Don’s Outlook 10/15/08
Recession fears sent the S&P 500 Index down 9.03 percent yesterday, while the Nasdaq and Dow Jones Industrial Average fell 8.47 percent and 7.87 percent, respectively. Positive earnings from Coca-Cola couldn’t offset the negative sentiment generated by a 1.2 percent decline in retail sales and a pessimistic manufacturing and business conditions report from the New York Fed, which followed on the heels of declines in Asian and European stock markets earlier in the day.
Coca-Cola beat analyst earnings estimates by 4 percent, even though it missed revenue estimates by 2 percent. A decline in North American unit case volume was offset by gains overseas thanks to China and India, among others. Shares of Coca-Cola rose 1.1 percent on the day, outperforming the broader market by better than 10 percent. The stock is the number two holding in Fidelity Select Consumer Staples (FDFAX), which is held in the Sector Momentum Tracker Portfolio and the Fidelity Independent Adviser Fidelity Select Portfolio.
Retail sales fell by 1.2 percent, although they only declined by 0.6 percent with car sales removed. The only sectors showing improved sales were gas stations and drug stores, but their gains were small. Tighter credit played a role, as consumers find credit more difficult to obtain. Yesterday, GMAC announced it would not make loans to consumers with credit scores less than 700, and half of consumers have scores below 720. On the bright side, commodity prices are much lower this week and the savings will help consumers through a rough patch.
Elsewhere, the Empire State manufacturing index signaled a slowdown in manufacturing as producers anticipate a slowdown in consumer spending. Industrial production in September declined 2.8 percent, but that number was impacted by the strike at Boeing. Economists also blamed hurricane activity for some of the drop.
This morning, Hershey’s delivered a positive earnings report, with profits up due to lower restructuring costs and higher sales prices. The company still faces higher commodity prices and tougher competition from privately held Mars, however. Citigroup beat the average analyst estimate with a $2.8 billion loss, although expectations were all over the map. Yesterday, State Street reported profits 33 percent higher than a year ago, but warned of possible charges in the future. Abbott Laboratories, meanwhile, reported an earnings increase of 51 percent thanks to strong product sales, and the company raised its profit forecast for the coming year. Ebay also reported earnings yesterday and swung from a loss last year to a profit this quarter.
With the markets trading sharply lower in recent days, now is an excellent time to rebalance a portfolio and begin thinking about year-end tax planning. The panicked selling we’ve seen over the past several days has left many high-quality funds attractively priced. If you would like to know which mutual funds make up our newsletter model portfolios, please call us at (800) 548-3797.
