter in four years. First Call's own analysts think the actual earnings could be as high as 20 percent.
On the move
Alcoa (AA: down $1.85 to $34.65, Research, Estimates) earned 40 cents per share, up from 23 cents a year earlier, because of higher prices for aluminum. However, that was two cents shy of analysts' forecasts and was sufficient to cause the stock to lose more than 5 percent.
Including Alcoa, 28 out of 30 Dow stocks fell in Wednesday trading, including Intel (INTC: down $0.65 to $27.62, Research, Estimates), which lost 2.3 percent. However, Intel and the overall semiconductor sector had been much lower earlier in the session, as had a number of other technology companies.
Also on the downside was computer data storage maker Seagate Technologies (STX: down $0.61 to $14.98, Research, Estimates), which lowered its quarterly forecast late Tuesday for the third time this quarter because of weaker-than-usual demand. Following the news, JP Morgan downgraded the stock to "underweight" from "overweight."
Also of interest Wednesday was the late Tuesday announcement that Boeing (BA: down $0.60 to $41.76, Research, Estimates) picked units of General Electric (GE: down $0.12 to $31.40, Research, Estimates) and Rolls Royce to build the engines for its new 7E7 commercial jets, a deal that analysts say could ultimately be worth $40 billion. The deal was a blow to the engine unit of rival United Technologies (UTX: up $0.44 to $90.19, Research, Estimates).
Market breadth was mixed and trading volume was mild. Decliners and advancers were close on both the New York Stock Exchange, where 1.45 billion shares changed hands and on the Nasdaq, where 1.75 billion shares traded.
Treasury prices were little changed, with the 10-year note yields at 4.15 percent, unchanged from late Tuesday. The dollar fell versus the euro and yen.
Among commodities markets, NYMEX light sweet crude oil futures gained $1.18 to settle at $36.15 a barrel. COMEX gold rallied $3.80 to settle at $423.70 an ounce.
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