BOTTOM LINE: The Portfolio is slightly lower into the final hour on losses in my Retail longs and Computer longs. I covered my (IWM) and (QQQQ) hedges today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, most sectors are falling and volume is above average. The Johnson Redbook same-store sales index rose 3.2% year over year last week vs. a 2.7% rise the prior week. The long-term average is a gain of around 2.8%. I still see little evidence that a significant decline in consumer spending is beginning, even as investors continue to price this into stocks. The back-to-school selling season will likely exceed lowered expectations. I still expect retail sales to stabilize around average levels over the intermediate term. The FOMC left rates unchanged. The ensuing policy statement was more dovish than expected. This is a significant surprise. So far, the market's reaction is mildly negative. I expect US stocks to trade higher into the close from current levels on short-covering, an end to the Fed rate hikes, lower energy prices and bargain-hunting.
Tuesday, August 08, 2006
Stocks Modestly Lower into Final Hour on Profit-taking after Fed "Pause"
Today's Headlines
Bloomberg:
- Crude oil fell on speculation US supplies will be adequate after the government offered to make up for shortfalls caused by the shutdown of Prudhoe Bay.
- GM(GM) will reduce the cost to build new midsize car models by a third as it rolls out a system for sharing parts, vehicle designs and factories.
- Sanofi-Aventis SA and Bristol-Myers Squibb(BMY) are facing generic competition in the US for their top-selling Plavix blood-thinning pill five years earlier than planned.
Wall Street Journal:
- Sprint Nextel(S) will build a $3 billion wireless Internet network based on technology backed by Intel(INTC).
- Coca-Cola(KO), Nike(NKE) and Visa Intl. are among the 36 companies that have acquired marketing rights to China’s 2008 Olympics.
- The US health-care industry, concerned about competition, is hiring people to pose as customers to evaluate service and treatment at hospitals and doctors’ offices.
- Time Warner’s(TWX) AOL Internet unit is leaving many of its 17.7 million customers confused by not communicating clearly how and when they can switch to a new free service.
USA Today:
- US airlines will increase their seat capacity on domestic flights by almost 2% in November and 3% in December, marking the first time they have added seats since last summer.
Washington Post:
- Carlyle Group and Allen & Co. are among investors who have put $100 million into health Web sites, seeking to tap the 95 million American adults disappointed with online healthy information.
Khaleej Times:
- Ruby Tuesday(RI) plans four restaurants in Saudi Arabia after signing its second Middle East franchise agreement.
- Crude oil fell on speculation US supplies will be adequate after the government offered to make up for shortfalls caused by the shutdown of Prudhoe Bay.
- GM(GM) will reduce the cost to build new midsize car models by a third as it rolls out a system for sharing parts, vehicle designs and factories.
- Sanofi-Aventis SA and Bristol-Myers Squibb(BMY) are facing generic competition in the US for their top-selling Plavix blood-thinning pill five years earlier than planned.
Wall Street Journal:
- Sprint Nextel(S) will build a $3 billion wireless Internet network based on technology backed by Intel(INTC).
- Coca-Cola(KO), Nike(NKE) and Visa Intl. are among the 36 companies that have acquired marketing rights to China’s 2008 Olympics.
- The US health-care industry, concerned about competition, is hiring people to pose as customers to evaluate service and treatment at hospitals and doctors’ offices.
- Time Warner’s(TWX) AOL Internet unit is leaving many of its 17.7 million customers confused by not communicating clearly how and when they can switch to a new free service.
USA Today:
- US airlines will increase their seat capacity on domestic flights by almost 2% in November and 3% in December, marking the first time they have added seats since last summer.
Washington Post:
- Carlyle Group and Allen & Co. are among investors who have put $100 million into health Web sites, seeking to tap the 95 million American adults disappointed with online healthy information.
Khaleej Times:
- Ruby Tuesday(RI) plans four restaurants in Saudi Arabia after signing its second Middle East franchise agreement.
Productivity and Unit Labor Costs Rise More Than Estimates
- Preliminary 2Q Non-farm Productivity rose 1.1% versus estimates of a .8% increase and an upwardly revised 4.3% gain in 1Q.
- Preliminary 2Q Unit Labor Costs rose 4.2% versus estimates of a 3.7% gain and an upwardly revised 2.5% increase in 1Q.
- Preliminary 2Q Unit Labor Costs rose 4.2% versus estimates of a 3.7% gain and an upwardly revised 2.5% increase in 1Q.
BOTTOM LINE: US productivity gains eased and labor costs rose the most since the end of 2004, Bloomberg reported. Hours worked rose at a 1.4% pace in 2Q versus a 2.3% gain the prior quarter. Productivity at non-financial companies which is reported with a one-quarter lag, a gauge closely monitored by the Fed, soared 7.2% in the first quarter. The 10-year yield is only 1 basis point higher on this report. I continue to believe productivity will remain relatively high and unit labor costs will stay subdued over the intermediate-term.
Monday, August 07, 2006
Tuesday Watch
Late-Night Headlines
Bloomberg:
- The US dollar may gain in the next month should the Fed leave borrowing costs unchanged today and hint that it will lift rates again to restrain inflation, according to UBS Securities.
- China’s M2 money supply rose 18.4% in July.
- A US appeals court reversed a ruling that an IBM(IBM) pension plan discriminated against older workers, saving the company more than $1 billion that it agreed to pay had it lost the decision.
- Japanese stocks rose after bank lending climbed at the fastest pace in a decade, suggesting an expanding economy will sustain profit growth.
Financial Times:
- Viacom Inc.(VIA) is considering a bid for Bebo, the social networking site that competes with News Corp.’s(NWS/A) MySpace.com.
China Securities Journal:
- China needs further interest rate hikes and more issues of central bank bills to curb liquidity and investment growth.
Australian:
- The Australian government is speeding plans to subsidize the use of ethanol in response to public anger about high gas prices.
Late Buy/Sell Recommendations
- None of note
Night Trading
Asian Indices are +.75% to +1.25% on average.
S&P 500 indicated +.19%.
NASDAQ 100 indicated +.20%.
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
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/EPS Estimate
- (ALKS)/.00
- (ADRX)/.17
- (BMC)/.26
- (CVC)/-.14
- (CMX)/.55
- (CHD)/.47
- (CSCO)/.28
- (CCU)/.41
- (DRC)/.26
- (ETR)/1.25
- (FDRY)/.11
- (JBX)/.66
- (LAMR)/.18
- (LNC)/1.14
- (NWS/A)/.23
- (OSG)/1.52
- (RL)/.67
- (RRI)/-.20
- (SLE)/.29
- (STX)/.41
Upcoming Splits
- None of note
Economic Releases
8:30 am EST
- Preliminary 2Q Non-farm Productivity is estimated to rise .8% versus a 3.7% gain in 1Q.
- Preliminary 2Q Unit Labor Costs are estimated to rise 3.7% versus a 1.6% increase in 1Q.
2:15 pm EST
- The FOMC is expected to leave the benchmark Fed Funds Rate at 5.25%.
Bloomberg:
- The US dollar may gain in the next month should the Fed leave borrowing costs unchanged today and hint that it will lift rates again to restrain inflation, according to UBS Securities.
- China’s M2 money supply rose 18.4% in July.
- A US appeals court reversed a ruling that an IBM(IBM) pension plan discriminated against older workers, saving the company more than $1 billion that it agreed to pay had it lost the decision.
- Japanese stocks rose after bank lending climbed at the fastest pace in a decade, suggesting an expanding economy will sustain profit growth.
Financial Times:
- Viacom Inc.(VIA) is considering a bid for Bebo, the social networking site that competes with News Corp.’s(NWS/A) MySpace.com.
China Securities Journal:
- China needs further interest rate hikes and more issues of central bank bills to curb liquidity and investment growth.
Australian:
- The Australian government is speeding plans to subsidize the use of ethanol in response to public anger about high gas prices.
Late Buy/Sell Recommendations
- None of note
Night Trading
Asian Indices are +.75% to +1.25% on average.
S&P 500 indicated +.19%.
NASDAQ 100 indicated +.20%.
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
Daily Stock Events
Macro Calls
Rasmussen Consumer/Investor Daily Indices
CNBC Guest Schedule
Earnings of Note
Company/EPS Estimate
- (ALKS)/.00
- (ADRX)/.17
- (BMC)/.26
- (CVC)/-.14
- (CMX)/.55
- (CHD)/.47
- (CSCO)/.28
- (CCU)/.41
- (DRC)/.26
- (ETR)/1.25
- (FDRY)/.11
- (JBX)/.66
- (LAMR)/.18
- (LNC)/1.14
- (NWS/A)/.23
- (OSG)/1.52
- (RL)/.67
- (RRI)/-.20
- (SLE)/.29
- (STX)/.41
Upcoming Splits
- None of note
Economic Releases
8:30 am EST
- Preliminary 2Q Non-farm Productivity is estimated to rise .8% versus a 3.7% gain in 1Q.
- Preliminary 2Q Unit Labor Costs are estimated to rise 3.7% versus a 1.6% increase in 1Q.
2:15 pm EST
- The FOMC is expected to leave the benchmark Fed Funds Rate at 5.25%.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and commodity stocks in the region. I expect US equities to open mixed and to rally into the afternoon, finishing higher. I expect the Fed to leave the Fed Funds rate at 5.25% and make "hawkish" policy statements regarding the potential for future actions. The Portfolio is 75% net long heading into the day.
Stocks Finish Off Session Lows ahead of Tomorrow's Fed Meeting
Indices
S&P 500 1,275.77 -.28%
DJIA 11,219.38 -.19%
NASDAQ 2,072.50 -.60%
Russell 2000 696.05 -.74%
Wilshire 5000 12,759.68 -.34%
S&P Barra Growth 587.29 -.20%
S&P Barra Value 687.15 -.35%
Morgan Stanley Consumer 618.70 -.28%
Morgan Stanley Cyclical 791.71 +.16%
Morgan Stanley Technology 464.29 -.71%
Transports 4,316.43 -1.42%
Utilities 430.37 -.85%
Put/Call .86 -26.50%
NYSE Arms 1.01 -30.26%
Volatility(VIX) 15.23 +6.21%
ISE Sentiment 115.00 +6.48%
US Dollar 84.75 +.20%
CRB 351.95 +.54%
Futures Spot Prices
Crude Oil 77.13 +3.17%
Unleaded Gasoline 226.00 +1.28%
Natural Gas 6.92 -4.43%
Heating Oil 214.80 +2.79%
Gold 660.70 +.18%
Base Metals 230.46 +.38%
Copper 362.25 +.33%
10-year US Treasury Yield 4.91% +.49%
Leading Sectors
Steel +1.38%
Gold & Silver +1.13%
Homebuilders +.84%
Lagging Sectors
Biotech -1.45%
Disk Drives -1.54%
Broadcasting -2.67%
Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play
Afternoon Recommendations
Merrill Lynch:
- Rated (EMMS) Buy, target $15.
Afternoon/Evening Headlines
Bloomberg:
- Rupert Murdoch’s News Corp.(NWS/A) chose Google(GOOG) to provide search for its MySpace.com Web site, handing a defeat to Microsoft(MSFT).
- Blackstone Group LP dropped plans to pursue a rival bid for HCA Inc.(HCA) because it would be too expensive.
- Energy Secretary Bodman said the US will release oil from the nation’s strategic reserve if asked to make up for the loss of supplies from Alaska, where BP Plc is shutting the nation’s biggest oil field.
- Borrowing by US consumers unexpectedly accelerated in June, a Fed report showed today.
- Wal-Mart(WMT) said it will raise the starting pay rates for employees at locations in the US.
AFP:
- Lebanon is ready to send 15,000 troops in the south up to the Israeli border when Israel pulls all of its soldiers from the area, citing Lebanese Information Minister Gazi Aridi.
S&P 500 1,275.77 -.28%
DJIA 11,219.38 -.19%
NASDAQ 2,072.50 -.60%
Russell 2000 696.05 -.74%
Wilshire 5000 12,759.68 -.34%
S&P Barra Growth 587.29 -.20%
S&P Barra Value 687.15 -.35%
Morgan Stanley Consumer 618.70 -.28%
Morgan Stanley Cyclical 791.71 +.16%
Morgan Stanley Technology 464.29 -.71%
Transports 4,316.43 -1.42%
Utilities 430.37 -.85%
Put/Call .86 -26.50%
NYSE Arms 1.01 -30.26%
Volatility(VIX) 15.23 +6.21%
ISE Sentiment 115.00 +6.48%
US Dollar 84.75 +.20%
CRB 351.95 +.54%
Futures Spot Prices
Crude Oil 77.13 +3.17%
Unleaded Gasoline 226.00 +1.28%
Natural Gas 6.92 -4.43%
Heating Oil 214.80 +2.79%
Gold 660.70 +.18%
Base Metals 230.46 +.38%
Copper 362.25 +.33%
10-year US Treasury Yield 4.91% +.49%
Leading Sectors
Steel +1.38%
Gold & Silver +1.13%
Homebuilders +.84%
Lagging Sectors
Biotech -1.45%
Disk Drives -1.54%
Broadcasting -2.67%
Evening Review
Detailed Market Summary
Market Gauges
Daily ETF Performance
Style Performance
Market Wrap CNBC Video(bottom right)
S&P 500 Gallery View
Economic Calendar
Timely Economic Charts
GuruFocus.com
PM Market Call
After-hours Movers
Real-time/After-hours Stock Quote
In Play
Afternoon Recommendations
Merrill Lynch:
- Rated (EMMS) Buy, target $15.
Afternoon/Evening Headlines
Bloomberg:
- Rupert Murdoch’s News Corp.(NWS/A) chose Google(GOOG) to provide search for its MySpace.com Web site, handing a defeat to Microsoft(MSFT).
- Blackstone Group LP dropped plans to pursue a rival bid for HCA Inc.(HCA) because it would be too expensive.
- Energy Secretary Bodman said the US will release oil from the nation’s strategic reserve if asked to make up for the loss of supplies from Alaska, where BP Plc is shutting the nation’s biggest oil field.
- Borrowing by US consumers unexpectedly accelerated in June, a Fed report showed today.
- Wal-Mart(WMT) said it will raise the starting pay rates for employees at locations in the US.
AFP:
- Lebanon is ready to send 15,000 troops in the south up to the Israeli border when Israel pulls all of its soldiers from the area, citing Lebanese Information Minister Gazi Aridi.
BOTTOM LINE: The Portfolio finished lower today on losses in my Medical longs, Computer longs and Commodity shorts. I added (QQQQ) and (IWM) hedges in the final hour, thus leaving the Portfolio 75% net long. The tone of the market was negative today as the advance/decline line finished lower, sector performance was mostly negative and volume was below average. Measures of investor anxiety were mostly lower into the close. Overall, today's market performance was mildly bearish. Consumer Credit for June just came in at $10.3 billion vs. estimates of $3.6 billion and an upwardly revised $5.9 billion in May. I still see little evidence that consumer spending is slowing substantially.
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