BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Retail longs, Medical longs and Biotech longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, almost every sector is rising and volume is heavy. Earnings growth is decelerating, yet I am seeing more violent upside reactions by stocks to earnings reports than I have seen in a very long time. This could help break the mentality of "sell all good news" that has dominated trading in the current U.S. negativity bubble. This is a very positive development. Mostly strong economic reports of late have led to some talk that growth would accelerate to such an extent this year that the Fed would have to hike rates. Cyclicals are soaring 5% higher already this year. While economic growth is accelerating from last year's midyear slowdown, I suspect growth will average about 3% this year. It will feel like less than 3%, however, due to how much less the deflator will likely subtract from nominal growth than last year. It is interesting to note that "high-school dropout copper" is trading near recent lows, falling 2.5% today, despite the stronger economic data and extreme speculation in many other commodities. I suspect if you are an aggressive trader that today may be a good day to take profits in some of the deep cyclicals that have had big runs. I expect US stocks to trade mixed-to-higher into the close from current levels on economic optimism, bargain-hunting, short-covering and lower energy prices.
Thursday, February 01, 2007
DJIA Hits Another All-Time High on Economic Optimism, Lower Energy Prices, Healthy Earnings
Today's Headlines
Bloomberg:
- The DJIA is hitting another all-time high after the government said consumers spent more without fueling inflation.
- Natural gas is falling 2% today after inventories fell less than expected, leaving supplies at record highs for this time of the year.
- Venezuela may devalue its currency this year as accelerating inflation boosts demand for foreign exchange while falling oil prices draw fewer dollars to the economy, Bear Stearns said.
- Exxon Mobil(XOM) and Royal Dutch Shell Plc, the world’s two biggest oil companies, posted higher-than-expected fourth-quarter profits after gains in production softened the blow of declining energy prices.
- Russian companies traded in London are tied so tightly to the Russian government that investors should beware, said Alexander Temerko, a former vp of OAO Yukos Oil Co.
Wall Street Journal:
- A group led by Vornado Realty Trust may raise its bid today for Equity Office Properties Trust(EOP), the real-estate trust founded by Chicago billionaire Sam Zell.
NY Times:
- French President Jacques Chirac said in an interview this week that Iran’s possession of one or two nuclear weapons would not pose a big danger, one of many remarks he retracted a day later.
Washington Times:
- Democratic House Speaker Nancy Pelosi requested that the Bush administration allow her staff, relatives and other members of the California delegation access to military aircraft for domestic flights.
Beijing Antaike Information Development Co.:
- Aluminum output in China, the world’s biggest producer, rose 20% in 2006, citing figures form the National Bureau of Statistics.
Khaleej:
- Oil markets remain oversupplied even as OPEC starts to implement a second round of output cuts, citing Iranian Oil Minister Kazem Vaziri-Hamaneh. “Oil supplies from countries outside OPEC have increased “a lot” and the weather in Europe is “warmer than past years,” he said.
- The DJIA is hitting another all-time high after the government said consumers spent more without fueling inflation.
- Natural gas is falling 2% today after inventories fell less than expected, leaving supplies at record highs for this time of the year.
- Venezuela may devalue its currency this year as accelerating inflation boosts demand for foreign exchange while falling oil prices draw fewer dollars to the economy, Bear Stearns said.
- Exxon Mobil(XOM) and Royal Dutch Shell Plc, the world’s two biggest oil companies, posted higher-than-expected fourth-quarter profits after gains in production softened the blow of declining energy prices.
- Russian companies traded in London are tied so tightly to the Russian government that investors should beware, said Alexander Temerko, a former vp of OAO Yukos Oil Co.
Wall Street Journal:
- A group led by Vornado Realty Trust may raise its bid today for Equity Office Properties Trust(EOP), the real-estate trust founded by Chicago billionaire Sam Zell.
NY Times:
- French President Jacques Chirac said in an interview this week that Iran’s possession of one or two nuclear weapons would not pose a big danger, one of many remarks he retracted a day later.
Washington Times:
- Democratic House Speaker Nancy Pelosi requested that the Bush administration allow her staff, relatives and other members of the California delegation access to military aircraft for domestic flights.
Beijing Antaike Information Development Co.:
- Aluminum output in China, the world’s biggest producer, rose 20% in 2006, citing figures form the National Bureau of Statistics.
Khaleej:
- Oil markets remain oversupplied even as OPEC starts to implement a second round of output cuts, citing Iranian Oil Minister Kazem Vaziri-Hamaneh. “Oil supplies from countries outside OPEC have increased “a lot” and the weather in Europe is “warmer than past years,” he said.
Personal Incomes/Spending Accelerate, Inflation Tame, Job Market Healthy, Pending Home Sales Surge, Manufacturing Decelerates
- Personal Income for December rose .5% versus estimates of a .5% increase and a .3% gain in November.
- Personal Spending for December rose .7% versus estimates of a .7% gain and a .5% increase in November.
- The PCE Core for December rose .1% versus estimates of a .2% increase and an unch. reading in November.
- Initial Jobless Claims fell to 307K versus estimates of 315K and 327K the prior week.
- Continuing Claims rose to 2553K versus estimates of 2469K and 2482K prior.
- Pending Home Sales for December rose 4.9% versus estimates of .9% and a -.3% decline in November.
- ISM Manufacturing for January fell to 49.3 versus estimates of 51.7 and a reading of 47.5 in December.
- ISM Prices Paid for January rose to 53.0 versus estimates of 47.0 and 47.5 in December.
- Personal Spending for December rose .7% versus estimates of a .7% gain and a .5% increase in November.
- The PCE Core for December rose .1% versus estimates of a .2% increase and an unch. reading in November.
- Initial Jobless Claims fell to 307K versus estimates of 315K and 327K the prior week.
- Continuing Claims rose to 2553K versus estimates of 2469K and 2482K prior.
- Pending Home Sales for December rose 4.9% versus estimates of .9% and a -.3% decline in November.
- ISM Manufacturing for January fell to 49.3 versus estimates of 51.7 and a reading of 47.5 in December.
- ISM Prices Paid for January rose to 53.0 versus estimates of 47.0 and 47.5 in December.
BOTTOM LINE: Personal Spending in the US jumped in December by the most in five months and a measure of inflation watched by the Fed rose less than forecast, Bloomberg said. I suspect spending will rise back to above-average rates, while incomes continue to outpace inflation over the intermediate-term.
The number of Americans filing first-time claims for state unemployment benefits fell more than forecast last week, suggesting the labor market remain firm, Bloomberg said. The four-week moving-average fell to 304,750 from 309,250. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at 1.9%. I expect the unemployment rate to average a historically low 4.5% for the year as more hiring by technology, healthcare and financial companies offsets real estate-related job weakness.
More Americans signed contracts to buy previously-owned homes in December, adding to evidence the housing market is improving, Bloomberg reported. This index is considered a leading indicator of sales. I continue to believe that housing is stabilizing at relatively high levels as inventories plunge with good demand, thus putting a floor under prices.
Manufacturing in the US unexpectedly contracted in January, Bloomberg reported. The prices paid component rose to 53 versus 47.5 the prior month. Crude oil prices have declined in recent weeks. The average price of a barrel of crude traded on the NY Merc was $54.35 last month versus $62.09 in December. The inventory component of the index fell to 39.9 from 48.5, the largest decline since 1984. Manufacturing will likely remain a drag on the economy during 1Q, however I expect it to improve meaningfully during the second half of the year as inventories are rebuilt.
Wednesday, January 31, 2007
Thursday Watch
Late-Night Headlines
Bloomberg:
- President Bush, making the first presidential visit to the NYSE during trading hours in more than two decades, said a four-year rally in stocks may continue if taxes don’t rise.
- The Iraqi government invited Syria, Iran and other neighboring states to come to Iraq in March to talk about ways to improve the country’s security, Iraq’s ambassador in Washington said.
- Nikko Cordial Corp. shares plunged as much as 17%, the biggest drop since the October 1987 stock market crash, after an inquiry implicated former executives in an accounting fraud that may cost Japan’s third-largest brokerage its stock market listing.
- The University of California and the University of Illinois will split a $500 million grant from BP Plc(BP), Europe’s second-largest oil company, to fund research into development of clean-burning biofuels.
- The yuan rose to its highest since China ended its fixed exchange rate in 2005 on speculation the central bank will seek to reward US Treasury Secretary Henry Paulson for heading off sanctions to force currency gains.
- The Senate moved toward approval of the first increase in the US minimum wage in a decade, voting 88-8 to complete work on the bill after eight days of debate. The measure includes $8.3 billion in tax breaks over 10 years for small businesses that lawmakers paid for in part by including a cap on deferred-compensation for top executives.
Financial Times:
- Sony Corp.(SNE) will announce deals with software providers and internet service providers in March to boost sales of its handheld PlayStation Portable games device, the company’s CFO said.
Guardian:
- Dow Jones(DJ) plans to offer the Wall Street Journal’s Web site in several languages and would consider buying the Financial Times if Pearson Plc put it up for sale, citing executive VP Gordon Crovitz.
Financial News:
- China needs a bullish stock market to absorb planned share sales by large state-owned enterprises on the mainland exchanges in 2007.
Wen Wei Po:
- China should consider imposing a windfall tax on property developers to curb over-investment in the housing market.
China Securities Journal:
- China may implement “big changes” to its foreign-exchange policy this year amid the balance of payments imbalance and excess cash in the banking system.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (EL), raised target to $55.
CSFB:
- We continue to believe Google(GOOG) represents the best investment in the internet space. With shares trading at 28x '08 EPS, and EPS growing in excess of 35% over the next 3-5 years, we see considerable upside in buying GOOG at these levels.
Night Trading
Asian Indices are +.50% to +.75% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated +.11%.
Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/EPS Estimate
- (ADVS)/.06
- (ATK)/1.32
- (AMZN)/.21
- (BUD)/.25
- (APA)/1.60
- (ADM)/.60
- (AVID).57
- (BSX)/.11
- (CA)/.21
- (CELG)/.18
- (CERN)/.41
- (CLX)/.50
- (CMCSA)/.24
- (CVS)/.43
- (DLB)/.21
- (ERTS)/.57
- (XOM)/1.51
- (ILMN)/.30
- (IP)/.35
- (ISRG)/.51
- (MRO)/2.25
- (MNST)/.33
- (MYL)/.36
- (RTN)/.65
- (RGLD)/.19
- (TSG)/.44
- (STA)/1.42
- (UA)/.25
- (VLO)/1.37
- (YRCW)/1.00
Upcoming Splits
- None of note
Economic Releases
8:30 am EST
- Personal Income for December is estimated to rise .5% versus a .3% gain in November.
- Personal Spending for December is estimated to rise .7% versus a .5% increase in November.
- The PCE Core for December is estimated to rise .2% versus unch. in November.
- Initial Jobless Claims for last week are estimated to fall to 315K versus 325K the prior week.
- Continuing Claims are estimated to fall to 2469K versus 2484K prior.
10:00 am EST
- Pending Home Sales for December are estimated to rise .9% versus a -.5% decline in November.
- ISM Manufacturing for January is estimated to rise to 51.7 versus a reading of 51.4 in December.
- ISM Prices Paid for January is estimated to fall to 47.0 versus a reading of 47.5 in December.
Afternoon:
- Total Vehicle Sales for January are estimated to fall to 16.7M versus 16.8M in December.
- Domestic Vehicle Sales for January are estimated at 12.7M versus 12.7M in December.
Bloomberg:
- President Bush, making the first presidential visit to the NYSE during trading hours in more than two decades, said a four-year rally in stocks may continue if taxes don’t rise.
- The Iraqi government invited Syria, Iran and other neighboring states to come to Iraq in March to talk about ways to improve the country’s security, Iraq’s ambassador in Washington said.
- Nikko Cordial Corp. shares plunged as much as 17%, the biggest drop since the October 1987 stock market crash, after an inquiry implicated former executives in an accounting fraud that may cost Japan’s third-largest brokerage its stock market listing.
- The University of California and the University of Illinois will split a $500 million grant from BP Plc(BP), Europe’s second-largest oil company, to fund research into development of clean-burning biofuels.
- The yuan rose to its highest since China ended its fixed exchange rate in 2005 on speculation the central bank will seek to reward US Treasury Secretary Henry Paulson for heading off sanctions to force currency gains.
- The Senate moved toward approval of the first increase in the US minimum wage in a decade, voting 88-8 to complete work on the bill after eight days of debate. The measure includes $8.3 billion in tax breaks over 10 years for small businesses that lawmakers paid for in part by including a cap on deferred-compensation for top executives.
Financial Times:
- Sony Corp.(SNE) will announce deals with software providers and internet service providers in March to boost sales of its handheld PlayStation Portable games device, the company’s CFO said.
Guardian:
- Dow Jones(DJ) plans to offer the Wall Street Journal’s Web site in several languages and would consider buying the Financial Times if Pearson Plc put it up for sale, citing executive VP Gordon Crovitz.
Financial News:
- China needs a bullish stock market to absorb planned share sales by large state-owned enterprises on the mainland exchanges in 2007.
Wen Wei Po:
- China should consider imposing a windfall tax on property developers to curb over-investment in the housing market.
China Securities Journal:
- China may implement “big changes” to its foreign-exchange policy this year amid the balance of payments imbalance and excess cash in the banking system.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (EL), raised target to $55.
CSFB:
- We continue to believe Google(GOOG) represents the best investment in the internet space. With shares trading at 28x '08 EPS, and EPS growing in excess of 35% over the next 3-5 years, we see considerable upside in buying GOOG at these levels.
Night Trading
Asian Indices are +.50% to +.75% on average.
S&P 500 indicated unch.
NASDAQ 100 indicated +.11%.
Morning Preview
US AM Market Call
NASDAQ 100 Pre-Market Indicator/Heat Map
Pre-market Commentary
Before the Bell CNBC Video(bottom right)
Global Commentary
Asian Indices
European Indices
Top 20 Business Stories
In Play
Bond Ticker
Conference Calendar
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/EPS Estimate
- (ADVS)/.06
- (ATK)/1.32
- (AMZN)/.21
- (BUD)/.25
- (APA)/1.60
- (ADM)/.60
- (AVID).57
- (BSX)/.11
- (CA)/.21
- (CELG)/.18
- (CERN)/.41
- (CLX)/.50
- (CMCSA)/.24
- (CVS)/.43
- (DLB)/.21
- (ERTS)/.57
- (XOM)/1.51
- (ILMN)/.30
- (IP)/.35
- (ISRG)/.51
- (MRO)/2.25
- (MNST)/.33
- (MYL)/.36
- (RTN)/.65
- (RGLD)/.19
- (TSG)/.44
- (STA)/1.42
- (UA)/.25
- (VLO)/1.37
- (YRCW)/1.00
Upcoming Splits
- None of note
Economic Releases
8:30 am EST
- Personal Income for December is estimated to rise .5% versus a .3% gain in November.
- Personal Spending for December is estimated to rise .7% versus a .5% increase in November.
- The PCE Core for December is estimated to rise .2% versus unch. in November.
- Initial Jobless Claims for last week are estimated to fall to 315K versus 325K the prior week.
- Continuing Claims are estimated to fall to 2469K versus 2484K prior.
10:00 am EST
- Pending Home Sales for December are estimated to rise .9% versus a -.5% decline in November.
- ISM Manufacturing for January is estimated to rise to 51.7 versus a reading of 51.4 in December.
- ISM Prices Paid for January is estimated to fall to 47.0 versus a reading of 47.5 in December.
Afternoon:
- Total Vehicle Sales for January are estimated to fall to 16.7M versus 16.8M in December.
- Domestic Vehicle Sales for January are estimated at 12.7M versus 12.7M in December.
BOTTOM LINE: Asian indices are higher, boosted by technology and automaker shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
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