S&P 500+.8%
NASDAQ+.89%
Leading/Lagging Sectors
Biotech+2.3%
Telecom+2.5%
Airlines-.4%
Iron/Steel-.6%
Market Movers
F,GM down on interest rate/weather fears.
TWTC down on increased customer disconnects.
NTES,SINA,SOHU,CHINA up as bird flu results in more internet usage in Asia.
Commodity Movers
Crude Oil+3.4% on cold weather demand and refinery shutdowns.
Gold-1.6% continuing drop on expectations of interest rate hike.
Mid-day News
Morgan Stanley estimating Video-on-demand(VOD) market will increase 38% to
$157M in 2004-Should benefit CCUR,SEAC.
ISM manufacturing index came in at 63.6...highest since 1983 and 8th straight
month above 50(anything above 50 signals expansion)...19.1% jump in
exports(best in 7 years) should help improve trade deficit.
Caterpillar Vice-Chairman says weakened US dollar is significantly improving its
competitive position in global markets.
FCC will investigate Janet Jackson breast exposure during Super Bowl half-time
show.
According to Semiconductor Industry Association(SIA), sales increased 27% in
December from year ago levels. 4th quarter saw 11% growth over 3rd
quarter vs. a historic avg. of 4% growth. Sales were up 19% for all of 2003.
Expectations are for an increase of 20-25% in 2004 with Flash memory
(+59%) and Microprocessors(+29%) seeing the strongest demand.
S&P 500 P/E is now 18 on 2004 estimates, well below the 30x of the late 90's.
Pharma/Biotech valuations are at their lowest relative levels since 1993.
Advance/Decline line is relatively weak on today's up-move.
Interest rates are down modestly.
I am sitting tight on my positions right now. My shorts are up less than my longs, so it is a pretty good day. I am thinking about adding a long position in one of the Chinese internet stocks based on low relative valuations, strong fundamentals and technicals.
Monday, February 02, 2004
Monday Watch
Earnings Announcements
Company/Est.
PBI/.66
BSX/.16
IP/.18
JCOM/.31
TASR/.35
PFG/.32
Economic Data
8am - ISM Manufacturing 64 expected versus 63.4 last month
Market Movers
ZIXI-Deal with Aventis after close Fri. should be positive
GM-Sales probably fell short last month due to snowstorms
TASR-Negative article in Barrons, very overvalued, large short interest, reporting earnings
PIXR,RHAT-Both negatively mentioned in Barrons
Weekend News
China sees increase in number of bird flu cases, Vietnam reports 9th human death from bird flu, Thailand reports 3rd human death from bird flu
Patriots win Super Bowl for 2nd time in 3 years
56 dead in terrorist bombing at Kurdish political parties
244 killed in stampede near holy site in Mecca
White House will likely have independent commission look into Iraq intelligence failure
Treasury Secretary Snow talks up US Dollar
Asian Markets mostly flat to down
S&P 500 indicated up 1.9
NASDAQ indicated up 3.0
Company/Est.
PBI/.66
BSX/.16
IP/.18
JCOM/.31
TASR/.35
PFG/.32
Economic Data
8am - ISM Manufacturing 64 expected versus 63.4 last month
Market Movers
ZIXI-Deal with Aventis after close Fri. should be positive
GM-Sales probably fell short last month due to snowstorms
TASR-Negative article in Barrons, very overvalued, large short interest, reporting earnings
PIXR,RHAT-Both negatively mentioned in Barrons
Weekend News
China sees increase in number of bird flu cases, Vietnam reports 9th human death from bird flu, Thailand reports 3rd human death from bird flu
Patriots win Super Bowl for 2nd time in 3 years
56 dead in terrorist bombing at Kurdish political parties
244 killed in stampede near holy site in Mecca
White House will likely have independent commission look into Iraq intelligence failure
Treasury Secretary Snow talks up US Dollar
Asian Markets mostly flat to down
S&P 500 indicated up 1.9
NASDAQ indicated up 3.0
Sunday, February 01, 2004
Outlook
I currently have a market neutral(Longs-Shorts=0) position in my portfolio. The Volatility Index(VIX) hit a 10-year low early last week. This shows a high level of investor complacency. The major US indices are in an over-bought technical condition. My short-term trading indicators turned negative last week. These factors, combined with the above mentioned problems, leads me to my market neutral stance. However, there are several reasons that I am positive for the intermediate-term and will look to add market exposure at appropriate levels. Tax-cuts of $100B are due to hit consumer's pockets in the next few months, more than all of last year. Employment should show significant improvement either this month or next. Energy prices are falling. Natural Gas is down 29% in less than a month. Corporate profits are improving dramatically, leading to a significant pick-up in corporate spending. Inflation of just 1% gives the Fed latitude to keeps rates relatively low for an extended period.
The decline in the US dollar is making America's large global corporations more competitive. It does not appear that the US budget deficit is currently hurting our economy. The deficit is projected to be 4.2% of GDP in 2004. This is considered high, but not alarmingly so. It has been this high or higher several times over the course of the last 25 years. Even with the decline in the dollar and relatively high US budget and trade deficits, interest rates remain at 40-year lows. The US Government 10-year Bond is yielding 4.15%, the same as 18 months ago. This rate is down 39% from its recent high of 6.76% in 2000 and down 73.8% from its all-time high yield of 15.84% in 1981. I am closely monitoring this situation. Overseas investors hold a substantial amount of US government bonds. If they begin to seriously worry about our deficits or to experience significant currency losses, interest rates should begin to move noticeably higher as they sell our bonds. Lastly, even if the Fed raises rates soon it shouldn't do a lot of damage to the overall market for quite some time due to their extremely low levels.
Bottom Line: I am positioned for a near-term correction or trading range. I will trade opportunistically on both the long and short side, but not stray too far from market neutral at current levels. I will look to add market exposure into a 5-7% correction or as the market digests its recent strong move over time.
The decline in the US dollar is making America's large global corporations more competitive. It does not appear that the US budget deficit is currently hurting our economy. The deficit is projected to be 4.2% of GDP in 2004. This is considered high, but not alarmingly so. It has been this high or higher several times over the course of the last 25 years. Even with the decline in the dollar and relatively high US budget and trade deficits, interest rates remain at 40-year lows. The US Government 10-year Bond is yielding 4.15%, the same as 18 months ago. This rate is down 39% from its recent high of 6.76% in 2000 and down 73.8% from its all-time high yield of 15.84% in 1981. I am closely monitoring this situation. Overseas investors hold a substantial amount of US government bonds. If they begin to seriously worry about our deficits or to experience significant currency losses, interest rates should begin to move noticeably higher as they sell our bonds. Lastly, even if the Fed raises rates soon it shouldn't do a lot of damage to the overall market for quite some time due to their extremely low levels.
Bottom Line: I am positioned for a near-term correction or trading range. I will trade opportunistically on both the long and short side, but not stray too far from market neutral at current levels. I will look to add market exposure into a 5-7% correction or as the market digests its recent strong move over time.
Markets Week in Review
The S&P 500 posted its first weekly decline in 2 1/2 months. The major US equity Indices entered the week in a technically over-bought state. Investors were looking for reasons to take profits and they got them in spades. The Fed's change in the wording of their policy statement coupled with 4thQ GDP coming in below expectations seemed to be the catalyst for the ensuing sell-off. As previously mentioned, I do not feel the Fed will tighten in the near future. The Fed Fund futures are currently projecting an increase of 25 basis points to occur around July.
There were several other factors weighing on stock prices throughout the week. Asian health officials are now projecting the bird flu will have a more damaging impact on the region than SARS did. The David Kay report, condemning the CIA for a major intelligence failure with respect to WMD in Iraq, and the Democratic primary debates resulted in a weakening in President Bush's approval ratings. Currently, Tradesports.com is projecting a Kerry/Bush match-up in November, with Bush having a 69% chance of re-election. Finally, the extent of the damage from the MyDoom computer virus became apparent, as experts predicted it would become the most financially damaging virus of all-time.
There were a couple of really positive data points released during the week, as discussed in the prior commentary. With over half of all S&P 500 companies reporting their quarterly results, 66% have now exceeded expectations. Analysts expect 4thQ profits to increase 26.3%, the best in 10 years. Furthermore, home sales continue to boom. 2003 was the best year ever for home sales. Moreover, the median home sale price increased 7.5%, the greatest since 1980. Lastly, Nortel(NT) announced a blow-out 4thQ, exceeding analyst's estimates by 308%. Voice-over-internet-protocol(VoIP) and wireless infrastructure products were stand-out performers for NT. Nortel's report bodes well for Sonus Networks(SONS), AudioCodes(AUDC) and Andrew Corporation(ANDW).
There were several other factors weighing on stock prices throughout the week. Asian health officials are now projecting the bird flu will have a more damaging impact on the region than SARS did. The David Kay report, condemning the CIA for a major intelligence failure with respect to WMD in Iraq, and the Democratic primary debates resulted in a weakening in President Bush's approval ratings. Currently, Tradesports.com is projecting a Kerry/Bush match-up in November, with Bush having a 69% chance of re-election. Finally, the extent of the damage from the MyDoom computer virus became apparent, as experts predicted it would become the most financially damaging virus of all-time.
There were a couple of really positive data points released during the week, as discussed in the prior commentary. With over half of all S&P 500 companies reporting their quarterly results, 66% have now exceeded expectations. Analysts expect 4thQ profits to increase 26.3%, the best in 10 years. Furthermore, home sales continue to boom. 2003 was the best year ever for home sales. Moreover, the median home sale price increased 7.5%, the greatest since 1980. Lastly, Nortel(NT) announced a blow-out 4thQ, exceeding analyst's estimates by 308%. Voice-over-internet-protocol(VoIP) and wireless infrastructure products were stand-out performers for NT. Nortel's report bodes well for Sonus Networks(SONS), AudioCodes(AUDC) and Andrew Corporation(ANDW).
Saturday, January 31, 2004
Economic Week in Review
ECRI Weekly Leading Index 132.7 -.45%
Chicago-area manufacturing expanded in January to 65.9(anything above 50 signals growth), the fastest pace since July 1994. The University of Michigan Consumer Confidence Index rose to 96.8, its highest level since November 2000. Initial Jobless claims were the lowest in a month at 341,000. The 4-week moving average of jobless claims was 346,000, holding near a 3-year low. Jobless claims have now dropped 25% over the past 9 months. 4th quarter GDP grew at a very good, but not exceptional, 4% annual rate. The Federal Reserve left its benchmark rate at 1%, a 45-year low. However, the Fed changed a key phrase in its policy statement to a promise to be "patient" raising rates from a pledge to keep rates low "for a considerable period." This change in language was viewed as a first warning of an impending interest rate hike. Inflation still remains non-existent, rising at an annual rate of .6%.
3rd quarter GDP growth of 8.2% was the best since the late 70's. Consequently, 4th quarter growth slowed to a more sustainable rate of 4%. However, the above mentioned data releases point to a renewed surge of growth in the 1st quarter. I expect the 1st quarter will surprise economic analysts by its strength. It is my belief that the Fed did not like being boxed in by its past language. Their subtle change in wording does not necessarily imply an interest rate hike is imminent. The Fed will most likely begin to raise rates when the unemployment rate falls below 5.5%. This should occur sometime during the 3rd quarter. However, with the current benchmark rate at an emergency level of 1%, it is possible that the first increase could come as early as the 2nd quarter. An early Fed rate increase could result from an increase in consumer prices(CPI) due to rapidly increasing commodity(CRB) prices or an unwanted fall in the value of the US dollar.
Chicago-area manufacturing expanded in January to 65.9(anything above 50 signals growth), the fastest pace since July 1994. The University of Michigan Consumer Confidence Index rose to 96.8, its highest level since November 2000. Initial Jobless claims were the lowest in a month at 341,000. The 4-week moving average of jobless claims was 346,000, holding near a 3-year low. Jobless claims have now dropped 25% over the past 9 months. 4th quarter GDP grew at a very good, but not exceptional, 4% annual rate. The Federal Reserve left its benchmark rate at 1%, a 45-year low. However, the Fed changed a key phrase in its policy statement to a promise to be "patient" raising rates from a pledge to keep rates low "for a considerable period." This change in language was viewed as a first warning of an impending interest rate hike. Inflation still remains non-existent, rising at an annual rate of .6%.
3rd quarter GDP growth of 8.2% was the best since the late 70's. Consequently, 4th quarter growth slowed to a more sustainable rate of 4%. However, the above mentioned data releases point to a renewed surge of growth in the 1st quarter. I expect the 1st quarter will surprise economic analysts by its strength. It is my belief that the Fed did not like being boxed in by its past language. Their subtle change in wording does not necessarily imply an interest rate hike is imminent. The Fed will most likely begin to raise rates when the unemployment rate falls below 5.5%. This should occur sometime during the 3rd quarter. However, with the current benchmark rate at an emergency level of 1%, it is possible that the first increase could come as early as the 2nd quarter. An early Fed rate increase could result from an increase in consumer prices(CPI) due to rapidly increasing commodity(CRB) prices or an unwanted fall in the value of the US dollar.
Weekly Scoreboard
S&P 500 1,131.13 -.91%
Dow 10,488.07 -.76%
NASDAQ 2,066.15 -2.72%
Russell 2000 580.76 -2.58%
Wilshire 5000 11,029.20 -1.14%
Volatility(VIX) 16.63 +12.06%
AAII Bullish % 56.88 -18.17%
US Dollar 87.20 +.61%
CRB 262.10 -2.02%
Gold 402.90 -1.61%
Crude Oil 33.05 -5.11%
Natural Gas 5.40 -11.23%
10-year US Treasury Yield 4.13 +1.47%
Average 30-year Mortgage Rate 5.68 +.71%
Dow 10,488.07 -.76%
NASDAQ 2,066.15 -2.72%
Russell 2000 580.76 -2.58%
Wilshire 5000 11,029.20 -1.14%
Volatility(VIX) 16.63 +12.06%
AAII Bullish % 56.88 -18.17%
US Dollar 87.20 +.61%
CRB 262.10 -2.02%
Gold 402.90 -1.61%
Crude Oil 33.05 -5.11%
Natural Gas 5.40 -11.23%
10-year US Treasury Yield 4.13 +1.47%
Average 30-year Mortgage Rate 5.68 +.71%
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