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Thursday, January 18, 2007
Stocks Sharply Lower into Final Hour on Weakness in Commodities and Tech
BOTTOM LINE: The Portfolio is lower into the final hour on losses in my Internet longs, Telecom longs and Computer longs. I added (IWM) and (QQQQ) hedges today, thus leaving the Portfolio 75% net long. The tone of the market is very negative as the advance/decline line is substantially lower, sector performance is mostly negative and volume is heavy. Last night, Apple Inc.(AAPL) shattered 1Q estimates. The company then gave its typical conservative forward guidance. Overall tech sector weakness and “disappointing” Mac sales are likely pressuring the stock today. I view any broad market weakness as temporary. As far as the Mac, I am still confident that sales will exceed estimates substantially for the year. Recently, above expectations sales of homes and flat-panel televisions likely left less time and money for shopping for another big-ticket item such as the Mac. I think worries over the iPhone substantially hurting near-term sales of iPods are overdone. I suspect many people, especially those in their 40s/50s, that have never owned an iPod will be interested in the iPhone. As well, the high price will lead many younger consumers to just stick with the iPod. I also expect the iTV will be a much bigger hit than is currently believed. The bottom line, in my opinion, is that the stock is meaningfully cheaper today than it was yesterday due to the stock price decline and significant earnings beat. I continue to believe earnings substantially above expectations for the year and p/e multiple expansion will boost the stock over 50% from current levels this year. The future of the company has never looked brighter. I continue to believe the dozens of negative stories and reports since the options investigation was announced are unwarranted and the result of the fact that Apple Inc. is perceived as a leading US “growth” stock. I still plan to add to my Apple Inc. long on any substantial weakness and it remains my second largest long position. I expect US stocks to trade modestly higher into the close from current levels on short-covering, more economic optimism, lower long-term rates, declining energy prices and bargain-hunting.
CPI Bounces, Job Market Healthy, Housing Starts Surge, Philly Manufacturing Expanding
- The Consumer Price Index for December rose .5% versus estimates of a .4% increase and an unch. reading in November.
- The CPI Ex Food & Energy for December rose .2% versus estimates of a .2% gain and an unch. reading in November.
- Initial Jobless Claims for last week fell to 290K versus estimates of 314K and 298K the prior week.
- Continuing Claims rose to 2530K versus estimates of 2438K and 2410K prior.
- Housing Starts for December rose to 1642K versus estimates of 1565K and 1572K in November.
- Building Permits rose to 1596K versus estimates of 1505K and 1513K in November.
- Philly Fed for January rose to 8.3 versus estimates of 3.1 and an upwardly revised -2.3 in December.
- The CPI Ex Food & Energy for December rose .2% versus estimates of a .2% gain and an unch. reading in November.
- Initial Jobless Claims for last week fell to 290K versus estimates of 314K and 298K the prior week.
- Continuing Claims rose to 2530K versus estimates of 2438K and 2410K prior.
- Housing Starts for December rose to 1642K versus estimates of 1565K and 1572K in November.
- Building Permits rose to 1596K versus estimates of 1505K and 1513K in November.
- Philly Fed for January rose to 8.3 versus estimates of 3.1 and an upwardly revised -2.3 in December.
BOTTOM LINE: US consumer prices accelerated in December for the first time in four months, Bloomberg reported. Energy prices jumped 4.6% and gasoline prices surged 8% during December. Both have since decline substantially. New vehicle prices fell .2% and airfares fell 2.4%. I expect next month’s CPI to show another meaningful deceleration.
The number of Americans filing first-time claims for state unemployment benefits unexpectedly fell last week to the lowest level in 11 months, Bloomberg reported. Faster job and income growth are helping boost consumer spending. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, rose to 1.9% from 1.8% the prior week. I continue to believe the labor market will remain healthy over the intermediate-term as weakness in construction and manufacturing subsides and companies gain confidence in the sustainability of the current expansion.
Housing starts in the US unexpectedly rose in December as sales improved and the weather turned unseasonably warm, Bloomberg reported. The increase in starts was led by a 26% jump in the Northeast, 12% rise in the West and 1.8% increase in the Midwest. Starts fell 2% in the South. This report just adds to data that suggests the worst of the housing downturn is over. However, rising starts are a negative for homebuilding stocks even as they are an overall positive for the US economy.
Manufacturing in the Philly region resumed its expansion in January as orders and sales improved, Bloomberg said. The Shipments component of the index rose to 23.9, the highest since April 2005, versus 14 the prior month. The Expectations component of the index soared to 22.4 versus 5.4 in December. The Prices Paid component plunged to 11.9, the lowest since July 2003, from 19 the prior month. The underlying components of this index are very positive and point to a pick-up in manufacturing activity as auto production and housing-related cutbacks subside.
Wednesday, January 17, 2007
Thursday Watch
Late-Night Headlines
Bloomberg:
- The Senate Finance Committee voted to add $8.3 billion in tax breaks for small businesses to legislation that would increase the minimum wage.
- Vincent Reinhart, one of Fed Chairman Bernanke’s top advisers on interest rates, will leave the central bank.
- News Corp.’s(NWS) HarperCollins publishing unit is shutting down its ReganBooks division one month after firing founder Judith Regan, who backed a book by OJ Simpson on how he could have killed his ex-wife.
- Jim Rogers, author of the book “Hot Commodities”, said “when you have big bull markets, 50% corrections, or retractions, are normal.” The CRB Index is currently down 20.9% from its May 2006 high. Rogers still expects oil to eventually exceed $150/bbl. However, Rogers doesn’t buy individual commodities on the advice of his lawyers.
- The US ethanol industry will continue to expand even as soaring corn prices trim profits, said Bruce Rastetter, who runs Hawkeye Holdings, the nation’s third-largest producer of the grain-based fuel.
- Japan’s steel production may surpass a 34-year-old record this year.
- The Bank of Japan left its benchmark interest rate at .25%, appeasing government officials who say consumer spending and inflation are too weak to withstand higher borrowing costs. The yen fell to a 13-month low on the report.
- Hewlett-Packard(HPQ) beat Dell Inc.(DELL) in sales of personal computers for the second straight quarter, extending its lead as the world’s biggest PC maker. HP’s worldwide PC shipments surged 23.8%, while Dell’s fell 8.4% in 4Q.
- The worldwide PC market grew 8.7% in the fourth quarter, according to IDC.
Wall Street Journal:
- The International Energy Agency and China are near an agreement to share plans for the use of oil stockpiles, citing IEA executive director Claude Mandil. Mandil is expected to meet China’s top energy official Chen Deming on Jan. 19 to discuss a non-binding agreement for China to give notice to the IEA before releasing oil from its stockpiles.
- General Electric(GE) is close to buying the diagnostics division of Abbott Labs(ABT).
Nikkei:
- Iraq will “soon” announce a final plan on oil revenue distribution, Foreign Minister Hoshyar Zebari said in an interview in Baghdad. Iraqi officials are close to a deal on a national oil law that would give the central government the power to distribute current and future oil reserves to regions based on their population. An oil law guaranteeing equitable distribution of sales was crucial to the process of national reconciliation and ending the war, according to the Iraq Study Group.
Late Buy/Sell Recommendations
Citigroup:
- Upgraded (ERTS) to Buy, target $64.
- Reiterated Buy on (SCHW), target $22.
Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated -.07%.
NASDAQ 100 indicated -.18%.
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
- (BK)/.55
- (BBT)/.77
- (BGG)/-.05
- (COF)/1.24
- (CMA)/1.21
- (CAL)/-.15
- (CREE)/.06
- (ET)/.39
- (FITB)/.07
- (HDI)/.96
- (HTLD)/.22
- (IBM)/2.19
- (IGT)/.35
- (MER)/1.92
- (PPG)/1.02
- (SLM)/.75
- (UB)/1.06
- (UNH)/.85
- (XLNX)/.23
Upcoming Splits
- None of note
Economic Releases
8:30 am EST
- The Consumer Price Index for December is estimated to rise .4% versus an unch. reading in November.
- The CPI Ex Food & Energy for December is estimated to rise .2% versus an unch. reading in November.
- Initial Jobless Claims for last week are estimated to rise to 314K versus 299K the prior week.
- Continuing Claims are estimated to rise to 2438K versus 2428K prior.
- Housing Starts for December are estimated to fall to 1565K versus 1588K in November.
- Building Permits for December are estimated to fall to 1505K versus 1513K in November.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 100,000 barrels versus a -4,990,000 barrel decline the prior week. Gasoline supplies are expected to rise by 2,225,000 barrels versus a 3,763,000 barrel increase the prior week. Distillate supplies are expected to rise by 1,350,000 barrels versus a 5,402,000 barrel increase the prior week. Refinery Utilization is expected to fall by -.5% versus a .41% gain the prior week. Natural gas supplies are expected to fall -80 bcf versus a -49 bcf withdrawal the prior week.
12:00 pm EST
- The Philly Fed for January is estimated to rise to 3.1 versus -2.3 in December.
Bloomberg:
- The Senate Finance Committee voted to add $8.3 billion in tax breaks for small businesses to legislation that would increase the minimum wage.
- Vincent Reinhart, one of Fed Chairman Bernanke’s top advisers on interest rates, will leave the central bank.
- News Corp.’s(NWS) HarperCollins publishing unit is shutting down its ReganBooks division one month after firing founder Judith Regan, who backed a book by OJ Simpson on how he could have killed his ex-wife.
- Jim Rogers, author of the book “Hot Commodities”, said “when you have big bull markets, 50% corrections, or retractions, are normal.” The CRB Index is currently down 20.9% from its May 2006 high. Rogers still expects oil to eventually exceed $150/bbl. However, Rogers doesn’t buy individual commodities on the advice of his lawyers.
- The US ethanol industry will continue to expand even as soaring corn prices trim profits, said Bruce Rastetter, who runs Hawkeye Holdings, the nation’s third-largest producer of the grain-based fuel.
- Japan’s steel production may surpass a 34-year-old record this year.
- The Bank of Japan left its benchmark interest rate at .25%, appeasing government officials who say consumer spending and inflation are too weak to withstand higher borrowing costs. The yen fell to a 13-month low on the report.
- Hewlett-Packard(HPQ) beat Dell Inc.(DELL) in sales of personal computers for the second straight quarter, extending its lead as the world’s biggest PC maker. HP’s worldwide PC shipments surged 23.8%, while Dell’s fell 8.4% in 4Q.
- The worldwide PC market grew 8.7% in the fourth quarter, according to IDC.
Wall Street Journal:
- The International Energy Agency and China are near an agreement to share plans for the use of oil stockpiles, citing IEA executive director Claude Mandil. Mandil is expected to meet China’s top energy official Chen Deming on Jan. 19 to discuss a non-binding agreement for China to give notice to the IEA before releasing oil from its stockpiles.
- General Electric(GE) is close to buying the diagnostics division of Abbott Labs(ABT).
Nikkei:
- Iraq will “soon” announce a final plan on oil revenue distribution, Foreign Minister Hoshyar Zebari said in an interview in Baghdad. Iraqi officials are close to a deal on a national oil law that would give the central government the power to distribute current and future oil reserves to regions based on their population. An oil law guaranteeing equitable distribution of sales was crucial to the process of national reconciliation and ending the war, according to the Iraq Study Group.
Late Buy/Sell Recommendations
Citigroup:
- Upgraded (ERTS) to Buy, target $64.
- Reiterated Buy on (SCHW), target $22.
Night Trading
Asian Indices are -.25% to +.50% on average.
S&P 500 indicated -.07%.
NASDAQ 100 indicated -.18%.
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
- (BK)/.55
- (BBT)/.77
- (BGG)/-.05
- (COF)/1.24
- (CMA)/1.21
- (CAL)/-.15
- (CREE)/.06
- (ET)/.39
- (FITB)/.07
- (HDI)/.96
- (HTLD)/.22
- (IBM)/2.19
- (IGT)/.35
- (MER)/1.92
- (PPG)/1.02
- (SLM)/.75
- (UB)/1.06
- (UNH)/.85
- (XLNX)/.23
Upcoming Splits
- None of note
Economic Releases
8:30 am EST
- The Consumer Price Index for December is estimated to rise .4% versus an unch. reading in November.
- The CPI Ex Food & Energy for December is estimated to rise .2% versus an unch. reading in November.
- Initial Jobless Claims for last week are estimated to rise to 314K versus 299K the prior week.
- Continuing Claims are estimated to rise to 2438K versus 2428K prior.
- Housing Starts for December are estimated to fall to 1565K versus 1588K in November.
- Building Permits for December are estimated to fall to 1505K versus 1513K in November.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil build of 100,000 barrels versus a -4,990,000 barrel decline the prior week. Gasoline supplies are expected to rise by 2,225,000 barrels versus a 3,763,000 barrel increase the prior week. Distillate supplies are expected to rise by 1,350,000 barrels versus a 5,402,000 barrel increase the prior week. Refinery Utilization is expected to fall by -.5% versus a .41% gain the prior week. Natural gas supplies are expected to fall -80 bcf versus a -49 bcf withdrawal the prior week.
12:00 pm EST
- The Philly Fed for January is estimated to rise to 3.1 versus -2.3 in December.
BOTTOM LINE: Asian indices are mostly higher, boosted by financial and commodity shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.
Stocks Finish Lower on Tech Share Weakness and Bounce in Oil
Indices
S&P 500 1,430.62 -.09%
DJIA 12,577.15 -.04%
NASDAQ 2,479.42 -.74%
Russell 2000 788.77 -.34%
Wilshire 5000 14,357.15 -.10%
Russell 1000 Growth 567.75 -.24%
Russell 1000 Value 816.11 +.05%
Morgan Stanley Consumer 708.99 +.31%
Morgan Stanley Cyclical 913.97 +.13%
Morgan Stanley Technology 575.62 -.95%
Transports 4,813.62 -.99%
Utilities 446.71 +.11%
Put/Call .86 -7.53%
NYSE Arms .90 -14.90%
Volatility(VIX) 10.61 -1.40%
ISE Sentiment 116.0 -33.71%
US Dollar 84.97 -.11%
CRB 289.09 +.65%
Futures Spot Prices
Crude Oil 52.14 +1.82%
Reformulated Gasoline 137.80 +.64%
Natural Gas 6.25 -5.77%
Heating Oil 149.91 +1.27%
Gold 632.90 +1.12%
Base Metals 220.18 -1.57%
Copper 256.50 -.48%
10-year US Treasury Yield 4.78% +.68%
Leading Sectors
Oil Service +1.56%
Energy +1.19%
Homebuilders +1.08%
Lagging Sectors
Internet -1.60%
Networking -1.95%
Airlines -3.57%
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
UBS:
- Made positive comments on (INTC), believes the stock represents good value at current levels.
Afternoon/Evening Headlines
Bloomberg:
- Apple Inc.(AAPL) said first-quarter profit soared 78% after holiday shoppers snapped up iPod music players in record numbers and Macintosh computers. Net income rose to $1.14 versus analysts’ consensus estimates of .78.
- The perceived risk of owning the bonds of US homebuilders fell to the lowest in at least eight months on speculation that a growing economy will offset a rise in the supply of unsold homes, according to traders who bet on corporate creditworthiness in the credit-default swap market.
- Natural gas plunged 6% today. Natural gas prices have “melted in the winter sun” and won’t recover because inventories are much higher than usual, according to UniCredit economists.
- Fewer people died of cancer in the US in 2004, the second year in a row that the death rate for the disease has dropped, the American Cancer Society reported.
- Merrill Lynch(MER) CEO Stanley O’Neal is making acquisitions at the fastest pace in more than a decade to catch up with Goldman Sachs Group(GS).
S&P 500 1,430.62 -.09%
DJIA 12,577.15 -.04%
NASDAQ 2,479.42 -.74%
Russell 2000 788.77 -.34%
Wilshire 5000 14,357.15 -.10%
Russell 1000 Growth 567.75 -.24%
Russell 1000 Value 816.11 +.05%
Morgan Stanley Consumer 708.99 +.31%
Morgan Stanley Cyclical 913.97 +.13%
Morgan Stanley Technology 575.62 -.95%
Transports 4,813.62 -.99%
Utilities 446.71 +.11%
Put/Call .86 -7.53%
NYSE Arms .90 -14.90%
Volatility(VIX) 10.61 -1.40%
ISE Sentiment 116.0 -33.71%
US Dollar 84.97 -.11%
CRB 289.09 +.65%
Futures Spot Prices
Crude Oil 52.14 +1.82%
Reformulated Gasoline 137.80 +.64%
Natural Gas 6.25 -5.77%
Heating Oil 149.91 +1.27%
Gold 632.90 +1.12%
Base Metals 220.18 -1.57%
Copper 256.50 -.48%
10-year US Treasury Yield 4.78% +.68%
Leading Sectors
Oil Service +1.56%
Energy +1.19%
Homebuilders +1.08%
Lagging Sectors
Internet -1.60%
Networking -1.95%
Airlines -3.57%
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
UBS:
- Made positive comments on (INTC), believes the stock represents good value at current levels.
Afternoon/Evening Headlines
Bloomberg:
- Apple Inc.(AAPL) said first-quarter profit soared 78% after holiday shoppers snapped up iPod music players in record numbers and Macintosh computers. Net income rose to $1.14 versus analysts’ consensus estimates of .78.
- The perceived risk of owning the bonds of US homebuilders fell to the lowest in at least eight months on speculation that a growing economy will offset a rise in the supply of unsold homes, according to traders who bet on corporate creditworthiness in the credit-default swap market.
- Natural gas plunged 6% today. Natural gas prices have “melted in the winter sun” and won’t recover because inventories are much higher than usual, according to UniCredit economists.
- Fewer people died of cancer in the US in 2004, the second year in a row that the death rate for the disease has dropped, the American Cancer Society reported.
- Merrill Lynch(MER) CEO Stanley O’Neal is making acquisitions at the fastest pace in more than a decade to catch up with Goldman Sachs Group(GS).
BOTTOM LINE: The Portfolio finished lower today on losses in my Airline longs, Internet longs, Computer longs and Commodity shorts. I did not trade in the final hour, thus leaving the Portfolio 100% net long. The tone of the market was modestly negative today as the advance/decline line finished mildly lower, sector performance was mostly negative and volume was heavy. Measures of investor anxiety were mixed into the close. Today's overall market action was slightly bearish. Weakness was mainly contained to select large-cap tech and airline stocks. Energy-related stocks outperformed throughout the day on a slight bounce in oil prices, despite a 6.5% plunge in natural gas. It appears to me that money is sloshing around from one "hot commodity" to the next, however the bear market remains firmly in tact, despite the many calls for a bottom. The Nasdaq is still 2.7% higher ytd despite, which is a very strong showing to start the year. I plan to add to my Apple (AAPL) long on any substantial weakness related to the conservative guidance this evening. The NAHB Homebuilding Index rose to 35 this month vs. estimates of 33 and 33 in December. The Sales Expectations component remained at 49. However, the Index of Buyer Traffic rose to 26 from 23 and Current Sales component rose to 36 from 33. I suspect this will lead to another move higher in the Case-Schiller May Housing Price futures. Recent economic data suggest the U.S. economy is accelerating modestly and nowhere near recessionary levels.
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