Evening Update

Tech Weakness and Global Concerns Lead Markets Lower

Stocks gave back yesterday’s gains as profit taking and weak guidance from tech firms pulled that sector lower, while global credit concerns continued to weigh on investor sentiment as Standard & Poor’s issued cautious comments on the UK banking industry, just a day after lowering outlook on the debt of Japan. The US economic front was highlighted by a rise in headline durable goods orders that was smaller than expected and weekly initial jobless claims falling at a rate less than anticipated. In equity news, Dow members 3M Co. and Procter & Gamble both posted better-than-expected results, while fellow member AT&T reported earnings inline with expectations. Ford posted its first full year profit since 2005, while Netflix beat analysts’ estimates and issued positive guidance. In tech earnings news, Qualcomm issued 2Q guidance that missed the Street’s forecast and Motorola posted disappointing sales and forecasted an unexpected loss for 2Q. Treasuries finished the day mixed, as the short end of the curve fell. The Senate voted to reconfirm Ben Bernanke to a second four-year term as head of the Federal Reserve.

The Dow Jones Industrial Average fell 116 points (1.1%) to close at 10,120, the S&P 500 Index lost 13 points (1.2%) to 1,085, and the Nasdaq Composite shed 42 points (1.9%) to 2,179. In moderate volume, 1.1 billion shares were traded on the NYSE and 2.8 billion shares were traded on the Nasdaq. Crude oil was $0.17 higher at $73.84 per barrel, wholesale gasoline lost $0.01 to $1.93 per gallon, and the Bloomberg gold spot price fell $1.40 to $1,086.50 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was up 0.3% to 78.93.

Dow component AT&T (T $26) posted 4Q EPS of $0.51, inline with the consensus estimate of Wall Street analysts, with revenues declining slightly from $31.1 billion in the same period a year ago to $30.9 billion, also matching the Street’s forecasts. The company said it added 2.7 million net total wireless subscribers—the second highest quarterly net gain in its history, while its 1.19% churn rate of postpaid—the more highly coveted subscribers—and total company 1.44% churn rates were the best-ever 4Q rates for the company. Shares finished lower after giving up an early gain.

Dow member Procter & Gamble (PG $62) announced fiscal 2Q EPS of $1.49, compared to the analysts estimate of $1.43, as revenues grew 6% year-over-year (y/y) to $21.0 billion, versus the $19.5 billion that was expected by the Street. PG said excluding items, 2Q EPS were $1.10. Shares finished higher after the company increased its guidance for full-year organic sales growth—a key metric that the Street follows, which excludes acquisitions and foreign exchange rates—from between 2-4% to 3-5%.

Dow member 3M Co. (MMM $81) reported 4Q EPS of $1.30, beating the $1.21 that the Street forecasted, with revenues rising 11% y/y to $6.1 billion, which also exceeded analysts’ forecasts, as the consensus called for the company to report revenues of $5.9 billion. The company said during the quarter all six of its business segments and all geographic regions expanded their sales y/y and all posted double-digit operating profit growth. MMM traded lower, despite raising its 2010 earnings outlook, as the company’s CEO sounded a cautious tone toward the automotive and housing markets. “Until I see some improvement in unemployment, I’m going to be cautious in those two sectors,” he said during a conference call with analysts.

Ford Motor Co. (F $11) finished lower after it reported 4Q EPS ex-items of $0.43, well above the $0.26 consensus of analysts, with revenues jumping 22% y/y to $35.4 billion, beating the $32.6 billion that was forecasted by analysts. The company posted a full-year profit of $0.86 per share, compared to the loss of $0.31 that analysts expected, marking the first full-year profit since 2005. The automaker added that it expects to be profitable in 2010 and it remains on track to be “solidly profitable” in 2011. Separately, the Wall Street Journal reported that the company has stopped production of some of its full-size commercial vehicles in China, due to the company discovering that the gas pedal used came from the same supplier involved in the recall at Toyota Motor Corp. (TM $78). F’s CEO said the China production suspension is isolated. Shares of CTS Corp (CTS $8), the maker of the accelerator assembly that is reportedly responsible for the gas pedal issues, fell sharply, although the company claims the problem is related to Toyota’s design, not the electronic sensors that prompt the braking system.

Qualcomm (QCOM $40) was sharply lower after the cellphone chipmaker issued 2Q guidance that missed analysts’ estimates, with the company saying it expects EPS ex-items for the quarter to range between $0.49-0.53, while the Street was looking for the company to post EPS of $0.57. Also, the company said it expects 2Q revenues to be between $2.4-2.6 billion, versus the $2.7 billion that analysts were anticipating. The announcement accompanied QCOM’s report of fiscal 1Q EPS ex-items of $0.62, which topped the Street’s forecast of $0.56, with revenues of $2.7 billion, matching the consensus estimate of analysts.

Motorola (MOT $6) reported 4Q EPS ex-items of $0.09, one penny above the Street’s forecast but revenues fell 20% y/y to $5.7 billion, which came in short of the $5.9 billion that analysts had expected. The mobile phone maker said it sold 12 million phones during the quarter, which missed the 14.8 million forecast of analysts surveyed by Reuters. Shares were down sharply amid the disappointing sales results and after the company said it expects a 1Q loss of between $0.01-0.03 per share, compared to the profit of $0.03 per share that the Street is expecting.

Netflix (NFLX $63) shares were up over 20% after the company announced 4Q EPS ex-items of $0.56, compared to analysts’ estimates of $0.45 per share. The online DVD-rental pioneer added more than one million subscribers during the quarter, allowing it to reach a year end goal of 12.3 million subscribers, which is up 31% for the end of last year. NFLX also issued Q1 2010 revenue guidance above Wall Street expectations, as the company’s streaming content becomes available on a greater number of electronic devices.

Durable goods come in below expectations, jobless claims decline less than forecasted

The U.S. Senate voted to reconfirm Ben Bernanke to a second four-year term as Chairman of the Federal Reserve.

Treasuries finished the day mixed as the yield on the 2-year note fell 5 bps to 0.87%, the yield on the 10-year note was unchanged at 3.65%, and yield on the 30-year bond was flat at 4.56%.

Durable goods orders rose by 0.3% in December, versus the 2.0% rise that had been forecast, and November’s 0.2% increase in orders was downwardly revised to a decline of 0.4%. Ex-transportation, orders were up 0.9%, compared to the 0.5% growth forecast, and November’s figure was favorably revised from a 2.0% increase to a 2.1% advance. Monthly orders data of goods intended to last at least three years can be very volatile as large orders for items such as airplanes and military equipment have a tendency to distort the data.

At first glance, the headline report of a smaller-than-expected increase may have disappointed some on the Street, but digging into the report from the Census Bureau, there were some components that suggest businesses are becoming more willing to spend and the consumer may be becoming more optimistic about the economy. New orders for nondefense capital goods ex-aircraft, considered a good proxy for business spending, increased 1.3%. This figure has grown for the second-straight month and jumped 3.1% in November, and if this continues, the favorable trend could foreshadow that corporate America is shifting focus from extreme cost cutting and may be gearing up to ramp up production, adding some support to the economic recovery. Moreover, when excluding new orders for defense and aircraft—considered a gauge of consumer sentiment—new orders rose 1.0% in December and 2.6% in November, suggesting that the relatively improving employment outlook and continued recovery in the economy has consumers more comfortable with their financial position and are becoming more willing to spend discretionary funds on bigger ticket items.

Weekly initial jobless claims declined by a smaller amount than expected, falling by 8,000 to 470,000, versus last week's figure which was revised lower to 478,000, and compared to the consensus, which called for claims to decrease to 450,000. The four-week moving average, considered a smoother look at the trend in claims, rose by 9,500 to 456,250, and continuing claims fell by 57,000 from an upwardly revised 4,659,000 to 4,602,000, compared to the 4,593,000 forecast.

UK and Greece credit concerns highlight international news

Concern about the UK’s credit quality emerged after Standard and Poor’s said it doesn’t see the UK “among the most stable and low-risk banking systems globally,” per Bloomberg news. Greece’s debt load added further uneasiness as spreads on the country’s credit widened significantly. The economic front helped soothe some of the sting to sentiment as the unemployment change in Germany—Europe’s largest economy—rose less than economists surveyed by Bloomberg had expected and Italian business confidence improved more that anticipated. However, the headlining economic report in the region was the tenth-consecutive improvement in Eurozone economic confidence, which rose from an upwardly revised 94.1 in December to 95.7 in January, exceeding the 92.3 that economists had expected.

First reading on 4Q GDP growth in the US due out tomorrow

Tomorrow brings the headline report on Advance Gross Domestic Product (GDP) for 4Q, the first reading on the broadest measure of economic output, and considered a proxy for corporate profits. The consensus forecast is that growth accelerated in 4Q to 4.6% on annualized rate, from 2.2% in 3Q. Personal consumption is expected to have increased 1.8% after posting 2.8% growth in 3Q and the GDP Price Index is expected to have advanced 1.3%, with the core PCE Index, which excludes food and energy, also increasing 1.3%. While the report is backward-looking, it is closely watched due to its comprehensive nature and potential impact on monetary policy.

GDP is the combined total of consumption, government spending, investments (residential and nonresidential), and net exports (exports less imports). Growth in consumer spending, which accounts for about 70% of the economy, was boosted in 3Q by the “cash-for-clunkers” program, and while December retail sales were disappointing, consumers appeared to have completed holiday shopping earlier in the quarter, with November and October posting strong numbers. Within business investment, inventories continue to be drawn down, but at a slower rate, adding to GDP growth.

Other releases on the US economic calendar include the Chicago Purchasing Manager survey, forecasted to decline to 57.2 from 60.0 in January, and the final December reading on the University of Michigan consumer sentiment survey, forecasted to increase slightly to 73.0 from 72.8 in January.

International economic releases tomorrow include Japan manufacturing PMI, unemployment rate, CPI, household spending, and industrial and vehicle production. The Euro zone will announce CPI and the unemployment rate, while Canada will announce industrial product prices and GDP.