Morning Update

Possible Bank Plan Ignites Advance

The US House of Representatives is getting ready to vote on a massive stimulus plan to aid the economy, while reports that the FDIC may soon manage a bank that will receive toxic assets is sending financials and the broader market sharply higher. The agency that insures bank deposits did not comment, but such a plan to remove nonperforming loans is being seen as a way to unclog the still-dysfunctional credit markets and jump-start lending. The market is also receiving a lift from better-than-expected profits from Yahoo and SAP, while the conclusion of the two-day FOMC meeting may offer new details on the Fed's unconventional means to stimulate activity. Meanwhile, Moody's warned it may downgrade General Electric, and Boeing, AT&T, and Wells Fargo missed on the bottom line. Treasuries are weaker, and global markets are rallying.

As of 8:33 a.m. ET, the March S&P 500 Index Globex futures contract is 20 points above fair value, the Nasdaq 100 Index is 23 points above fair value, and the DJIA is 132 points above fair value. Crude oil is up $0.02 to $41.60 per barrel, and gold is down $6.50 at $893.00.

Yahoo (YHOO $11) swung to a 4Q net loss of $0.22 per share but posted profits ex-items $0.17, topping the Reuters forecast by four cents as it "aggressively managed costs." Net revenues fell 2% to $1.4 billion. The company conceded the economic environment has been challenging and its forecast for 1Q operating profits came in below the Street's estimate.

Moody's Investors Service placed the long-term triple-A rating of General Electric (GE $13 ¹) and the triple-A rating of General Electric Capital Corp. (GECC) on review for a possible downgrade, which could raise the cost of borrowing money for the company. Moody's said it is worried about the heightened uncertainty regarding GECC's asset quality and earnings performance. The Dow component and industrial conglomerate responded by saying that it has outlined a plan for the year that is based on the difficult global economic environment. During the next few months, it will "work constructively" with Moody's on its review. GE's objective is to maintain its triple-A rating but it does not anticipate any major operational impacts should that change.

Dow member Boeing (BA $43 ¹) reported 4Q revenues fell 27% to $12.7 billion as the now-settled machinist strike delayed aircraft deliveries, and the company reported a $0.08 per share loss, including a $1.79 per share charge related to the strike and other items. Ex-items, Boeing recorded 4Q profits of $0.62 per share, short of the consensus of $0.78. The maker of the 747 said the progress made in many areas was outweighed by the impact of the strike and some key development programs. The company offered revenue guidance for 2009 that was generally in line with analysts' estimates but profit guidance was soft.

Dow component AT&T (T $26) reported 4Q adjusted EPS fell from $0.71 a year ago to $0.64, missing the Street's forecast by one penny, and revenues increased 2.4% to $31.1 billion, just shy of expectations. The company posted a 2.1 million net gain in wireless subscribers to 77.0 million and 1.9 million iPhone 3G devices were activated in 4Q. AT&T also said it experienced a strong ramp up in U-verse TV subscribers, with a 4Q net increase of 264,000, the company's best quarterly gain to date. Results, however, were pressured by continued losses in its landline business. Despite the current economic climate and caution going forward, AT&T said it has a strong balance sheet and expects "overall revenue growth" in 2009.

Wells Fargo (WFC $16) reported a 4Q net loss of $2.6 billion, or $0.79 per share, due to merger-related actions and further loan losses. Wachovia, which was purchased by Wells Fargo and closed on December 31, recorded a net loss of $11.2 billion. WFC declared its regular $0.34 per share quarterly dividend and said it has no plans to request additional TARP capital. The Street had been looking for a profit of $0.32 per share.

Legg Mason (LM $19) is down sharply after reporting net revenues fell 39% to $720 million, below analysts' estimates of $827.3 million, and a net loss of $10.55 per share. Losses included non-cash goodwill of $6.03 per share and $3.63 per share related to its continued efforts to cut its exposure to structured investment vehicles (SIVs). Additional support for liquidity and reduced prices on previously-supported SIVs cut profits by $1.07 per share. Also, assets under management fell by 17% sequentially to $698.2 billion, reflecting market conditions and net client outflows.

Traders eye FOMC statement

The Federal Open Market Committee will conclude its two-day meeting today at about 2:15 p.m. ET. The fed funds rate likely won't be part of the equation since rates were cut to a target of 0-0.25% at the December meeting, but the Fed will probably signal again that weak economic conditions are likely to warrant exceptionally low levels for some time. Comments about housing, employment and the overall economy will also be closely followed. The Committee said on December 16 that it will employ all available tools to promote growth, and traders will be looking for additional steps that may be taken in the near term, including any action that could be employed in conjunction with the Treasury Department.

The US MBA Refinance Index fell 48.0% to 3373.9 due to the recent rise in mortgage rates. The Purchase Index remains near a cyclical low, falling 2.9% to 294.3, signaling that the housing market remains very weak.

Banks bolster Europe

A surge in the financials and better-than-expected profits from the world's largest maker of business management software is propelling strong gains in Europe. Expected passage in the US House of a stimulus package of roughly $900 billion is bolstering sentiment, while talk that the Obama administration may be getting ready to administer a plan to remove bad assets from banks is also shoring up the sector. Lloyds Banking Group (LYG $4) is up nearly 40% and leading the group higher after Citigroup offered positive commentary and raised its rating on the stock. Shares of SAP (SAP $35) are also pushing ahead after posting a 13% rise in 4Q net profits to 850 million euros, topping the consensus estimate provided by Bloomberg News of 747 million euros. The Germany-based company plans to cut its workforce by about 3,000, or about 6%.

South Korea leads advance in Asia

Traders in Seoul, South Korea returned from a three-day holiday and stampeded back into shares, pushing the benchmark Kospi Index up 5.9%. Chip shares posted the strongest gains as markets had a chance to play catch-up, while gains in Japan were more muted as the Nikkei 225 Index closed up 0.6% ahead of the conclusion of the Fed's two-day meeting. After the close, Canon (CAJ $29) reported net profits fell 81% in the quarter just ended due to the strong yen and falling demand around the world. The world's largest maker of digital cameras said a substantial economic recovery is unlikely in 2009, and the operating environment will "be even harder" this year than 2008. Separately, markets in China, Taiwan, and Hong Kong remained closed for the Lunar new year holiday.