BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Internet longs, Computer longs and Retail longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is neutral as the advance/decline line is about even, sector performance is mixed and volume is below average. The S&P 500 is up 14.2% this year, however the P/E on the S&P 500 has barely moved off its recent lows seen during the mid-year sell-off. The forward P/E is now 15.9 vs. a long-term average P/E of around 22. This is a result of the fact that earnings continue to exceed even the most optimistic estimates. During the correction, many said 3Q earnings growth would plunge to single digits before turning negative in 4Q as the U.S. entered recession. Instead 3Q earnings growth actually accelerated to around 20%. Another double-digit gain in likely this quarter and the possibilities of an imminent recession look remote. As it becomes apparent that a moderate growth and inflation environment is sustainable, I suspect the forward P/E on the S&P 500 will see 19.0 before we finally head into a cyclical bear. I still believe U.S. stock P/E multiple expansion is in its very early stages. Google (GOOG) is surpassing $500 today. I continue to believe its multiple will eventually expand to much higher levels than most expect. Yesterday, Jordan Kahn, a colleague of mine on TheStreet.com’s Street Insight, touched on the fact that global portfolio managers are underexposed to the U.S. I agree and believe Google will be a prime beneficiary of increased exposure to U.S. equities. Google remains my largest long position. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, investor performance anxiety and buyout speculation.
Tuesday, November 21, 2006
Stocks Mixed into Final on a Healthy Consolidation of Recent Gains
Today's Headlines
Bloomberg:
- Syria will resume diplomatic relations with Iraq after more than 20 years, raising the possibility of collaboration to stem insurgency in Iraq.
- Deere & Co.(DE), the world’s largest maker of farm equipment, said fourth-quarter earnings rose more than analysts estimated as sales unexpectedly increased. The shares surged 6.3%.
- Toyota Motor(TM), whose vehicles earn top marks for buyer satisfaction, has more models than any other automaker ranked at the bottom of a crash-protection study.
- Fed Governor Warsh said inflation is too high and the US economy will remain “remarkably resilient.”
- Lebanese Industry Minister Pierre Gemayel, a well-know Christian and outspoken critic of Syria, was shot dead in an ambush on his car.
- Shares of Google(GOOG) passed $500 for the first time as investors bet the company will extend its dominance in Internet search and advertising.
Wall Street Journal:
- The worst of the US housing slowdown is over, citing a WSJ.com economic forecasting survey.
- Walt Disney(DIS) branded children’s footwear will be made and sold by Payless ShoeSource(PSS).
- Honeywell Intl.(HON) won approval from US regulators for a radar system to help planes beat turbulence.
- US and European Union officials are negotiating ways to preserve a US anti-terrorism program that monitors bank-transfer data while still meeting concerns about privacy.
- Comcast Corp.(CMCSA) will sign a deal with Walt Disney(DIS) to provide content for its video-on-demand service.
NY Times:
- NY Senator Hillary Rodham Clinton spent almost $29.5 million on her re-election campaign, leaving a smaller cash balance for a potential presidential campaign than some of her advisers previously forecast.
AP:
- Former Clinton administration Attorney General Janet Reno filed court papers challenging the Bush administration’s decision to try a suspected terrorist outside the court system.
Financial Times:
- Freeport-McMoRan Copper & Gold’s(FCX) offer to buy Phelps Dodge(PD) for $25.5 billion may mark a peak in mining-company values.
Handelsblatt:
- Intel Corp.(INTC) is gaining market share in Germany from competitor AMD(AMD), citing Intel’s German head Schwaderer.
Vedomosti:
- Evraz Group SA, Russia’s biggest steelmaker, is paying too much for Oregon Steel(OS), citing market analysts.
Vatan:
- An exploration company part-owned by Cukurova Group, the main owner of Turkey’s biggest mobile phone company, found oil in northern Iraq.
Globes:
- IBM(IBM) is in talks to buy Verint Systems(VRNT) for $1 billion to bolster its entrance into the security camera software market.
- Syria will resume diplomatic relations with Iraq after more than 20 years, raising the possibility of collaboration to stem insurgency in Iraq.
- Deere & Co.(DE), the world’s largest maker of farm equipment, said fourth-quarter earnings rose more than analysts estimated as sales unexpectedly increased. The shares surged 6.3%.
- Toyota Motor(TM), whose vehicles earn top marks for buyer satisfaction, has more models than any other automaker ranked at the bottom of a crash-protection study.
- Fed Governor Warsh said inflation is too high and the US economy will remain “remarkably resilient.”
- Lebanese Industry Minister Pierre Gemayel, a well-know Christian and outspoken critic of Syria, was shot dead in an ambush on his car.
- Shares of Google(GOOG) passed $500 for the first time as investors bet the company will extend its dominance in Internet search and advertising.
Wall Street Journal:
- The worst of the US housing slowdown is over, citing a WSJ.com economic forecasting survey.
- Walt Disney(DIS) branded children’s footwear will be made and sold by Payless ShoeSource(PSS).
- Honeywell Intl.(HON) won approval from US regulators for a radar system to help planes beat turbulence.
- US and European Union officials are negotiating ways to preserve a US anti-terrorism program that monitors bank-transfer data while still meeting concerns about privacy.
- Comcast Corp.(CMCSA) will sign a deal with Walt Disney(DIS) to provide content for its video-on-demand service.
NY Times:
- NY Senator Hillary Rodham Clinton spent almost $29.5 million on her re-election campaign, leaving a smaller cash balance for a potential presidential campaign than some of her advisers previously forecast.
AP:
- Former Clinton administration Attorney General Janet Reno filed court papers challenging the Bush administration’s decision to try a suspected terrorist outside the court system.
Financial Times:
- Freeport-McMoRan Copper & Gold’s(FCX) offer to buy Phelps Dodge(PD) for $25.5 billion may mark a peak in mining-company values.
Handelsblatt:
- Intel Corp.(INTC) is gaining market share in Germany from competitor AMD(AMD), citing Intel’s German head Schwaderer.
Vedomosti:
- Evraz Group SA, Russia’s biggest steelmaker, is paying too much for Oregon Steel(OS), citing market analysts.
Vatan:
- An exploration company part-owned by Cukurova Group, the main owner of Turkey’s biggest mobile phone company, found oil in northern Iraq.
Globes:
- IBM(IBM) is in talks to buy Verint Systems(VRNT) for $1 billion to bolster its entrance into the security camera software market.
Monday, November 20, 2006
Tuesday Watch
Late-Night Headlines
Bloomberg:
- The Chicago Board Options Exchange Volatility Index(VIX) closed below 10 for the first time since 1994, suggesting investors have more confidence stocks will rise. In the three years after the VIX last closed below 10 in January 1994, the S&P 500 rallied 60%.
- Southwest Air(LUV) would consider buying gates, planes and other assets sold in a merger of US Air Group and Delta Air, CEO Kelly said.
- Members of the NY Merc’s Comex division have approved a measure to allow electronic trading of gold, copper and other metals contracts.
- CBS Corp.(CBS) asked an appeals court to throw out a FCC finding that the network violated indecency standards when it showed Janet Jackson’s breast during the 2004 Super Bowl. CBS argued in its filing that the FCC’s “zero tolerance” indecency policy is a violation of its right to free speech.
- US commercial construction starts fell 13.9% year-over-year in October, the sixth decline in the last seven months.
- Korean Air Lines, South Korea’s largest carrier, ordered 25 Boeing Co. planes, its largest ever deal.
- Andres Manuel Lopez Obrador, the former Mexico City mayor who lost his bid for president in July elections, swore himself in as the “legitimate” head of state at a rally today in Mexico City.
- Australia’s biofuels production capacity is expanding faster than demand and the industry risks running into oversupply later this decade, an industry consultant said.
London-based Times:
- Nasdaq Stock Market Inc.(NDAQ) is planning two share issues to help finance its bid for London Stock Exchange Group Plc.
Nihon Keizai:
- The Japanese government will downgrade its view of the country’s economy for the first time in almost two years.
China Business News:
- China’s government has ordered Shandong Xinfa Huayu Alumina Co. to stop building a 1.2 million ton-a-year alumina plant after surging domestic capacity caused prices to plummet.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MCD), target $47.
- Reiterated Buy on (PAYX), target $47.
Night Trading
Asian Indices are +.25% to +.50% on average.
S&P 500 indicated -.06%.
NASDAQ 100 indicated unch.
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
- (BGP)/-.64
- (BWS)/.83
- (CBRL)/.57
- (CWTR)/.17
- (DE)/.94
- (DELL)/.24
- (DLTR)/.32
- (EV)/.33
- (GME)/.22
- (JCG)/.21
- (JBX)/.66
- (MWRK)/-.12
- (PSS)/.42
- (PERY)/.71
- (TECD)/.22
- (UNFI)/.29
Upcoming Splits
- None of note
Economic Releases
- None of note
Bloomberg:
- The Chicago Board Options Exchange Volatility Index(VIX) closed below 10 for the first time since 1994, suggesting investors have more confidence stocks will rise. In the three years after the VIX last closed below 10 in January 1994, the S&P 500 rallied 60%.
- Southwest Air(LUV) would consider buying gates, planes and other assets sold in a merger of US Air Group and Delta Air, CEO Kelly said.
- Members of the NY Merc’s Comex division have approved a measure to allow electronic trading of gold, copper and other metals contracts.
- CBS Corp.(CBS) asked an appeals court to throw out a FCC finding that the network violated indecency standards when it showed Janet Jackson’s breast during the 2004 Super Bowl. CBS argued in its filing that the FCC’s “zero tolerance” indecency policy is a violation of its right to free speech.
- US commercial construction starts fell 13.9% year-over-year in October, the sixth decline in the last seven months.
- Korean Air Lines, South Korea’s largest carrier, ordered 25 Boeing Co. planes, its largest ever deal.
- Andres Manuel Lopez Obrador, the former Mexico City mayor who lost his bid for president in July elections, swore himself in as the “legitimate” head of state at a rally today in Mexico City.
- Australia’s biofuels production capacity is expanding faster than demand and the industry risks running into oversupply later this decade, an industry consultant said.
London-based Times:
- Nasdaq Stock Market Inc.(NDAQ) is planning two share issues to help finance its bid for London Stock Exchange Group Plc.
Nihon Keizai:
- The Japanese government will downgrade its view of the country’s economy for the first time in almost two years.
China Business News:
- China’s government has ordered Shandong Xinfa Huayu Alumina Co. to stop building a 1.2 million ton-a-year alumina plant after surging domestic capacity caused prices to plummet.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (MCD), target $47.
- Reiterated Buy on (PAYX), target $47.
Night Trading
Asian Indices are +.25% to +.50% on average.
S&P 500 indicated -.06%.
NASDAQ 100 indicated unch.
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
- (BGP)/-.64
- (BWS)/.83
- (CBRL)/.57
- (CWTR)/.17
- (DE)/.94
- (DELL)/.24
- (DLTR)/.32
- (EV)/.33
- (GME)/.22
- (JCG)/.21
- (JBX)/.66
- (MWRK)/-.12
- (PSS)/.42
- (PERY)/.71
- (TECD)/.22
- (UNFI)/.29
Upcoming Splits
- None of note
Economic Releases
- None of note
BOTTOM LINE: Asian indices are higher, boosted by technology 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.
Stocks Finish Mixed as Profit-taking Offsets Buyout Speculation
Indices
S&P 500 1,400.50 -.05%
DJIA 12,316.54 -.21%
NASDAQ 2,452.72 +.28%
Russell 2000 790.62 +.27%
Wilshire 5000 14,055.01 +.03%
S&P Barra Growth 650.33 -.14%
S&P Barra Value 747.95 +.04%
Morgan Stanley Consumer 677.23 -.24%
Morgan Stanley Cyclical 882.66 +1.04%
Morgan Stanley Technology 577.65 -.02%
Transports 4,838.52 -.19%
Utilities 448.32 -.36%
Put/Call .82 +2.50%
NYSE Arms 1.21 +35.86%
Volatility(VIX) 9.97 -.80%
ISE Sentiment 162.0 +37.29%
US Dollar 85.43 +.14%
CRB 306.30 +.17%
Futures Spot Prices
Crude Oil 58.95 -.03%
Unleaded Gasoline 155.65 +1.0%
Natural Gas 8.01 -2.02%
Heating Oil 165.55 +.40%
Gold 623.10 +.16%
Base Metals 232.43 +2.31%
Copper 307.70 -.05%
10-year US Treasury Yield 4.60% -.04%
Leading Sectors
REITs +3.27%
Steel +2.73%
Semis +1.75%
Lagging Sectors
Airlines -.93%
Homebuilders -1.02%
Hospitals -1.12%
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
- None of note
Afternoon/Evening Headlines
Bloomberg:
- Mergers and acquisitions worldwide rose to a record $3.1 trillion this year as leveraged buyouts almost tripled.
- Alzheimer's disease may be triggered when the flow of oxygen-carrying blood to the brain is reduced because of a stroke or heart disease, a recent study shows.
- OJ Simpson's new book and tv special were canceled by News Corp.(NWS) Chairman Rupert Murdoch, who apologized for a project he said was "ill-considered." The book "If I Did It," in which Simpson describes how he would have murdered his wife and her friend Ronald L. Goldman, was to be released by ReganBooks, a publishing company owned by News Corp., on Nov. 30.
- Researchers have identified the memory process in rats that is disrupted by THC, the active ingredient in marijuana, according to a study in the December issue of the journal Nature Neuroscience.
- David Rockefeller, who has made some of the largest gifts to NY arts and educational institutions in recent years, has pledged about $225 million to the Rockefeller Brothers Fund created by his family to support social, educational and environmental causes.
- Merrill Lynch(MER) plans to invest in liquefied natural gas production plants as the US and Europe import more of the fuel.
- The approaching winter will bring warmer-than-normal weather to every region of the US except the East, forecasters at WSI Corp. said.
- Delta Air and Nintendo will offer free video-game downloads at terminals this holiday season to help entertain harried travelers.
Financial Times:
- Merrill Lynch said the price of the material used to make solar panels, polysilicon, was at "unsustainable" levels.
S&P 500 1,400.50 -.05%
DJIA 12,316.54 -.21%
NASDAQ 2,452.72 +.28%
Russell 2000 790.62 +.27%
Wilshire 5000 14,055.01 +.03%
S&P Barra Growth 650.33 -.14%
S&P Barra Value 747.95 +.04%
Morgan Stanley Consumer 677.23 -.24%
Morgan Stanley Cyclical 882.66 +1.04%
Morgan Stanley Technology 577.65 -.02%
Transports 4,838.52 -.19%
Utilities 448.32 -.36%
Put/Call .82 +2.50%
NYSE Arms 1.21 +35.86%
Volatility(VIX) 9.97 -.80%
ISE Sentiment 162.0 +37.29%
US Dollar 85.43 +.14%
CRB 306.30 +.17%
Futures Spot Prices
Crude Oil 58.95 -.03%
Unleaded Gasoline 155.65 +1.0%
Natural Gas 8.01 -2.02%
Heating Oil 165.55 +.40%
Gold 623.10 +.16%
Base Metals 232.43 +2.31%
Copper 307.70 -.05%
10-year US Treasury Yield 4.60% -.04%
Leading Sectors
REITs +3.27%
Steel +2.73%
Semis +1.75%
Lagging Sectors
Airlines -.93%
Homebuilders -1.02%
Hospitals -1.12%
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
- None of note
Afternoon/Evening Headlines
Bloomberg:
- Mergers and acquisitions worldwide rose to a record $3.1 trillion this year as leveraged buyouts almost tripled.
- Alzheimer's disease may be triggered when the flow of oxygen-carrying blood to the brain is reduced because of a stroke or heart disease, a recent study shows.
- OJ Simpson's new book and tv special were canceled by News Corp.(NWS) Chairman Rupert Murdoch, who apologized for a project he said was "ill-considered." The book "If I Did It," in which Simpson describes how he would have murdered his wife and her friend Ronald L. Goldman, was to be released by ReganBooks, a publishing company owned by News Corp., on Nov. 30.
- Researchers have identified the memory process in rats that is disrupted by THC, the active ingredient in marijuana, according to a study in the December issue of the journal Nature Neuroscience.
- David Rockefeller, who has made some of the largest gifts to NY arts and educational institutions in recent years, has pledged about $225 million to the Rockefeller Brothers Fund created by his family to support social, educational and environmental causes.
- Merrill Lynch(MER) plans to invest in liquefied natural gas production plants as the US and Europe import more of the fuel.
- The approaching winter will bring warmer-than-normal weather to every region of the US except the East, forecasters at WSI Corp. said.
- Delta Air and Nintendo will offer free video-game downloads at terminals this holiday season to help entertain harried travelers.
Financial Times:
- Merrill Lynch said the price of the material used to make solar panels, polysilicon, was at "unsustainable" levels.
BOTTOM LINE: The Portfolio finished slightly higher today on gains in my Retail longs, Semi longs and Medical longs. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was neutral today as the advance/decline line finished about even, sector performance was mixed and volume was below average. Measures of investor anxiety were mostly higher into the close. Today's overall market action was neutral. Semis outperformed throughout the day. I continue to expect semis to outperform over the intermediate-term, as well. I still expect the major averages to trend higher throughout most of this holiday-shortened week.
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