Markets Remained Positive on News from Greece and The Fed

After finally breaking a six-week losing streak last week, the market was up slightly as of Thursday. Stocks again moved higher after European leaders expressed confidence that Greece will concede to economic reforms to receive another bailout to avoid defaulting on their debt. Greece has taken steps to meet the austerity measures being demanded by eurozone governments and the International Monetary Fund.

Domestically, the housing market continues to remain stagnant. Sales of all types of homes are down, and prices continue their downward trend. The Federal Open Market Committee met expectations and announced no change in monetary policy and that the Quantitative Easing 2 (QE2) program would wind down as promised at the end of June.

Economic Data

• Greek Default Crisis
  • Finance ministers from Europe met on Sunday to approve Greece’s next infusion of bailout funding.
  • Greek Prime Minister George Papandreou survived through a no-confidence vote on Tuesday.
  • Spending cuts, tax hikes and government asset sales will have to be approved by the Greek parliament next week and have to be agreed upon by European Union regulators for Greece to receive the next round of funding.
• Housing News
  • Existing home sales fell in May by 3.8% to an annualized rate of 4.81 million units.
    • The continued drop brings the year-over-year decline to 15%, and
    • The existing inventory of homes on the market stands at 9.3 months, median home price fell 4.6% on the year.
  • New home sales fell 2.1% in May.
    • The seasonally adjusted annual rate fell to 319,000 units
• Federal Open Market Committee Meeting (FOMC)
  • On Wednesday, the FOMC announced no changes to current monetary policy;
  • QE2 will end at the end of the month as planned;
  • The Fed revised its GDP growth figures for the U.S. economy down to 2.9% for the year from 3.1%, and
  • The Fed expects inflation to level off for the rest of the year.

Company News

• Walgreen Company (NYSE: WAG) increased profit from $463 million to $603 million for the quarter.
  • Walgreens filled 5.8% more prescriptions over last year for a total of 210 million;
  • Same-store-sales were up 4.1% as sales rose to $18.37 billion, an increase of 6.8%;
  • Earnings rose from $0.47 per share to $0.65 per share and beat analysts’ forecast;
  • Walgreens purchased Drugstore.com in an attempt to grow online sales, and announced they will no longer fill prescriptions for people covered by Express Scripts after failing to agree over contract terms, and
  • Shares were down 4.2% on the news.
• Carnival Corporation (NYSE: CCL) beat analysts’ expectations for the quarter with earnings of $206 million or $0.26 per share.
  • Rising fuel costs, the Japan earthquake and tsunami, and turmoil in the Middle East took its toll on the company;
  • Fuel prices rose 35%, costing the company roughly $150 million during the quarter;
  • The cruise line’s revenue of $3.62 billion was an 11% increase and beat the $3.51 billion estimate, and
  • Shares rose 4.2% with the report.
• FedEx Corporation (NYSE: FDX) increased earnings in the first quarter by 33% by passing higher fuel on to consumers and experiencing strong demand as the economy recovers.
  • Earnings were $558 million, $1.75 per share against $1.33 per share and $419 million last year;
  • Sales grew to $10.55 billion, up 12%, while expectations were for $10.4 billion;
  • FedEx earned $1.45 billion or $4.57 for the 2011 year
  • The express transportation company predicts earnings between $1.40—$1.60 next quarter and between $6.35—$6.85 for the 2012 fiscal year.
  • Shares of the stock were up 2.5% on the news.

Mergers & Acquisitions Activity and More

• PNC Financial Services Group, Inc (NYSE: PNC) agreed to purchase Royal Bank of Canada’s (NYSE: RY) retail banking operations in the United States for $3.45 billion.
  • The deal is expected to close in the first quarter of 2012 leaving PNC with almost 3,000 branches, fifth in U.S. banks.
  • If necessary, PNC will issue common stock of up to $1 billion in order to raise capital to satisfy regulators.
• SABMiller plc (LON: SAB) made an attempt to purchase Fosters Group (ASX: FGL) but the buyout was rejected by the Fosters’ board.
  • Typical acquisitions in Australia have a 30% premium.
  • The offer was for 12.5 times earnings before interest, taxes, depreciation, and amortization, and at a 14.5% premium.

Supreme Court Cases

• Wal-Mart Stores’ Class Action Lawsuit
  • The Supreme Court ruled 5-4 in favor of the company by decertifying the class action suit against the company.
  • Justice Scalia, writing for the majority, stated that the plaintiffs failed to show how managers at 3,400 different locations acted in common to discriminate against women.
  • The statistical and anecdotal evidence falls well short of proving that managers exercised discretion in a common fashion without some sort of common direction.
  • The verdict was an enormous victory for Wal-Mart and other large corporations that would face similar suits with such a low standard for certifying class action status.
• States vs. Environmental Protection Agency
  • The Supreme Court ruled 8-0 in favor of the EPA enforcing and regulating the emission of greenhouse gases, not the states or courts.
  • The EPA will be in charge of the regulations and their implementation.

Interest Rates

• The two-year Treasury yield fell to 0.35%, just above the all-time low of 0.33% in November 2010.
• The five-year Treasury yield was down to 1.5%, falling nearly 1% since the start of 2011.
• The 10-year Treasury rate remained flat at 2.95%, below the psychologically important 3% level.
• The 30-year Treasury yield dropped to 4.19%, and is more than .50% lower than February’s rate.

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