Today’s Market

For a very brief period last week, traders weren’t sure if the Federal Reserve was going to raise rates at its next meeting. The futures market was split 50/50, but now the market is pretty much convinced that the Fed will raise the Fed Funds rate for an 11th straight time.

Today, the government reported that producer prices rose 0.6% in August, which is slightly less than what economists were expecting. The core rate, which excludes volatile food and energy prices, was unchanged, however this data does not include the effects of Hurricane Katrina. We’ll have to wait until next month to see how broad an impact the hurricane had on prices.

The Commerce Department reported that the trade deficit narrowed to $57.9 billion in July. I doubt that trend will last very long. The reason is oil. As oil heads higher, Americans send more money overseas. For the year, the trade deficit will probably be close to $700 billion, which is a big increase over last year’s record of $617 billion.

This is also the time when companies guide their earnings higher or lower in time for earnings season which kicks off next month. Nokia, the world’s largest cell phone company, raised its earnings estimate today. Nokia is a great company, but I’m a little suspicious of this earnings guidance. Not that Nokia won’t make it, but because Nokia was so gloomy beforehand. In July, Nokia shocked Wall Street when it missed its earnings then it said that third-quarter earnings will be no higher than 21 cents a share. Now it sees profits coming in at 22 or 23 cents a share. Still, Nokia is an excellent company and I expect it will rally over the next few months.

Shares of Best Buy are taking a big hit today on the company’s lower guidance for next quarter. Best Buy reported earnings of 37 cents a share, which is one penny below estimates. However, the electronics chain sees earnings of just 28 to 32 cents a share for next quarter, where Wall Street was expecting earnings of 34 cents a share. I would never count Best Buy out. The company is still very strong and it had an amazing May quarter when it topped Wall Street’s estimates by 70%. For this quarter, sales were up 10% and profits were up 25%. The stock is trading for about 20 times this year’s earnings.

Posted by on September 13th, 2005 at 10:37 am


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