Wednesday’s Market Recap: Starbucks Profit Down, Wells Fargo & Boeing Report Losses

The markets moved sharply upward on word of the Federal Reserve pledging to help the economy in any way possible.  The Dow Jones Industrial Average jumped 2.46% closing at 8,375.45, while the Nasdaq and S&P climbed 3.55% and 3.36% respectively to levels of 1,558.34 and 874.09.  Positive crude inventories reported today boosted crude oil up $0.76 to $42.34 while gold decreased $11.40 closing at $890 an ounce.  The Federal Reserve signaled that they will continue using unconventional tools in order to cushion the fallout of the economic crisis while also agreeing to keep the targeted range for the federal funds rate between zero and 0.25 percent.  Officials are now focusing on new lending and asset purchase programs, and possibly purchasing government bonds.

The financial sector soared higher as hopes that the Obama administration will create banks to absorb bad assets, which until now have been weighing down the financial sector.  The potential plan could get debt and defaulted mortgages and put them into a “bad bank” to hold so called toxic assets.  Stocks also rose on the news of a House vote on the $819 billion stimulus plan that would contain a combination of new spending and potential tax cuts.

Starbucks Corporation (SBUX) released earnings today marking a 69% decrease in profits in which they have plans to close more stores and have further job cuts.  They are noted that they plan on cutting more than 300 under performing stores in addition to the 600 it has already closed in the United States, resulting in a loss of 6,000 jobs.

Wells Fargo & Co. (WFC) reported earnings today marking a net loss of $2.55 billion, compared to a profit of $1.36 billion a year before.  Wells Fargo noted that a $5.6 billion credit reserve as well as a $3.9 billion provision related to their takeover of Wachovia had led to their quarterly loss.  They also took charges of $294 million from some of its customers affected by Bernard Madoff’s alleged Ponzi scheme who were unable to pay their loans.  Although they posted a loss for the quarter, Wells Fargo maintained their quarterly dividend of 34 cents per share.

Defense contractor General Dynamics Corporation (GD) reported diluted earnings per share of $1.57, marking a 5.7% increase from a year ago.  They said that their growth came from higher profits in its business jet and shipbuilding units, which outweighed a drop in their armored vehicles and tanks segment.

Although mostly positive news surrounded the market today, there still was signs of weakness as Boeing Co. (BA) released earnings today.  They reported a fourth quarter loss of $56 million, compared with profit of $1.03 billion a year earlier.  They noted that their losses stemmed from deliveries of passengers as well as cargo jets which fell more than half in the quarter.  Facing plummeting air traffic and squeezing military budgets, Boeing announced plans to cut more than 10,000 jobs this coming year.

Disclosure: The mutual fund that the author manages is long GD.

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