Dominating headlines this morning is Illinois Senator Barack Obama's historic victory for the Oval Office. On January 20, the Democrat will become the first African-American President of the United States of America. The candidate's triumph was seemingly clenched after he took key battleground states such as Pennsylvania and Ohio early in the evening, followed by a win in Virginia – a state that has historically turned red since 1964. "The road ahead will be long," Obama opined in a victory speech in Chicago. "Our climb will be steep. We may not get there in one year or even one term, but America... we as a people will get there."
However, the deteriorating economy facing the President-elect hasn't gone unnoticed by Wall Street, with futures turning lower ahead of the bell. Analysts at UBS predicted those most likely to be hurt by Obama's conquest are pharmaceuticals – already declining across the pond – and managed-care firms, as well as upscale consumer retailers, coal-related issues, domestic energy services companies, integrated oil stocks, and Bermuda-based insurers.
Turning to equities in focus, Time Warner (TWX: sentiment, chart, options) this morning reported a stronger-than-expected third-quarter profit (excluding items) of 31 cents per share, beating the Street's estimate of 27 cents per share. Revenue, however, docked at $11.7 billion, compared to analysts' predictions for $11.86 billion in sales. The media mogul lowered its full-year operating profit outlook due to severance charges at its Time Inc. publishing unit and restructuring charges at New Line Cinema. The company also projected full-year adjusted operating income before depreciation and amortization to grow around 5%, down from its prior outlook of 7% to 9% growth.
Elsewhere, bond insurer Ambac Financial (ABK: sentiment, chart, options) said its third-quarter loss widened to $2.43 billion, or $8.45 per share, from a $360.6-million, or $3.53-per-share, loss a year earlier. The company blamed the widening deficit on credit derivatives, increased losses related to second-lien residential mortgage-backed securities (RMBS) insurance transactions, and market losses on RMBS within the financial services investment portfolio. ABK announced its operating loss was $7.81 per share, compared to the 74-cents-per-share loss the Street had forecast.
Finally, Ambac's sector peer MBIA, Inc. (MBI: sentiment, chart, options) also disappointed investors this morning. The company reported a widened third-quarter loss of $806.5 million, or $3.48 per share, from a loss of $36.6 million, or 30 cents per share, a year ago. The company blamed the dismal results on its second-lien residential mortgage exposures, and net-realized and unrealized losses attributable to its Asset Liability Management business. After-tax operating loss for the third quarter docked at $514.8 million, or $2.22 per share, compared with after-tax operating income of $192.6 million, or $1.56 per share, in the same period of 2007. Analysts, on average, expected a loss of 81 cents per share.
Checking in on currencies and commodities, the U.S. Dollar Index has shed 0.09% to trade at 84.72, as the greenback loses ground against most of its foreign rivals. Meanwhile, December-dated gold has continued its journey higher, adding on $3.70, or 0.5%, to flirt with the $761-an-ounce level. Finally, after toppling $70 per barrel yesterday, the front-month crude contract has pared some of its gains, trading at $68.90.
Earnings Preview
Also on the earnings front today, Duke Energy (DUK), General Motors (GM), Activision Blizzard (ATVI), and Whole Foods (WFMI) are slated to release their quarterly figures. Keep your browser at SchaeffersResearch.com throughout the day for more.
Economic Calendar
The economic calendar offers up a peak at October's nonfarm payroll report with the release of the ADP employment report for October, while the Institute for Supply Management's services index for October is also slated for release. Thursday offers up weekly initial jobless claims and the preliminary third-quarter productivity report. And Friday ends the week with a bang, as the Street will be graced with October's hourly earnings, nonfarm payrolls, and unemployment rate, as well as September's pending home sales, wholesale inventories, and consumer credit.
Market Statistics
Equity option activity on the CBOE saw 1,454,047 call contracts traded on Tuesday, compared to 1,035,673 put contracts. The resultant single-session put/call ratio slipped to 0.71, while the 21-day moving average held at 0.82.
**The volume data shown above is from the Nasdaq and NYSE exchanges only. It does not include regional volume activity, which means that other daily volume quotes you see may be higher.**
Overseas Trading
Overseas trading is mixed this morning, with 5 of the 11 foreign indices that we track in positive territory. The cumulative average return on the collective stands at a gain of 0.46%. In Asian trading, investors are cheering Barack Obama's successful presidential victory, with exporters such as Toyota Motor (TM) leading the advancing issues. Meanwhile, energy-related stocks such as BHP Billiton (BHP) were mounting higher after crude oil finished yesterday above the $70-per-barrel level.
Across the pond in Europe, the market picture wasn't as pretty, with drugmakers declining in the wake of Obama's win. Some economists note negative implications for the U.S. pharmaceutical sector, should the President-elect follow Senator Hillary Clinton's plan to slash the prices of drugs domestically. Also weighing on the region was another bout of dismal earnings data, with steel sultan ArcelorMittal (MT), Danish brewer Calrsberg, and financial firm Allied Irish Banks all slashing their respective profit predictions.
The U.S. Dollar Index (DX/Y) plunged 2.1% to 85.21 on Tuesday, as the greenback declined against a majority of its leading foreign competitors. However, the dollar was able to garner some ground against the Japanese yen. Elsewhere, the Australian dollar and New Zealand dollar logged some of the largest gains on the session, even after the Reserve Bank of Australia (RBA) cut its cash rate by 0.75 percentage point. The RBA cut to 5.25%, exceeding expectations for a half-point cut. Against this backdrop, the euro rose to $1.30, while the dollar rose to 99.62 yen.
The futures contract on the 30-year bond (US/1 – 115'11) added 1-26/32 on Tuesday, as Treasurys posted board gains, sending yields sharply lower. Helping to boost bonds on the session was a report showed factory orders dropped 2.5% in September. Economists were expecting orders to decline 0.2%. The upside in the fixed-income market was limited, however, as traders piled back into the equities markets as risk aversion faded.
Commodity Corner
Gold futures enjoyed a boost on the heels of a falling U.S. dollar. Additionally, some analysts speculate that the safe-haven metal is rebounding from an oversold condition. By the close, December-dated gold added $30.50, or 4.2%, to finish Tuesday at $757.30 an ounce.
A weak U.S. dollar was also a boon for crude-oil prices. Specifically, the December contract cruised to a gain of 10.4%, or $6.62, to finish the day at $70.53 per barrel. Happily for consumers, though, gasoline prices continue to decline across the country. According to the AAA Daily Fuel Gauge Report, the average cost for a gallon of regular gas dropped to $2.391 yesterday, down more than 20% from a year ago.
Unusual Put and Call Activity:
For an explanation of how to use this information, check out our Education Center topics on Option Volume and Open Interest Configurations.
To read more of our analysis on the market's biggest stories, please visit our Schaeffer's Daily Market Blog section throughout the trading day.
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