Just like you never want to hear a doctor say "oops" in the operating room, you never want to see a going-concern statement in a financial report about a company you own. Accountants throw these in when they've been over the books, talked to customers, and checked the horoscopes and have concluded there is "substantial doubt" about a company's ability to remain in business. In short, don't blame the accountants if the company files for bankruptcy protection.

You¿d reckon that a going-concern statement would be enough to send investors running to the exits, but it's not. True, many large institutions automatically bail when an existing company gets slapped with one of these, but many individuals (often wrongly) take a chance they know more than the bean counters.

During the tech boom of the late 1990s, many companies actually went public even though they had been hit with going-concern statements. Many of those companies subsequently disappeared. Enough said.

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Thursday, July 17, 2008

Uptick

Encore: Dow Soars 207 on Oil, Earnings

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Matt Egan

FOXBusiness

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A year ago, a 53% drop in JPMorgan Chase’s earnings and $129 oil prices would have sparked a damaging selloff on Wall Street.

On Thursday, those results were cheered by traders, sending the blue chips to their second straight 200-point rally.

Today’s Market

The Dow Jones Industrial Average jumped 207.38 points, or 1.85% to 11446.66, the Standard & Poor’s 500 index gained 14.96 points, or 1.20%, to 1260.32 and the Nasdaq Composite Index picked up 27.45 points, or 1.20%, to 2312.30. The consumer-friendly FOX 50 added 9.40 points, or 1.06%, to 896.52.

The market celebrated the largest three-day losses for crude oil futures ever and a string of earnings beats with another triple-digit rally on the Dow. The solid day follows Wednesday's 266-point surge for the blue chips, which was the best day on the stock market since April Fool's Day.

Wall Street also cheered a pair of economic reports on housing and the labor market that came in much better than the market had been bracing for.

While the blue chips have soared about 470 points on heavy volume over the past two days, many on Wall Street remain cautiously optimistic or downright bearish.

"The financials got murdered going into earnings season. In the context of an extremely oversold market, all you needed was a lack of bad news," said Peter Boockvar, equity strategist at Miller Tabak, who called Thursday's rally an obvious "dead-cat bounce."

JPMorgan Chase (JPM) and Bank of America (BAC) were the best performign stocks on the Dow,soaring double-digit percentages for the second day in a row. Also, General Motors (GM) posted gains of nearly 12%, rising on the tumbling oil prices and a restructuring plan. Coca-Cola (KO) didn't join in the rally, falling almost 4% after releasing better-than-expected earnings.

The market reached its highest levels of the day when it became clear crude oil futures were going to plunge for a third straight day. Crude has lost $16, or 11% of its value, over the span -- its largest three-day dollar losses ever. It was also the worst percentage losses over three days since 2003. Oil futures closed down $5.31 at $129.29 a barrel.

Oil prices have been driven low by worries about weak demand, an unexpected build in crude stockpiles and upcoming options expiration. The lower crude prices helped fuel another rally in airline stocks, which soared a day ago as well. United Airlines (UAUA), Delta Airlines (DAL) and American Airlines (AMR) were all enjoying double-digit percentage gains on the hopes of lower energy costs.

Financial stocks led the stock market higher again on Thursday. The KBW bank index surged 9% just a day after the index posted its largest gains since it was created in 1992. Bank stocks were ignited by earnings reports from Wells Fargo (WFC), JPMorgan Chase and asset manager BlackRock (BLK). The broader market was also celebrating earnings reports from Dow members Coca-Cola and United Technologies (UTX).

While the better-than-expected earnings were welcomed by Wall Street, it's important to note that the bar has been significantly lowered in recent quarters as the corporate world deals with the slowing economy and the credit crunch.

The lowered expectations are most obvious in the financial sector, which built on Wednesday's huge rally. JPMorgan Chase beat the Street with second-quarter earnings of 54 cents, easily topping mean estimates of 44 cents. The banking giant's profit tumbled 53% from a year ago, hurt by $1.1 billion in writedowns. Still, its shares rose sharply as the results were better than the market was bracing for.

“Two days in a row of strength shouldn’t shock anybody.... People are just so used to the negativity that at this point they are saying, 'Tell me something I don’t know,'” Steve Grasso of Stuart Frankel & Co. told FOX Business.

The earnings parade continued after the closing bell on Thursday with mixed results from Merrill Lynch (MER), Google, (GOOG), IBM (IBM) and Microsoft (MSFT).

The day's economic data was significantly better than the market had been bracing for. The Labor Department said initial jobless claims rose by 18,000 last week to 366,000. Economists had been expecting a larger rise in claims to 34,000. Continuing jobless claims for more than one week tumbled by 81,000 to 3.1 million -- the 12th straight week over the three-million level.

Also, the Commerce Department said housing starts jumped 9.1% while housing permits increased by 11.6%. Economists had been expecting declines of more than 1% for each. However, single-family home construction fell by 5.3% to the worst level since January 1991. The increase in construction was mostly attributed to a change in New York City building codes rather than to a significant improvement in the housing market.

Corporate Movers

UBS (UBS) said it has stopped offering offshore banking to U.S. residents after dealing with charges of aiding tax evasion. An official from the Swiss bank announced the news during a Senate subcommittee meeting.

BlackRock (BLK) soared after the investment manager's profit jumped 23% to $2.05 per share on $1.39 billion in revenue. Analysts surveyed by Thomson Reuters had been looking for $1.97 per share on $1.32 billion in revenue. The results come a day after The Wall Street Journal reported Merrill Lynch's (MER) 49% stake in BlackRock won't likely be sold any time soon.

Coca-Cola (KO) tumbled after CEO Muhtar Kent said he sees the second half of 2008 remaining challenging in North America. Earlier, the stock had been higher after the beverage giant beat the Street with second-quarter adjusted-earnings of $1.01 per share, compared to the 96 cents analysts were looking for. Kent also said the company has no plans in place or any intentions of buying marketing and distributing company Coca-Cola Enterprises (CCE).

Freddie Mac (FRE) closed sharply higher after announcing that more than half of its $3 billion two-year debt issue was bought by central banks. The mortgage giant said central banks accounted for 57% of its notes, investment managers bought 18% and insurance and pension funds 5%.

Wachovia's (WB) St. Louis headquarters for its securities business was raided by regulators on Thursday as part of an investigation into auction rate securities. Wachovia's stock briefly fell on the news but then turned around, closing more than 25% higher in a broad financial rally. Ten regulators showed up at the headquarters of Wachovia Securities, which used to be A.G. Edwards, but no charges have been filed.

United Technologies (UTX) posted an 11% rise in its second-quarter earnings and boosted its full-year outlook. The industrial conglomerate earned $1.32 per share on a 12.7% increase in revenue to $15.7 billion. Analysts had been looking for $1.30 per share.

Yahoo! (YHOO) released a stockholder letter saying it is still ready to sell itself to Microsoft (MSFT) for $33 a share or more. The company also said it is still open to selling its search operations only to Microsoft and called Carl Icahn's proposal a "smoke and mirrors" deal that will "destroy" shareholder value. The two companies have been sparring publicly for months on the price and structure of a deal.

eBay (EBAY) plunged 15% as the online auction company's outlook failed to impress, leading the stock to be downgraded to "neutral" from "buy" by Goldman Sachs and Merrill Lynch. Wednesday evening eBay said its second-quarter profit jumped 22%, topping estimates by two cents. However, eBay's outlook for the third quarter came up short.

Teva Pharmaceutical (TEVA) is reportedly in talks to acquire rival Barr Pharmaceuticals (BRL) for up to $7.5 billion. The negotiations were reported by financial newspapers TheMarker and Globes. Israel-based Teva is the world's largest generic drug maker. Shares of Barr were recently soaring by more than 14%.

PNC Financial (PNC) topped estimates with second-quarter adjusted-earnings of $1.37 per share, 11 cents better than average estimates.

Data Dump

The Philadelphia Federal Reserve's business index improved in July but not by as much as economists had expected. The index rose to -16.3 this month from -17.1 a month ago. Consensus estimates called for a -15 reading, according to Dow Jones.

World Markets

The Dow Jones Euro Stoxx 50 Index, a gauge of the 50 biggest companies in Europe, rose 81.33 points, or 2.56%, to 3256.09. The FTSE 100, London's benchmark index, gained 135.70 points, or 2.63%, to 5286.30

On the continent, Paris's CAC 40 Index picked up 113.54 points, or 2.76%, to 4225.99 while Germany's DAX added 115.90 points, or 1.88%, to 6271.27.

In Asia, Japan's benchmark Nikkei 225 Index rose 127.15 points, or 1.00%, to 12877.95. Hong Kong's Hang Seng gained 511.22 points, or 2.41%, to 21734.72.