Evening Update

Bulls Take a Step Back

Stocks finished the day in the red after light trading as the market gave back some gains from the recent rally. Financials led the way down after news that four more major banks have announced stock offerings, while technology and telecom shares were the lone sectors in the green today. In equity news, Intel was reported to be close to receiving a record fine from the European Union, and General Motors said that a bankruptcy is now “more probable”. Elsewhere, Priceline.com and Dish Network both topped analysts' estimates, while Clear Channel and Conseco fell short, and Principal Financial Group announced it needs more capital. Treasuries were higher after equities slid and there were no major economic reports released, although Fed Chief Ben Bernanke is set to discuss the stress tests this evening.

The Dow Jones Industrial Average fell 156 points (1.8%) to close at 8,419, the S&P 500 Index lost 20 points (2.2%) to 909, and the Nasdaq Composite decreased 8 points (0.5%) to 1,731. In light volume, 1.2 billion shares were traded on the NYSE, and 2.3 billion shares were traded on the Nasdaq. Crude oil fell $0.13 to $58.50 per barrel, wholesale gasoline fell $0.03 to $1.68 per gallon, and gold lost $3.28 to $913.38 per ounce.

Four more major banks, three of whose capital positions were deemed adequate in the government stress tests, have announced plans to raise capital aimed at paying back the government loans they received as part of the Troubled Asset Relief Program (TARP). (BBT $25) announced that it has reduced its quarterly dividend by 68% to $0.15 per share and it will use the proceeds of a $1.5 billion common stock issuance, along with other funds, to repay the government's investment in the company. BB&TUS Bancorp (USB $19) announced that it has commenced a public offering of about $2.5 billion of its common stock, and Capital One Financial (COF $28) said it will offer 56 million shares, or about $1.75 billion, and use the proceeds to buy back the preferred stock and warrants issued to the US Treasury. Meanwhile, KeyCorp (KEY $6), which has a $1.8 billion gap in its capital position, announced that it plans to sell up to $750 million of its common stock in the first leg of its action plan to address its capital shortfall. KEY said that it is contemplating additional actions that would further enhance its financial strength. Shares of all four firms were lower today.

The Financial Times is reporting that Dow member Intel Corp. (INTC $15) is bracing for one of the heaviest penalties handed down in Europe for anti-competitive behavior after a near-decade long investigation into the group's marketing practices. The report states that INTC was formally charged in July 2007, claiming the company abused its dominant market position and offered illegal rebates to computer manufacturers, shutting rival Advanced Micro Devices (AMD $4) out of the market. The European Union (EU) is expected to formally approve action against the world's largest chipmaker in terms of sales on Wednesday and could exceed the $1.36 billion fine that was imposed on fellow Dow component Microsoft (MSFT $19). INTC said the company's business practices are "legal, pro-competitive and good for consumers." The EU has not commented on the report. INTC shares overcome early pressure to finish higher.

Shares of Priceline.com (PCLN $109) posted moderate gains today after the online travel booking firm reported 1Q EPS ex-items grew 43% to $1.09, topping the Reuters estimate of $0.93, as revenues increased 14.6% to $462.1 million. The company said gross travel bookings for 1Q rose 10.5% to $1.9 billion, and despite "worldwide recessionary conditions," it continued to gain market share. Looking ahead, PCLN said visibility remains cloudy for 2009 as macroeconomic conditions continue to impact travel demand, while the swine flu outbreak presents another variable it believes is likely to adversely impact travel demand. PCLN issued guidance for EPS ex-items of $1.65-1.75, compared to the Street's estimate of $1.65.

Dish Network (DISH $18) released 1Q financial results with EPS of $0.70, up from $0.58 in 1Q 2008. The Street had been expecting a profit of $0.56 per share. Revenues grew 2% to $2.8 billion. The results were not all positive though as DISH reported that it lost approximately 94,000 net subscribers during the quarter, resulting in a total of 13.6 million subscribers. DISH increased the average monthly bill for customers 3.1% during the quarter, which helped to offset the decline in customer numbers. The stock was up nearly 20% following the results announcement.

Principal Financial (PFG $20) was down over 10% after the insurance, retirement, and financial services company announced it will be selling 42.3 million shares of its common stock. The offering will be worth approximately $1 billion, compared with the company’s current market cap of approximately $5.5 billion, and will be used for “general corporate purposes”. The firm has recently undergone two rounds of layoffs, totaling over 3% of the group’s workforce.

Dow member General Motors (GM $1) was down after CEO Fritz Henderson said in an interview that it is “more probable” than previously thought that the company will file for bankruptcy court protection, although he declined to comment on a specific probability figure and he did say “there’s still a chance” for the company to restructure outside of court proceedings. Henderson also said the firm is open to moving its headquarters from Detroit. GM has already told bondholders that it would miss a June 1 debt payment of $1 billion. The stock finished down nearly 10% today.

Clear Channel Outdoor (CCO $5) lost $0.25 per share in the first quarter, reversing a profit of $0.25 in the first quarter last year. Analysts were only expecting a loss of $0.18 per share but the struggling US economy continued to have a negative impact on the firm’s operations, according to management. Sales dropped 25% to $582 million and the company aggressively cut costs, dropping operating expenses 19% year-over-year, although not enough to fully offset the loss of revenue. The stock lost 7% today.

Conseco (CNO $3) gained over 25% after the insurance group posted a 1Q operating income of $0.17 per share, ending a string of eight straight quarterly losses. The consensus estimate among analysts had been EPS of $0.20. Although CNO’s results fell slightly short of analyst estimates, investors were pleasantly surprised that losses from investments were only $6.9 million, down from $27.8 million in 1Q 2008. Revenue grew 4% to $1.1 billion in the quarter.

Heavy dose of economic data on deck later this week

Treasuries were higher as equities pulled back and there were no major economic reports released today. The yield on the 2-year note fell 9 bps to 0.89%, the yield on the 10-year note dropped 12 bps to 3.16%, while the yield on the 30-year bond lost 9 bps to 4.18%.

Traders will likely pay some attention to Federal Reserve Chairman Ben Bernanke's speech tonight on the stress tests of the 19 largest US banks at the Atlanta Fed's Financial Markets Conference. Bernanke will speak at 7:30 p.m. ET and then he will participate in a Q&A session. The Street may be looking for any commentary on whether the companies that have been told to address their capital shortfalls will be able to meet their capital requirements with limited increases in funds provided by the government, while minimizing shareholder dilution.

After a quiet start to the week, the economic calendar for the rest of the week will have plenty for the Street to digest, starting with tomorrow's release of the trade balance. The consensus estimate is for a deficit of $29 billion in March, slightly more than the $26 billion deficit recorded in February.