What to Know About the Dow's Fresh Record
Investors got more excited on Wednesday than the crazy screaming people who attended Oprah's home custom doll auction earlier this week. Key details from Fed insiders indicating that stimulus measures will continue pumped the Dow up 129 points to a new record high. All eyes on Thursday, though, will already be on Twitter's #IPO (until investors return to their Instagram feeds).
1. Two Fed papers stir stimulus commotion
Two key research papers written by top Federal Reserve economists William English and David Wilcox got investors giddy on Wednesday. The pieces were released late Wednesday to be presented to the International Monetary Fund later this week, making Wall Street feel like a teenager who just found a secret stash of their older brother's Playboys.
So what's all the fuss? The papers call for the U.S. to pursue more aggressive stimulus action to get the economy's mojo back (a similar scenario to the plot of the second Austin Powers movie). The timing is key, too, because right now Janet Yellen is expected to replace Fed Chairman Ben Bernanke in January, but she's been mum as of late on how one should run the nation's central bank.
Keep in mind that the Fed has been keeping interest rates low since the '08 financial crisis began and has said it will until the 7.3% unemployment rate drops to 6.5%. In the current "quantitative easing" (QE3) policy, the Fed's been buying $85 billion of long-term bonds monthly to keep interest rates down to encourage borrowing -- but investors have been worrying for months about how long the central bank can keep the policy going according to Reuters. The two V.I.Papers make it look like it should continue for a bit longer.
2. Abercrombie reports disastrous earnings
So what are the kids buying these days? The creepy section of the NYSE trading floor was focused on the buying habits of Abercrombie & Fitch (NYSE: ANF) shoppers after the legendary apparel company released its third-quarter earnings report. The bad news that had investors wearing shopping bags over their heads was that sales dropped 12% compared to last year to $1.02 billion.
1892 -- We've all seen it emblazoned across the front of its brand-new yet still faded hoodies. With more than 100 years of retailing experience, Abercrombie recently strayed into "intimate" and dangerous territory by building some stand-alone underwear stores, called Gilly Hicks. But on Tuesday, Abercrombie announced it's closing them all down. The corporate restructuring will cost the company big, which caused CEO Mike Jeffries to reduce end-of-the-year earnings forecasts to $1.40-$1.50 per share, a fraction of May's $3.15-$3.25 forecasts of just six months ago.
Christmas will be painful, too, as the company will discount prices to coax consumers to clear out its overstuffed inventory shelves. Discounting will hurt the company's margins, and the CEO added that fourth-quarter holiday season sales will probably also fall by double digits. The stock plummeted 13.5% on the shocking news of fading profits.
3. Whole Foods' earnings report tasted bad
True, the people at Whole Foods make a fantastic kale and beets take-home salad, but the company's revenues didn't look as good as its produce. The grocery store chain for adults who have graduated from Trader Joe's, Whole Foods reported quarterly revenues of $2.8 billion, but analysts expected more than $3 billion. Although its earnings beat forecasts, the stock dropped 8.5% on Wednesday.
Impressively, Whole Foods has managed to beat earnings estimates for every quarter since 2008 -- and this time, despite the revenue slip, still beat forecasts with earnings of 32 cents per share compared to analysts' projected 31 cents per share. However, Whole Foods' inorganic/spoiled news was that management is lowering its earnings expectations for 2014 as more competitors enter the space. Investors don't like how that tastes (Business Insider).
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