Morning Update

Mixed Morning on Earnings and More Global Stimulus

Stocks are pointing to a mixed open as traders digest a plethora of earnings reports and news of more stimulus overseas. Treasuries are under modest pressure as the Street grapples with the fate of more aid from lawmakers on the way for the US financial markets. On the equity front, Merck & Co. easily topped analysts' expectations, Motorola posted a smaller-than-expected loss, while Dow Chemical reported a large loss and UPS missed. Overseas, Europe is under modest pressure as Vodafone's upbeat sales are being offset by a loss at BP. Asian markets finished mixed.

As of 8:43 a.m. ET, the March S&P 500 Index Globex futures contract is 1 point below fair value, the Nasdaq 100 Index is 6 points below fair value, and the DJIA is 6 points above fair value. Crude oil is up $0.02 to $40.10 per barrel, and gold is up $3.30 at $910.00.

Dow member Merck & Co. (MRK $28) reported 4Q EPS ex-items of $0.87, well above the Reuters estimate of $0.74, and said revenues declined 3% to $6.0 billion as foreign exchange provided an unfavorable effect. MRK said it experienced continued strong performances of newer products and its broad product portfolio helped it face the challenges of 2008. MRK reaffirmed its full-year EPS guidance.

Dow Chemical (DOW $11 ¹) reported a per share loss ex-items of $0.62, versus a flat analysts' expectation, as sales fell 23% to $10.9 billion, which came in well below the $13.0 billion forecast. DOW said prices were down 6% in the quarter and its operating rate was 64%. The company said it is planning for a global recession throughout 2009. Shares are lower.

UPS (UPS $42 ¹) posted adjusted 4Q EPS of $0.83, a 22% decline from a year ago, and two cents below the Street's forecast. Revenues fell 5% to $12.7 billion, which also came up short of expectations. The company said the severe decline in economic activity around the world resulted in sharply lower package and freight volumes, and as a result, it is making tough decisions to adapt to today's realities. UPS said it has consolidated operating districts, reduced air segments and eliminated some package handling operations, and it is freezing management salaries and suspended the match for its 401(k) plans. The company said visibility into the future has become increasingly difficult and it will provide guidance only for 1Q, which is a range of $0.52-0.68 per share, versus the Street's forecast of $0.68.

Motorola (MOT $5) reported a 4Q loss ex-items of $0.01 per share, one penny above the Reuters estimate, as revenues came in at $7.1 billion, and mobile device sales were $2.4 billion. MOT also announced that its Board of Directors voted to suspend the declaration of quarterly cash dividends on its common stock.

More housing data on tap

Treasuries are under modest pressure in early action and recently have seen some choppiness as traders grapple with the recession and worries about the size of expected budget deficits and the massive borrowing that is expected to take place to try to stem the slide in the economy. Currently, lawmakers are furiously debating a proposed stimulus package from the Obama Administration, which is reportedly aimed at establishing a "bad bank" to buy up the toxic mortgage-related assets that continue to clog the financial system, in hopes to return some normalcy to the lending markets-the lifeblood of the economy. Schwab's Chief Investment Strategist Liz Ann Sonders offers a compelling analysis regarding the bad bank option and whether it will be the cure for the global banking system in her article Bad to the Bone: Will a "Bad Bank" Cleanse the System?, located at www.schwab.com/marketinsight.

On today's economic front, pending home sales for December will be released at 10:00 am ET, and a flat reading is anticipated against the backdrop of tighter credit standards, a very weak labor market, and falling consumer confidence.

Europe low on energy

Stocks in Europe were higher in afternoon action, led by solid gains in telecom issues, which followed Vodafone's (VOD $18) upbeat sales performance, which is lifting its shares by almost 7%. The world's largest mobile-phone company, according to Bloomberg, said 3Q sales grew 14% amid the precipitous decline in the British pound and strong sales on India. However, shares in European action have slipped into negative territory as energy shares are under pressure after Europe's second-largest oil outfit, BP (BP $42), posted its first quarterly loss in seven years. BP said it lost $3.3 billion, or $0.18 per share in 4Q, versus last year's net income of $4.4 billion, or $0.23 per share.

Japan fails to hold rally as earnings worries stymies stimulus in Asia

Stocks in Japan received a nice boost from the announcement from the Bank of Japan that it will buy 1 trillion yen ($11.1 billion) of shares of financial firms aimed at shoring up the balance sheets of the companies that have been in the belly of the financial crisis beast. Additionally, stimulus support was received from down under after Australia's central bank cut its benchmark lending rate 100 basis points to 3.25%, the lowest level in 45 years according to Bloomberg and the Australian government announced it will spend about A$42 billion ($27 billion) on infrastructure and handouts to households. Australian shares finished in the green, however, persistent pessimism toward the global recession's impact on corporate earnings overwhelmed sentiment in Japan and the Nikkei 225 Index relinquished almost a 3% gain and finished in the red in choppy trading. Elsewhere, shares in China rose solidly as the Shanghai Composite Index posted a 2.4% gain, led by optimism the government will deploy more stimulus toward the oil refining and petrochemicals industry.