PortfolioCrafter – Market Commentary 4/28/06
Friday, April 28th, 2006
Stocks closed mixed after the latest GDP report added to a growing bank of data showing the economy in robust health. Tech investors got bearish as they digested weak results and a disappointing outlook from Microsoft. However, a solid reading on economic growth and soaring commodity prices kept the broader market steady.
Today, the Dow Jones industrial average closed down 15.37 to 11,367.14, the broader Standard & Poor’s 500 index closed up 0.89 to 1,310.61, and the Nasdaq composite index closed down 22.38 or 1% to 2,322.57. For the month, the Dow gained 2.3%, the S&P gained 1.2%, while the Nasdaq lost 0.7%.
Market breadth was positive. On the New York Stock Exchange, winners beat losers 19 to 12 on volume of 1.68 billion shares. On the Nasdaq composite, advancers topped decliners by a margin of 16 to 13 on volume of 2.56 billion shares; Microsoft accounted for roughly 25 percent of the Nasdaq volume.
The U.S. economy grew at an annual rate of 4.8% in the first quarter. This is close to market expectations of a gain of 4.9%. The important aspect is that this has not translated into inflationary pressures for the economy. The core CPI retreated to a 2% from 2.4%, and employment costs fell to their lowest level since 1999
Microsoft reported fiscal third-quarter earnings and sales late that missed forecasts and issued earnings guidance for the current quarter that was below analysts’ projections. The stock closed down $3.14 or 12% to $24.11. CIBC World Markets downgraded the company two notches to sector underperformer from sector out-performer. Morgan Stanley also lowered its recommendation on the stock to equal weight from overweight. However, investors need to note that Microsoft is in a transition period. It is about to release a slew of new products, including Vista and the next version of Office.
Amongst stocks that gained, Citigroup closed up $1.75 or 3% to $49.90, after brokerage Piper Jaffray upgraded the financial firm to “outperform” from “market perform.” JP Morgan Chase closed up $1.34 or over 3% to $45.29, after Prudential lifted its 12-month price target on the company and reiterated its “overweight” rating. Stock of Avon closed up $1.30 or 5% to $32.55, as sales in North America rose for the first time in over a year.
Conexant Systems closed down $0.30 or 8% to $3.57, after the company reported improved quarterly earnings and revenue that beat forecasts. But investors saw a chance to take profits on the stock. Openwave Systems closed down $2.04 or 10% to $18.47, despite results that beat estimates. Stock of Smithfield Foods Inc. fell as much as 10% to $25 after it warned its fourth-quarter profit will fall well short of last year’s results and Wall Street’s expectations because a glut of pork on the market is depressing prices. The stock ended down 3.2% at $26.90
U.S. light crude oil for June delivery added 91 cents to settle at $71.88 a barrel on the New York Mercantile Exchange. Crude lost about 5 percent this week from highs above $75 a barrel before rebounding on the latest worries about Iran’s nuclear capabilities.
All the best,
Manuel Jesus-Backus
The Portfolio Crafter
