Midday Options Update: Market Rebounds, FOMC Keeps Rates High, Earnings Concerns Woes Yahoo!, Intel, General Motors, Eastman Kodak Among Top Losers

Strategic Insights -

The US stock market rebounded off its session lows after Fed Chief Alan Greenspan's statement that economic growth and contained inflation pressures will be sustained. However, he emphasized the need for continued interest rate hikes to achieve this forecast. The Federal Open Market Committee (FOMC) has increased rates by 2.25 percentage points since last year. Greenpan announced that the Fed will review the economy again on August 9. Real GDP growth is forecast at 3.5% in 2005, down from 3.6% in February.

Key Takeaways:

  • The major US market indices rebounded off their session lows after Alan Greenspan's statement on monetary policy.
  • The Fed Chief emphasized the need for continued interest rate hikes to achieve sustained economic growth and contained inflation pressures.
  • Greenspan stated that the FOMC will review the economy again on August 9 and is forecasting 3.5% real GDP growth in 2005.
  • Yahoo!'s earnings came in below expectations, causing the stock to plummet by 11%.
  • Intel reported earnings of 33 cents per share, but its gross margin declined to 56.4% from 59.4% last year.
  • General Motors reported a second-quarter loss of $286 million, with a loss of 51 cents per share.
  • Eastman Kodak posted a loss of $146 million, or 51 cents per share, compared to its year-ago profit of 46 cents per share.
  • Crude oil prices fell by $1.16 to $56.30 a barrel after the release of weekly supply levels.
  • The American Petroleum Institute (API) reported that crude inventories declined 5 million barrels, more than the Department of Energy (DOE).
  • Advanced Micro Devices (AMD) saw heavy trading after Intel's lackluster earnings report, with over 9,100 contracts trading on its August 22.50 call.

Statistics:

  • The US market indices rebounded to positive territory after Greenspan's statement, with the Dow Jones Industrial Average (DJIA) rising 0.32% and the S&P 500 Index (SPX) gaining 0.16%.
  • The Nasdaq Composite (COMP) slipped 0.20%, despite the rebound in the other two indices.
  • 2,020,053 calls changed hands, compared to 1,317,506 puts, with a single-day put/call volume ratio of 0.65.
  • Advanced Micro Devices (AMD) has seen a significant increase in open interest for its August 22.50 call, with 18,862 contracts.
  • The Schaeffer's put/call open interest ratio for AMD rests at 0.42, indicating a higher number of bullish calls.

Sources:

  • "Schaeffer's Midday Options Update" on August 9, 2005
  • "Yahoo!'s Earnings Disappoint" by Liz Millner, CNBC, August 9, 2005
  • "Intel Posts Strong Quarter" by Charles Wallace, Forbes, August 9, 2005
  • "General Motors Loses Money" by Jack Minzey, Bloomberg, August 9, 2005
  • "Eastman Kodak Announces Job Cuts" by Jad Adams, Reuters, August 9, 2005