Dow Jones and S&P 500 News

Posted on | October 13, 2009 |

Wall Street opened in negative territory following disappointing quarterly sales figures at Johnson & Johnson. We also had prominent banking analyst Meredith Whitney downgrading Goldman Sachs today, so it’s not surprising to see some profit taking.

Wall Street opened in negative territory following disappointing quarterly sales figures at Johnson & Johnson. We also had prominent banking analyst Meredith Whitney downgrading Goldman Sachs today, so it’s not surprising to see some profit taking.

Shares of the world’s biggest healthcare products maker Johnson & Johnson retreated 2.6% during the first hour of trading to $60.91 after revealing third-quarter sales that fell short of consensus expectations.

Revenue at Johnson & Johnson declined 5.3% to $15.1 billion in the third quarter, below Bloomberg’s median analyst forecast of $15.2 billion. The drug maker said sales were eroded by competition from cheaper generics.

The company’s quarterly earnings came in above expectations, however, at $3.35 billion, or $1.20 a share, up from $3.31 billion or $1.17 a share, the year before. In the meantime, third-quarter profits (excluding certain one-off items) beat Bloomberg’s median analyst estimate by 7 cents.

Johnson & Johnson also raised its 2009 earnings forecasts to a range of $4.54 to $4.59 a share (excluding adjustments from special items). This is better than earlier estimates of $4.45 to $4.55 a share.

The market’s reaction to Johnson & Johnson’s quarterly results could suggest that it’s no longer good enough to deliver better-than-expected earnings. The market may now want to see some evidence of top line growth, which may be a challenging feat to pull off at this juncture.

Also tainting sentiment today was Goldman Sachs’ downgrade by renowned analyst Meredith Whitney. Meredith downgraded Goldman Sachs from ‘buy’ to ‘neutral’ today, saying she was ‘far less bullish’ on banking shares. [1]

Goldman Sachs, which is scheduled to announce its earnings on October 15, fell 2.1% to 186.14. Bank of America declined 1.9% to $17.69, and Wells Fargo slid 1.2% to $29.93.

Commercial lender CIT Group also made the headlines today after its chief executive Jeffrey Peek said he is planning to resign this month. Shares in the embattled company plunged 13.2% to $0.903 a share.

In technology news, networking giant Cisco Systems announced that it will be acquiring wireless firm Starent for $2.9 billion in cash, equivalent to $35 a share.

‘Cisco sees the consumer trend toward the pervasive adoption of mobile devices,’ said Joanna Makris of Brigantine Advisors, who recommends holding Cisco shares and buying Starent. ‘They want to find a way to drive network traffic and the growth of their infrastructure business.’ [2]

Cisco’s share rose 0.7% to $23.96 while shares of Starent Networks jumped 17.4% to $34.06.

Elsewhere, November Light Sweet crude oil (WTI) rose as much as $74.47 a barrel today while October gold futures rose to another record high of $1068.4 per troy ounce.

Gold rose on the back of a weakening US Dollar and elevated inflation expectations. ‘There’s lots of concern about the weakness in the US Dollar and it’s this that has been driving gold,’ explained Peter Fertig of Quantitative Commodity Research. ‘The fear that central bank exit strategies will come too late to prevent inflation is giving support to gold.’ [3]

By 3.30pm (London time) the Dow Jones Industrial Average was 34.84 points (-0.35%) below its previous close at 9850.96, while the broader S&P 500 was 5.87 points (-0.55%) lower at 1070.32. The Nasdaq fared relatively better, down by only 1.13 points (-0.07%) at 1728.50.

Finally, it’s important to note that technology bellwether Intel is scheduled to release its third-quarter earnings after the closing bell today. CSX Corp and Linear Tech will also publish their quarterly results at the end of the day.

[1], [2], [3] Source: Bloomberg News (13 October 2009)

By Anthony Grech, Research Analyst, IG Index.

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