Traders-Blog.com

A combination of weak economic reports and a warning of slow growth from the chief financial officer of the market leader Google led to a rout on the final trading session of February. While the Dow Jones Industrial Average managed a monthly gain, heavy sales of Google drove the Nasdaq Composite into the red for the month.

Today, the Dow Jones industrial average closed down 104.14 or almost 1% to 10,993.41, the Standard & Poor’s 500 index closed down 13.46 or just over 1% to 1,280.66, and the Nasdaq composite index closed down 25.79 or 1.1% to 2,281.39. The Dow rose 1.2% in February and 2.6% in the year to date, the S&P 500 gained just 0.04% in February, but had a rise of 2.6% for the first two months of the year, and the Nasdaq lost 1.1% in February but is up 3.4% since the start of the year.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by eleven to five on volume of 1.76 billion shares. On the Nasdaq, decliners topped advancers by 20 to 9 on volume of 2.15 billion shares.

While the S&P 500 has been flirting with 1300, its inability to do so could suggest choppy trading ahead in the short term. Most of the quarterly earnings are already out and the next Federal Reserve policy meeting is not until later in March, leaving the market without a big potential near-term catalyst.

U.S. consumer confidence, ended a three-month gaining streak in February, falling to 101.7 from a revised January level of 106.8. The expectations index fell to its lowest level since March 2003, to 83.3 in February from 92.1 in January.

The news of the day was from the chief financial officer of Google, George Reyes, speaking at the Merrill Lynch Internet conference, stating that growth in search engines is slowing, and the company would need to find other ways to boost revenue. The stock closed down $27.76 or almost 7% to $362.62. This news also affected Yahoo that closed down $0.68 to $32.06, Earthlink closed down $0.26 to $9.92, and ebay that lost $1.22 to $40.06.

Goldman Sachs however, issued a research note stating that Reyes’ comments were taken out of context and that its thesis, growth expectations and implied value of $500 for the stock remains unchanged. It further advised investors to buy Google with 30% plus upside to the $500 implied value.

Surprisingly, stock of H.J. Heinz Co. rose 27cents to $37.87 in choppy trade even as the company posted adjusted earnings and sales that fell short of analyst expectations. The food group also offered a full-year profit outlook below current Wall Street estimates.

In a new product offering, Apple Computer Inc. unveiled an iPod hi-fi home stereo system that will sell for $349 and run on electricity or six D-sized batteries. Apple shares, which had risen as much as 2% ahead of the announcement, turned lower, and closed off 3.5% down $2.50 to $68.49.

Many Biotech stocks were affected by King Pharmaceuticals that closed down $3.62 or 18.2% to $16.25, after the specialty drug maker reported fourth-quarter revenue and earnings per share that fell from a year earlier and missed expectations. Another newsmaker in the health industry was Hospira that closed down $7.34 or 15.6% to $39.70, after the hospital products maker reported weaker fourth-quarter earnings that missed forecasts due to lower-than-expected sales.

JPMorgan wants to give Citigroup a real run for its money by revamping its volatile investment banking operation. The expects higher trading revenues in 2006 and beyond as it takes an aggressive stance on hiring and shifts the focus to better capital reallocation and investments. It has had a strong growth in investment fees in 2005, up 12% to $4.1 billion, very close to the $4.5 billion recorded by Citigroup.

U.S. light crude oil for April delivery added 41 cents to settle at $61.41 a barrel on the New York Mercantile Exchange. The price of crude had slipped Monday and early Tuesday as concerns waned about unrest in Iran and how that might impact crude supplies from OPEC’s No. 2 oil-producing nation.

All the best,
Manuel Jesus-Backus
The Portfolio Crafter