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Stocks End Mostly Lower; Yellen Speech, Ukraine Eyed

Jeremy Glaser

U.S. Market
Stocks were mostly lower today after Fed Chair Janet Yellen and ECB head Mario Draghi's speeches in Jackson Hole and renewed worries over Ukraine.

Janet Yellen told a central banking conference this morning that the jobs market has improved greatly over the last five years, but that is not yet fully recovered. She also described how a number of factors are making it hard to accurately gauge how much slack there is the labor market. This uncertainty is one of the major reasons that the Fed is having trouble deciding on the exact timeline for raising short-term rates despite the rapid fall in the jobless rate.

At market close the Dow and S&P 500 were each down 0.2% while the Nasdaq was up 0.1%.

Stocks on the Move
Dynegy (DYN) announced plans to acquire 6.1 GW of coal and gas generation from Duke Energy (DUK) for $2.8 billion. Additionally, Dynegy will acquire 6.3 GW of coal and gas generation from Energy Capital Partners (ECP) for $3.45 billion. The estimated total present value of net operating losses is estimated at $480 million. The transformative acquisition for Dynegy nearly doubles the company’s generation capacity, adding 9.0 GW in PJM and 3.4 GW in New England. To fund the transaction, Dynegy plans to issue $4.9 billion-$5.1 billion in unsecured notes, $200 million of equity to ECP, and an additional $1.0 billion-$1.1 billion of new equity. Dynegy initiated 2015 adjusted EBITDA guidance range of $1.2 billion-$1.4 billion, and 2015 free cash flow guidance range of $480 million-$680 million assuming the transaction closes by the end of the year. Dynegy shares were up nearly 9% on the news while Duke shares were down less than 0.5%.

Given that Gap (GPS) provided sales data and updated guidance earlier this month, there were no real surprises in the second-quarter earnings report. Performance metrics improved quarter over quarter and we expect this trend to continue in the back half. Net sales for the quarter grew 3%, on a flat comp which was slightly ahead of the first quarter’s negative 1% comp. Old Navy’s value proposition and strong product offering continued to resonate with consumers and second-quarter comp sales increased 4%. Banana Republic and Gap weighed on top-line performance with comps of flat and negative 5%, respectively. Second-quarter gross margin was down 110 basis points to 39.4%, but was an improvement in trend from the first quarter. Gap shares were up over 5% at market close.