BOTTOM LINE: American consumers gained confidence in January, boosting sentiment to the highest level since January 2004, as falling energy prices and steady wage gains made them feel better, Bloomberg said. The Expectations component of the index rose to 88.7, the highest since December 2004, versus 81.2 the prior month. The Current Conditions component, which is a gauge of Americans’ perceptions of their financial situation and whether or not it’s a good time to buy big-ticket items, surged to 112.5 from 108.1 the prior month. The average price of a gallon of gas was $2.20 on Jan. 17, 13 cents lower than at the end of December. Gas is 28% lower than last year’s high of $3.04/gallon in August. I continue to believe every measure of consumer sentiment will make new cycle highs over the coming months as energy prices fall further, long-term rates remain low, inflation decelerates further, wages continue to outpace inflation, stocks rise more, housing stabilizes at high levels and the job market remains healthy.
Friday, January 19, 2007
Consumer Confidence Surges to 36-month High
- Preliminary Univ. of Mich. Consumer Confidence for January rose to 98.0 versus estimates of 92.2 and a reading of 91.7 in December.
Thursday, January 18, 2007
Friday Watch
Late-Night Headlines
Bloomberg:
- Hedge-fund inflows plunged 64% in the fourth quarter from the pace of the previous three months as returns trailed market indexes and investors reacted to the collapse of Amaranth Advisors LLC.
- Crude oil is falling for a second day in NY after plunging below $50 a barrel yesterday for the first time since May 2005 following a surge in US oil and fuel stockpiles.
- Australia and the US said they are concerned at China test firing a missile into space to destroy an obsolete weather satellite orbiting the Earth.
- Merck & Co.(MRK) was granted a mistrial after a Los Angeles jury couldn’t reach a verdict following six days of deliberations in a case over the heart attacks of two men who used the company’s Vioxx painkiller.
- Copper futures in Shanghai are falling to a nine-month low, after data showed supply of the metal outpacing demand, outweighing signs that the US housing sector may be recovering.
- Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures Ltd., says oil will fall to $40/bbl. on “huge” supplies.
- Venezuela seeks enforcement of oil production quotas among fellow members of OPEC, not a production cut, the country’s oil minister said.
- Madeleine Albright, the former US secretary of state during the Clinton administration, raised $329 million to invest in emerging markets.
- IBM(IBM) said fourth-quarter profit rose 11% on new contracts and acquisitions to bolster the company’s software unit. The shares fell 5% after-hours on disappointing hardware sales.
- Consumer Reports magazine retracted an article that said most infant car seats failed in crash tests, after US auto-safety regulators questioned the results.
- Capital One Financial(COF) said profit rose 39% as loan losses fell. The stock rose .90 in after-hours trading.
- By a margin of 68% to 31%, respondents in a new Bloomberg/LA Times poll said the economy is doing well – the highest percentage since 2001.
- Toyota Motor(TM) recalled more than half a million pickup trucks and sport-utility vehicles in the US due to a steering fault that may have led to 11 accidents.
- The yen’s decline may accelerate as the Bank of Japan damaged its credibility by leaving interest rates on hold, said Toru Umemoto, at Barclays Capital, the most accurate forecaster of the yen last year in Bloomberg surveys.
- China’s tax administrator is trying to downplay a rule that says duties will be based on market value instead of estimates, after its announcement four days ago roiled property stocks on the Shanghai and Shenzhen exchanges.
- The global crude oil market is “adequately supplied” and producers should avoid reducing output further to preserve consuming countries’ stocks, Intl. Energy Agency Executive Director Claude Mandil said.
- Asian gasoline prices may fall further as China, Asia’s largest refiner, fires up new oil-processing plants and increases exports.
Xinhua News Agency:
- Local governments are fabricating inflated data for a national agricultural census to meet preset targets, citing China’s chief statistician.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (KLAC), target $65.
- Maintain Buy on (WY), target $85.
Business Week:
- US Airways’(LCC) shares could rise 29% within a year even if the carrier’s $10.5 billion offer for Delta Air Lines is rejected. Credit Suisse’s Daniel McKenzie said the stock could rise to a range of $72 to $76 in 12 months.
- UCBH Holdings(UCBH) is looking to buy in China to fuel growth, citing company Executive VP Jonathan Downing.
Night Trading
Asian Indices are -.75% to +.25% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated -.06%.
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
- (C)/1.00
- (FAST)/.31
- (GE)/.64
- (JCI)/.84
- (KEY)/.73
- (MOT)/.25
- (RF)/.72
- (SLB)/.85
- (STI)/1.46
Upcoming Splits
- (GROW) 2-for-1
Economic Releases
8:30 am EST
- The Preliminary Univ. of Mich. Consumer Confidence reading for January is estimated at 92.0 versus a reading of 91.7 in December.
Bloomberg:
- Hedge-fund inflows plunged 64% in the fourth quarter from the pace of the previous three months as returns trailed market indexes and investors reacted to the collapse of Amaranth Advisors LLC.
- Crude oil is falling for a second day in NY after plunging below $50 a barrel yesterday for the first time since May 2005 following a surge in US oil and fuel stockpiles.
- Australia and the US said they are concerned at China test firing a missile into space to destroy an obsolete weather satellite orbiting the Earth.
- Merck & Co.(MRK) was granted a mistrial after a Los Angeles jury couldn’t reach a verdict following six days of deliberations in a case over the heart attacks of two men who used the company’s Vioxx painkiller.
- Copper futures in Shanghai are falling to a nine-month low, after data showed supply of the metal outpacing demand, outweighing signs that the US housing sector may be recovering.
- Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures Ltd., says oil will fall to $40/bbl. on “huge” supplies.
- Venezuela seeks enforcement of oil production quotas among fellow members of OPEC, not a production cut, the country’s oil minister said.
- Madeleine Albright, the former US secretary of state during the Clinton administration, raised $329 million to invest in emerging markets.
- IBM(IBM) said fourth-quarter profit rose 11% on new contracts and acquisitions to bolster the company’s software unit. The shares fell 5% after-hours on disappointing hardware sales.
- Consumer Reports magazine retracted an article that said most infant car seats failed in crash tests, after US auto-safety regulators questioned the results.
- Capital One Financial(COF) said profit rose 39% as loan losses fell. The stock rose .90 in after-hours trading.
- By a margin of 68% to 31%, respondents in a new Bloomberg/LA Times poll said the economy is doing well – the highest percentage since 2001.
- Toyota Motor(TM) recalled more than half a million pickup trucks and sport-utility vehicles in the US due to a steering fault that may have led to 11 accidents.
- The yen’s decline may accelerate as the Bank of Japan damaged its credibility by leaving interest rates on hold, said Toru Umemoto, at Barclays Capital, the most accurate forecaster of the yen last year in Bloomberg surveys.
- China’s tax administrator is trying to downplay a rule that says duties will be based on market value instead of estimates, after its announcement four days ago roiled property stocks on the Shanghai and Shenzhen exchanges.
- The global crude oil market is “adequately supplied” and producers should avoid reducing output further to preserve consuming countries’ stocks, Intl. Energy Agency Executive Director Claude Mandil said.
- Asian gasoline prices may fall further as China, Asia’s largest refiner, fires up new oil-processing plants and increases exports.
Xinhua News Agency:
- Local governments are fabricating inflated data for a national agricultural census to meet preset targets, citing China’s chief statistician.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (KLAC), target $65.
- Maintain Buy on (WY), target $85.
Business Week:
- US Airways’(LCC) shares could rise 29% within a year even if the carrier’s $10.5 billion offer for Delta Air Lines is rejected. Credit Suisse’s Daniel McKenzie said the stock could rise to a range of $72 to $76 in 12 months.
- UCBH Holdings(UCBH) is looking to buy in China to fuel growth, citing company Executive VP Jonathan Downing.
Night Trading
Asian Indices are -.75% to +.25% on average.
S&P 500 indicated -.03%.
NASDAQ 100 indicated -.06%.
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
- (C)/1.00
- (FAST)/.31
- (GE)/.64
- (JCI)/.84
- (KEY)/.73
- (MOT)/.25
- (RF)/.72
- (SLB)/.85
- (STI)/1.46
Upcoming Splits
- (GROW) 2-for-1
Economic Releases
8:30 am EST
- The Preliminary Univ. of Mich. Consumer Confidence reading for January is estimated at 92.0 versus a reading of 91.7 in December.
BOTTOM LINE: Asian indices are mostly lower, weighed down by commodity and technology shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 50% net long heading into the day.
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.
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