Market Irrational, But Fed Rational (AOL, IFF, RAH, BZH, FORD, FOSL)
It was a completely crazy day in the market. Stocks were whipsawed around in one of the most volatile days on the market since the flash crash, with the Dow up 200 points, then turning negative down -200 points, then closing up over 400 points. Much of the volatility centered around the Fed statement, which initially triggered a sell-off, before markets eventually reversed course and were off to the races. The Fed came out with a completely new statement today, one that gave a very rational assessment of the economy and created more transparency by setting a date on how long it is likely to keep interest rates near record low levels. The drug of QE3 was not offered, but the Fed said it would be prepared to expand its balance sheet if warranted. While the market may not have acted rationally today, we think that the Fed did, and that is a positive for now. We’d continue with the strategy of dollar-cost averaging into weakness and accumulating shares of high-quality stocks that have been thrown in the bargain bin.
The Computer Peripheral Stocks Index was the top performing tickerspy Index on the day, led by Forward Industries (FORD) with a 47% gain. The Jewelry Retailer Stocks Index was the day’s worst performing tickerspy Index, with Fossil (FOSL) down -12%.
Stocks climbed higher on a volatile day, with the Dow soaring 430 points higher to 11,240. The S&P jumped 53 points to 1,173, while the Nasdaq rocketed 125 points higher to 2,483. Oil fell -$2.01 to $79.30 a barrel, while gold climbed $29.80 to $1,743.00 an ounce.
In economic news, the Federal Reserve pledged to keep its key interest rate near zero through at least mid-2013 marking the first time the U.S. central bank has given a specific time horizon for how long it expects to keep interest rates at record lows. The announcement also highlighted the Fed’s current dim view of U.S. economic growth.
In earnings news, shares of Internet company AOL (AOL) plunged -25.8% after the company lowered its OIBDA guidance. Its second-quarter loss narrowed to -$11.8 million, or -11 cents a share, from -$1.06 billion, or -$9.89 a share, a year earlier. Revenue slid -8% to $542 million. On an adjusted basis, AOL earned 4 cents a share. Analysts were expecting EPS of 4 cents on revenue of $535 million. The company forecast income before depreciation and amortization, or OIBDA, of $340-$370 million for the full year, below the $425 million analysts were expecting.
Shares of International Flavors & Fragrances (IFF) jumped 5.9% after the company said its second-quarter profit rose 13% to $76.2 million, or 93 cents per share, from $67.2 million, or 83 cents per share, a year earlier. On an adjusted basis, the company earned 97 cents a share compared with 85 cents a year earlier. Revenue increased 7.5% to $715.6 million. Analysts were expecting a profit of 96 cents a share on revenue of $702.5 million. Nine pros counted International Flavors & Fragrances among their top holdings at the end of Q1 and nearly 50 tickerspy members own the stock in their portfolios.
Ralcorp (RAH), the Missouri-based food company, said its fiscal third-quarter profit fell -47% to $28.3 million, or 50 cents per share, from $53.0 million, or 95 cents per share, a year earlier. Revenue climbed to $1.17 billion from $962.4 million. On an adjusted basis, Ralcorp earned $1.15 a share, but analysts were expecting $1.20. Shares of Ralcorp edged up 1.0%. Nine pros counted Ralcorp among their top holdings at the end of Q1 and nearly 70 tickerspy members own the stock in their portfolios.
Shares of homebuilder Beazer Homes USA (BZH) fell -5.7% after the company said its fiscal third-quarter loss widened to -$59.1 million, or -80 cents a share, from -$27.8 million, or -41 cents a share, a year earlier. Revenue plunged -49% to $172.8 million. Beazer posted a loss from continuing operations of -$55.8 million, or -75 cents per share. Analysts were expecting a loss of -46 cents on revenue of $230.2 million.
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