| Market Summary |
Stocks plunged back into negative territory on Wednesday after weaker-than-expected retails sales renewed recession fears. The Dow Jones Industrial Average took another dramatic dip and fell 733.08 points lower to settle at 8,577.91. Broader stock indicators also declined. The Standard & Poor's 500 index fell 90.17 points to 907.84 and the Nasdaq composite index fell 150.68 points to 1,628.33. A round of disappointing economic reports sent stocks lower at the start of the session. The government reported that retail sales fell 1.2% in September, the highest level in 3 years. The September Producer Price Index also fell 0.4%, but met analysts’ predictions. The NY Empire State index, which provides a snapshot of regional manufacturing, plummeted to negative 24.7 from negative 7.4 in the previous month. The release of the Federal Reserve’s beige book added fuel to the fire. Comments included in the book showed that the financial and credit crisis have continued to drag on the economy. Better-than-expected earnings from a number of companies including JP Morgan Chase (JPM: Charts, News, Offers) and Coca-Cola (KO: Charts, News, Offers) failed to restore investors’ confidence. U.S. light crude oil for November delivery fell $3.76 to $74.87 a barrel on the New York Mercantile Exchange. The dollar rose against the euro and fell versus the yen.
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| Market News |
The Coca-Cola Co. (KO: Charts, News, Offers) reported its profit rose by double digits, weathering a volatile third quarter in which consumers felt pressured by economic uncertainty. The nation's biggest soft drink seller reported third-quarter profit was 14 percent higher than a year ago, as sales in emerging markets offset U.S. weakness. "Our brands and our business were built for times like these," Chief Executive Muhtar Kent said on a conference call with investors. "We are clearly in uncharted territory in these global markets. I'm confident in our ability to navigate in these challenging times." The company posted earnings of $1.89 billion, or 81 cents per share, in the quarter ended Sept. 26. That compares with $1.65 billion, or 71 cents per share, in the year-ago period. Excluding certain charges, earnings per share were 83 cents. (Source: Yahoo! Finance) Full Story
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JPMorgan Chase (JPM: Charts, News, Offers) reported a surprise quarterly profit Wednesday, even as the company suffered a hit related to its purchase of failed savings and loan giant Washington Mutual and took $3.6 billion in writedowns. The New York City-based bank said net income fell 84% to $527 million, or 11 cents a share during the third quarter, from $3.37 billion, or 97 cents a share, during the same period a year ago. The results were far better than analysts were anticipating. Wall Street was expecting a loss of 21 cents a share, according to figures from Thomson Reuters. Revenue fell 9% to $14.73 billion, down from $16.11 billion a year ago, and missing analysts' forecasts of $16.01 billion. (Source: CNN Money) Full Story
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Wells Fargo (WFC: Charts, News, Offers) reported an expected drop in third-quarter earnings Wednesday, though results beat expectations on higher net interest margin and "tremendous" growth in deposits. The San Francisco-based bank reported net income dropped 24% to $1.64 billion, or 49 cents per share, from $2.17 billion, or 64 cents per share, a year earlier, reflecting an industry-wide deterioration in loan performance. Results also include $646 million in charges for investments in the failed investment bank Lehman Brothers (LEH: Charts, News, Offers), as well as in mortgage finance giants Fannie Mae (FNM: Charts, News, Offers) and Freddie Mac (FRE: Charts, News, Offers), which were taken over by the government last month. (Source: TheStreet.com) Full Story
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| Featured Article from the InvestorGuide University |
Introduction to Bonds
This asset class plays an important role in most investors' portfolios, and the basic concepts are important for every investor to know. Here we explain how bonds work, and we describe the different types of bonds, including corporate, municipal, treasury, agency, zero-coupon, and junk bonds.
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| Market Analysis |
Less than two weeks into it, the $700 billion Troubled Asset Relief Program (TARP) is stuck between a rock and a hard place. Next week, several hundred billion dollars of credit default swap (default insurance) payments on Lehman's debt default are due. No one quite knows who owes what and if they're good for it. Hence the urgency in Henry Paulson and Ben Bernanke's plan to inject $250 billion directly into bank balance sheets, which seems a necessary evil to get capital to the right place and help weaker banks save face. The credit markets agree -- so far. Wall Street and banks live by short-term loans. But as a loan shark might say, right now, nobody wants to lend to nobody. The rate that banks charge each other, the London Interbank Offered Rate (Libor), has been trading so high above three-month Treasury-bill rates (on Monday it was 4.75% vs. 0.11%) that no one is lending. (Source: Wall Street Journal) Full Story
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When news first leaked out that General Motors (GM: Charts, News, Offers) was interested in buying Chrysler from private equity firm Cerberus Capital Management, the general reaction from auto-industry watchers was: Are they crazy? Chrysler's sales are down 30% and the company is losing money. Its product lineup is loaded with trucks and sport-utility vehicles and its cars are also-rans. The Chrysler and Dodge brands don't have enough strong passenger cars and crossovers. Even the beloved Jeep brand is suffering as SUV sales have tanked. But on that very troubled landscape, some of GM's top executives see an opportunity. Chrysler, after all, has managed to sell 1.2 million vehicles so far this year, and it reported $1.1 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA) for the first half. (Source: BusinessWeek) Full Story
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The Treasury plans to invest up to $250 billion in individual banks and has already allotted half that amount to nine leading banks. For now, the key questions are: Will the plan work? And what consequences will it have for our financial system and our economy? Several issues bear examination. First, is this enough money? Citigroup (C: Charts, News, Offers), for example, is getting $25 billion. As of June 30, it had $2.1 trillion in assets and just $136 billion in capital; the new capital is only 1.2 percent of its total assets. If the problem is that falling asset prices could put banks' solvency at risk, the Treasury might have to commit more money. In truth, no one knows how much funding is needed. The reduction in lending (known as "deleveraging") underway throughout the world may lead to a sharp recession. Some European nations, which have large financial sectors and substantially greater leverage than in the United States, pose risks to all nations. The United States needs to be prepared to quickly shore up capital among banks, and potentially major insurance companies and other financial firms, if it appears the recession is deepening. (Source: Washington Post) Full Story
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