U.S. stock futures have plummeted this morning, indicative of an extremely weak start to the regular session of trading. If overseas indices are any predictor of which side of the bed Wall Street will wake up on, we may be in for a rough ride. In just 2 days, Japan's Nikkei 225 Index has declined more than 10%, marking the sharpest drop in nearly a decade. Stocks under the earnings microscope this morning include Johnson & Johnson, Bank of America, and Apple.
And in a move that will hopefully stave off market disaster this morning, the Federal Reserve announced a surprise intra-meeting rate cut of 75 basis points, moving the federal funds rate to 3.5%. This is the biggest 1-day move by the central bank in recent history. Federal officials reportedly held a conference call last night after broad selling overtook global markets. In an accompanying statement, the Fed said it cut rates "in view of a weakening of the economic outlook and increasing downside risks to growth."
Taking a quick look around the street, February-dated crude has lost more than $3, hovering beneath the $87-per-barrel mark, while gold futures have dropped more than $15.50 to $866 an ounce. The dollar pared some of Monday's losses against the yen, as investors ponder the likelihood of a Japanese rate cut, but was mostly lower against a plethora of European currencies.
Making earnings news this morning was Bank of America (BAC: sentiment, chart, options) , reporting fourth-quarter earnings of $268 million, or 5 cents per share, dramatically down from last year's numbers of $5.26 billion, or $1.16 per share. The financial giant's provision for credit losses rose, as it posted net write-offs of $1.99 billion. Despite the severe decrease in earnings, the firm has stated that it is "cautiously optimistic" regarding 2008, according to MarketWatch, though it continued to predict light economic growth for the first half of the year.
Also making earnings news was Dow component Johnson & Johnson (JNJ: sentiment, chart, options) . The company reported fourth-quarter net income of $2.37 billion, or 82 cents a share, from $2.17 billion, or 74 cents a share, a year ago. Excluding items, fourth-quarter earnings were 88 cents a share, 2 pennies higher than analysts predicted. Total sales increased almost 17% to $15.96 billion, from $13.68 billion in the period a year ago. Worldwide consumer sales inclined 48.5%, with medical device sales jumping 11.3% and global pharmaceutical sales rising 7.5%.
Looking ahead, Apple (AAPL: sentiment, chart, options) will step into the earnings limelight after the market's close today.
Economic Calendar
The economic agenda is extremely light this week. The economic calendar will begin and end on Thursday, with the initial jobless claims report, December's existing home sales data, and the delayed crude inventory report. For a complete run down of days and times for this week's economic releases, please see the chart at the bottom of page 2.
Market Statistics
Equity option activity on the CBOE saw 1,693,419 put contracts traded on Friday, compared to 1,667,640 call contracts. The resultant single-session put/call ratio eased to 0.98, and the 21-day moving average advanced to 0.73
**Due to technical difficulties, we were unable to include Friday's trading volume data for the Nasdaq and NYSE exchanges.**
Overseas Trading
Overseas trading is rather dismal this morning, with only 1 of the 11 foreign indices that we track in positive territory. The cumulative average return on the collective stands at a loss of 3.45%. Japan's Nikkei 225 Index slid more than 5.6%, marking the biggest decline in almost a decade, while the Heng Sang Index lost 8.65%. Following suit was the Shanghai Composite, which ended more than 7.2% in the red. Analysts attribute the continental decline to investor fear of a U.S. recession, despite the Fed indicating more interest-rate cuts.
Across the pond in Europe, stocks had a rough day yesterday, as London's FTSE 100 Index marked the largest single-day decline since the terrorist attacks in 2001. This morning, indices are sinking again, but at last check had pared some of the early losses. As is the case in the Far East, analysts are speculating that European investors are concerned about U.S. markets, despite hopes of an interest-rate cut and a plan to stimulate the economy.
The U.S. Dollar Index (DX/Y – 76.39) added 0.29% on Friday, as the old greenback held most of its gains against the euro, but lost ground against the Japanese yen. Spurring the mixed session was tumult in the equity markets and debates as to whether Washington's economic stimulus plan would actual aid a flagging economy. Against this backdrop, the euro traded down at $1.4610, while the dollar slipped to 106.71 against the yen.
The futures contract on the 30-year bond (US/H8 –119'19) slipped 16/32 on Friday, as longer-dated bonds suffered modest losses on the session, while investors pondered the impact of U.S. fiscal stimulus steps and potential rate cuts from the Fed. Looking at Fed funds futures, the February contract is now indicating a 72% chance for a 75-basis-point cut at or before the January 29-30 Fed meeting, leaving expectations for a 50-basis-point cut in the dust.
Commodity Corner
Late-day short covering pushed gold futures $1.20 per share higher to $881.70 an ounce on Friday. Gold started higher, then slipped into negative territory for a while as the dollar firmed. However, some traders were reluctant to hold on to their short positions heading into the long holiday weekend. This covering was the major reason for the malleable metal's slight advance. Some investors expect that there could be an inter-meeting rate cut thanks to the stimulus package. This hope has helped gold, as a cut could mean more downside for the dollar.
Crude prices stabilized on Friday, as the front-month contract added 44 cents to settle at $90.57 per barrel. The session's gain brought an end to three straight losing days, but futures still dropped 2.3% for the week. Looking further back, black gold has slipped 9.1% since tagging $100 per barrel on January 2. Crude weakened as investors were less than enthusiastic toward President Bush's proposal, but some investors are suggesting that we may be seeing a bit of a correction.
Unusual Put and Call Activity:
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