Stocks trade flat ahead of key data on inflation and manufacturing later this week. Tuesday saw stocks tumble on continued worries about the sub-prime market and how it will impact growth. At the same time, retail sales data was weaker than expected. Today, there has been some recovery in stocks hit Tuesday, but there also has been news about more companies running into problems due to loan defaults. With both the producer price index and consumer price index due out this week, along with industrial production data, traders will have a lot to digest and this could lead to even more volatility.
Shares of Accredited Home Lender (LEND) are up nearly 20 percent Wednesday after taking a beating yesterday. This sub-prime lender announced yesterday that it had paid $190 million in margin calls since Jan. 1 due to bad loans. However, H&R Block (HRB) shares are off nearly 3 percent after the company warned that its quarterly losses would be worse than estimates due to the sub-prime problem.
Larger firms that have a hand in sub-prime loans, but that don't focus on this sector, have not announced any problems. Case in point is Goldman Sachs (GS) on Tuesday and Lehman Brothers (LEH) today. Both companies' announced better than expected earnings and didn't point to any problems with earnings due to the sub-prime issue. Nonetheless, LEH shares are off nearly 3 percent Wednesday in midday action.
Shares of General Motors (GM) are falling today despite announcing a profit in the fourth quarter. However, revenues fell to $51.2 billion from $51.7 billion in the year ago period. GM did not that it future results would remain under pressure do to its stake in GMAC, which has a significant portion in sub-prime loans.
Oil prices are trading flat in midday trading despite the fact crude inventory levels were lower than expected. For the week ending Mar. 9, crude stocks rose by 1.2 million barrels. Gasoline stocks were down by 2.5 million barrels and distillates fell by 2.8 million barrels. OPEC meets tomorrow to discuss production quotas and energy prices and this could impact prices to end the week.
Overall, stocks might not see much net movement until after key economic data is released this week. The key for the bulls is to see solid manufacturing data, along with benign inflation. If inflation is too strong, it will limit the Fed's ability to cut rates to spur economic growth and this will bring up the "R" word [recession] once again.
Senior Staff Writer & Options Strategist
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