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US Markets: GDP numbers fail to impress - Views on News from Equitymaster
 
 
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  • May 4, 2002

    US Markets: GDP numbers fail to impress

    US markets didnít seem particularly impressed by a strong GDP growth recorded in the economy during the first quarter of 2002. Consequently, the NASDAQ ended the week with a loss of 3%. Also, corporate results that were declared during the week added to the pessimism, the main culprits being tech firms. The major fall came on Friday, as unexpectedly strong weakness in the job market aggravated the skepticism.

    On the brighter side, HP finally closed the US$ 18 bn (Rs 900 bn) Compaq acquisition deal; labeled as the largest ever merger in the IT industry. HPís bid narrowly survived a stiff opposition from HP shareholders that included the Hewlett and Placard families. The stakeholders approved the merger by a bare 3% margin, creating an IT hardware and services giant with sales of nearly US$ 80 bn (Rs 4000 bn), rivaling industry leader International Business Machines Corp (IBM).

    Meanwhile all eyes are glued on Cisco. The company will declare its result for the quarter ended Marchí 02 on Tuesday. Analysts expect the company to triple its earnings over the corresponding quarter last year. Responding to meltdown in spending by telecom companies, the company has increased its exposure to large customers outside the telecom industry. Ciscoís cash reserves of over US$ 22 bn (Rs 1,100 bn) is also expected to give it a strong edge over its cash strapped rivals Nortel and Lucent. The cash reserves are almost equal to the companyís yearly sales. Markets are hoping some revival in Ciscoís stock after the quarterly announcement, which has crashed more than 65% over last the last six months.

    Boeing received US$ 1.1 bn (Rs 55 bn) contract from NASA for support and maintenance of the space shuttle main engine. The contract calls to support the space shuttle for the next five years, including ongoing flight and test engineering and engine refurbishment. Boeing stock remained volatile during the week finally ending 3% up over the last week.

    On the economic front, while the economy grew at 5.8% annual rate in the first quarter, a steep jump in unemployment rate that climbed to 6%(the highest ever in the last 8 years) disappointed the market. The steep jump in the unemployment rate that was unexpected overshadowed the fact that US companies added jobs to their payrolls for the first time in the month of April since June 2001. However, not enough jobs to absorb a big jump in incremental addition to the work force.

    Indian ADRís: Mixed show
    (Price in $) 27-Apr-02 4-May-02 Change
    Dr. Reddy's 22.4 20.6 -8.0%
    MTNL 6.0 6.3 5.0%
    Infosys 62.0 63.1 1.8%
    HDFC Bank 15.1 15.0 -0.7%
    Wipro 33.0 32.0 -3.0%
    ICICI 6.6 6.2 -6.1%
    Satyam 11.4 11.8 3.5%
    Rediff 0.8 0.7 -12.5%
    VSNL 7.6 7.3 -3.9%
    ICICI Bank 5.1 5.1 0.0%
    Satyam Infoway 1.3 1.1 -15.4%
    Silverline 1.7 1.9 11.8%

    It was a mixed week for the Indian ADRís. The biggest loser of the week was Satyam Info way. Though the subscriber base for the companyís ISP business is on the rise, the company is facing stiff price competition. Satyam Computers on the other hand recorded a 4% gain over the last week on the back of encouraging performance. The company has issued 18-20% bottomline growth guidance for FY03.

    Major markets end flat
    Indices 27-Apr-02 4-May-02 Change
    Nikkei 11,541 11,551 0.1%
    BSE 3,372 3,381 0.3%
    FTSE 5,159 5,203 0.9%
    Dow 9,911 10,007 1.0%
    Hang Sang 11,385 11,797 3.6%
    Dax 5,000 4,883 -2.3%
    NASDAQ 1,664 1,613 -3.1%

    While, the economic data apparently seem to be giving a ray of hope for the US economy, market participants seem to be adopting a cautious stand before clear signals emerge. However, the underlying message that one gets from revenue guidance is that corporates are expecting a recovery sooner than later.

     

     

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