Evening Update

Bulls’ Confidence Wanes Late in the Day

With no economic news to catalyze sentiment and amid light equity news, the bulls’ efforts to maintain midday gains lacked conviction and stocks tumbled late in the day with the Dow closing below the important 10,000 mark for the first time since November. Festering sovereign debt fears out of Europe also added to the uneasiness. In equity news, CVS Caremark reported better-than-expected earnings but its revenues came in light, while Hasbro announced earnings that easily topped analysts’ forecasts. Also, beleaguered commercial lender CIT Group announced former Merrill Lynch CEO John Thain will become its new leader, Toyota Motor Corp is reportedly close to declaring a recall of it new Prius hybrid vehicles, while SAP surprised the market by announcing that its CEO will step down. Treasuries were nearly flat.

The Dow Jones Industrial Average fell 104 points (1.0%) to close at 9,908, the S&P 500 Index lost 9 points (0.9%) to 1,057 and the Nasdaq Composite declined 15 points (0.7%) to 2,126. In fairly light volume, 1.1 billion shares were traded on the NYSE and 2.0 billion shares were traded on the Nasdaq. Crude oil was $0.70 lower at $71.19 per barrel, wholesale gasoline was unchanged at $1.89 per gallon, and the Bloomberg gold spot price lost $3.30 to $1,063.00 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was down 0.1% to 80.31.

CVS Caremark (CVS $33) reported adjusted 4Q EPS of $0.79, one penny ahead of the consensus estimate of Wall Street analysts, with net revenues rising 7% year-over-year (y/y) to $25.8 billion, compared to the $26.2 billion that the Street was looking for. The company said its pharmacy services revenues rose 14.5% and its retail pharmacy sales rose 4.5% for the quarter. Meanwhile, its pharmacy network claims processed decreased by 5.6% to 151.4 million, due to the termination of two large health plan clients and three fewer reporting days in 4Q compared to the same period last year. CVS said its same-store sales—sales at stores open more than one year—increased by 4.9%. Shares were higher.

Hasbro (HAS $35) announced 4Q EPS of $1.09, easily topping the $0.81 that analysts were expecting, with revenues increasing 12% to $1.4 billion, versus the $1.3 billion that the Street had forecasted. HAS said its boy’s segment saw revenue increase 16% and its game and puzzle sales jumped 18% and sales at its girls unit advanced 4%. The toy maker said it believes it should be able to grow revenues and EPS for the full year 2010, absent a deterioration in consumer spending, global economic conditions or the value of foreign currencies. HAS finished nearly 13% higher.

CIT Group (CIT $31 ¹) was higher after the commercial lender announced that it has elected ex-Merrill Lynch CEO John Thain as its new chief effective immediately. CIT recently emerged from bankruptcy protection and said Thain is a well respected financial services executive who is “uniquely qualified to lead the company at this critical stage.”

Toyota Motor Corp. (TM $73) declined again in Asian trading and was lower in US trading on continued recall uneasiness at the world’s largest automaker, exacerbated by reports that the company may be set to announce another recall –- this time for its new models of its Prius hybrid vehicles due to a brake problem. TM did not confirm the reports and a spokesperson said, ‘We will make an announcement soon on the action we plan to make,” per Reuters.

Shares of SAP (SAP $45) were were nearly 6% lower in US trading following the surprising announcement that the CEO of the world’s largest business software firm will leave the company. SAP said the departure was a mutual decision and did not cite a reason for the change in leadership. The company said it will return to a split leadership.

Dormant economic calendar no help

Treasuries finished nearly unchanged as there were no major economic reports released today, and the calendar for the rest of the week will be light as well. The yield on the 2-year note was flat at 0.77%, the yield on the 10-year note was steady at 3.57%, but yield on the 30-year bond fell 2 bps to 4.50%.

Another event that will also likely garner attention will be Wednesday’s testimony from Federal Reserve Chairman Ben Bernanke before the House Financial Services Committee. Bernanke will discuss the Fed’s plan on unwinding emergency liquidity programs and the implications for the economic recovery. Today, James Bullard, the President of the Federal Reserve Bank of St. Louis—and Federal Open Market Committee voting member—told Reuters in an interview that the Fed could begin selling off assets in the second-half of 2010 and it should try to trim its balance sheet to a normal size before the next recession strikes.

G-7 finance ministers vow strong reforms, confidence in Greece

The Group of Seven finance ministers met in Canada over the weekend, with the European members pledging to ensure that Greece sticks to its budget cutting plans in the wake of concerns of its sovereign debt. European Central Bank President Jean-Claude Trichet said the ECB is “confident” Greece will pare its deficit to below the EU’s limit of 3% of GDP by 2012 from 12.7%, per Bloomberg news. As well, officials discussed banking reforms, with U.S. Treasury Secretary Timothy Geithner saying there was “…a strong commitment together to make sure we are putting in place the strong reforms that would permit these kinds of crises from happening again.”

In economic news around the globe, European investor confidence unexpectedly deteriorated to -8.2 in February from -3.7 in January, a four-month low and the first decline in seven months. Economists were expecting a reading of -2.7, according to a poll by Bloomberg. Elsewhere, Switzerland’s unemployment rate increased to 4.5% during January from 4.4% in December, but below the 4.6% expected by economists, while the nation’s retail sales jumped 4.7% y/y in December after falling 0.1% in November.

The only item on tomorrow’s US economic calendar is wholesale inventories, forecasted to rise 0.5% in December following a 1.5% increase in November.

Tomorrow’s international economic docket will comprise of a number of reports from Germany including the nation’s trade balance and CPI, as well as the trade balance from the UK. China will also release its trade balance, and Japan will report machinery orders.