BOTTOM LINE: The Portfolio is about even into the final hour as losses in my Telecom longs and Energy shorts are being offset by gains in my Retail longs and Networking longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is slightly negative as the advance/decline line is modestly lower, sector performance is mixed and volume is above-average. After the hurricanes in the fourth quarter of 2005, I surmised that stocks deserved a higher multiple given the U.S. economy's bulletproof disposition. At that time U.S. economic growth was in the middle of the longest streak of 3%+ GDP quarters since 1986. This occurred during a time of terrorism fears, war, multiple natural disasters, soaring commodity prices, pandemic worries, numerous Fed rate hikes, corporate scandals, historically bitter politics and many hangover effects from the bubble years. Last year, many of these same concerns were still present and some intensified. Oil almost hit $80/bbl. as calls for $100/bbl. crude were commonplace, U.S. dollar collapse calls were numerous as the dollar weakened, inflation fears soared with commodities, housing saw one of the sharpest downturns in history and auto manufacturers drastically cut production. All of these potential downside economic catalysts and the U.S. economy never grew below 2%. In fact, growth was an above-average 3.4% for the year. Moreover, U.S. corporate profit growth extended its historic string of double-digit increases throughout the year. The S&P 500 P/E has contracted for three consecutive years despite the amazing performance of the U.S. economy and most companies. It has only contracted 4 consecutive years twice since 1905. I continue to believe that the U.S. economy will grow around 3% for the year, notwithstanding the many perceived headwinds. More than ever before, U.S. stocks deserve higher multiples. I still expect stocks to return a total of around 17% for the year due to earnings growth still exceeding average levels and P/E multiple expansion. I expect US stocks to trade modestly higher into the close from current levels on stable long-term rates, bargain hunting and short-covering.
Thursday, February 08, 2007
Stocks Slightly Lower into Final Hour on Bounce in Oil and Subprime Lending Worries
Today's Headlines
Bloomberg:
- Francois Trahan, Wall Street’s top-ranked strategist, left Bear Stearns & Co. to become head of portfolio strategy at ISI Group Inc.
- The Federal Reserve Bank of Atlanta named international-business professor Dennis Lockhart, a former banking executive, as its president following a nationwide search to fill the first of at least four Fed openings.
- Shares of US mortgage lenders fell after New Century Financial(NEW) and HSBC Holdings Plc(HBC) said losses from bad home loans are piling up faster than they expected.
- Investors in Red Kite Metals Ltd., a hedge fund run by RK Capital Management LLP that lost about 30% last month, agreed to give more notice before withdrawing their money from the fund.
- Juniper Networks(JNPR) will increase the size of a planned stock buyback to as much as $2 billion to return more money to shareholders.
- Crude oil jumped $2/bbl. in NY after Occidental Petroleum said it had to shut its Elk Hills production field in California.
Wall Street Journal:
- The SEC is ready to approve the merger of NYSE owner NYSE Group(NYX) and European exchange owner Euronext NV over the next few days.
- BlackRock Inc.(BLK), which acquired Merrill Lynch’s(MER) investment management business last year, is introducing a series of life-cycle funds for retirement planning.
- Walgreen Co.(WAG) is stocking up on exotic items including caviar and seaweed to counter rising competition from rival pharmacy chains.
- Americans are using more generic drugs rather than expensive brands, both in private health programs and state-funded plans, citing data from the National Assoc. of Chain Drug Stores and the government.
NY Times:
- Some advertisers are using Web-based automated systems to create their own advertisements.
Financial Times:
- Hedge funds paid as much as $50 billion in fees and interest to investment banking firms last year, or a quarter of their pretax profit, citing a Dresdner Kleinwort Group Ltd. survey.
- Francois Trahan, Wall Street’s top-ranked strategist, left Bear Stearns & Co. to become head of portfolio strategy at ISI Group Inc.
- The Federal Reserve Bank of Atlanta named international-business professor Dennis Lockhart, a former banking executive, as its president following a nationwide search to fill the first of at least four Fed openings.
- Shares of US mortgage lenders fell after New Century Financial(NEW) and HSBC Holdings Plc(HBC) said losses from bad home loans are piling up faster than they expected.
- Investors in Red Kite Metals Ltd., a hedge fund run by RK Capital Management LLP that lost about 30% last month, agreed to give more notice before withdrawing their money from the fund.
- Juniper Networks(JNPR) will increase the size of a planned stock buyback to as much as $2 billion to return more money to shareholders.
- Crude oil jumped $2/bbl. in NY after Occidental Petroleum said it had to shut its Elk Hills production field in California.
Wall Street Journal:
- The SEC is ready to approve the merger of NYSE owner NYSE Group(NYX) and European exchange owner Euronext NV over the next few days.
- BlackRock Inc.(BLK), which acquired Merrill Lynch’s(MER) investment management business last year, is introducing a series of life-cycle funds for retirement planning.
- Walgreen Co.(WAG) is stocking up on exotic items including caviar and seaweed to counter rising competition from rival pharmacy chains.
- Americans are using more generic drugs rather than expensive brands, both in private health programs and state-funded plans, citing data from the National Assoc. of Chain Drug Stores and the government.
NY Times:
- Some advertisers are using Web-based automated systems to create their own advertisements.
Financial Times:
- Hedge funds paid as much as $50 billion in fees and interest to investment banking firms last year, or a quarter of their pretax profit, citing a Dresdner Kleinwort Group Ltd. survey.
Initial Jobless Claims Low, Wholesale Inventories Fall Sharply
- Initial Jobless Claims for last week rose to 311K versus estimates of 312K and 308K the prior week.
- Continuing Claims fell to 2490K versus estimates of 2495K and 2544K prior.
- Wholesale Inventories for December fell .5% versus estimates of a .5% gain and a 1.1% increase in November.
- Continuing Claims fell to 2490K versus estimates of 2495K and 2544K prior.
- Wholesale Inventories for December fell .5% versus estimates of a .5% gain and a 1.1% increase in November.
BOTTOM LINE: The number of Americans filing first-time claims for state unemployment benefits stayed close to the average for the past year, reflecting a healthy labor market, Bloomberg said. The four-week average of claims rose to 308,250 from 305,000 the prior week. A robust labor market and wages outpacing inflation are providing the catalysts for Americans to increase their spending. The ICSC said today that retail same-store-sales for January rose an above-average 3.7% versus estimates of a 3.0% gain. The unemployment rate among those eligible for benefits, which tracks the US unemployment rate, held steady at a low 1.9%. I continue to believe the job market will remain healthy over the intermediate-term as companies gain confidence in the sustainability of the current business cycle.
Inventories at US wholesalers unexpectedly declined in December by the most since May 2003 as sales surged, suggesting a manufacturing rebound in coming months, Bloomberg said. The wholesaler inventory-to-sales ratio, which measures how long inventories would last at the current sales pace, dropped to 1.17 months in December versus 1.19 months the prior month. Inventories of autos fell 2.8%, the largest decline since April 1998. The fact that inventories are coming down at such a rapid rate is a big positive. Inventory rebuilding should add to economic growth during 2Q.
Wednesday, February 07, 2007
Thursday Watch
Late-Night Headlines
Bloomberg:
- Blackstone Group LP agreed to sell eight midtown Manhattan buildings it will get in its $39 billion purchase of Equity Office Properties Trust to Macklowe Properties for about $7 billion.
- GlaxoSmithKline Plc(GSK) won clearance to sell the first weight-loss pill approved by US regulators without a doctor’s prescription.
- YouTube Inc. founders and investors may reap as much as $1.53 billion selling Google Inc.(GOOG) stock they received when the video-sharing Web site was bought last year.
- Japan’s bank lending failed to accelerate, adding to signs the economy may not be strong enough to withstand an increase in interest rates, the lowest among major economies.
- Copper futures in Shanghai fell as increased global stockpiles led to speculation that demand for the industrial metal is still lagging behind supply. Stockpiles of the metal, tracked by exchanges in London, New York and Shanghai, rose 1.2% to 272,990 tons yesterday, the highest in 32 months.
- China plans to plant 32 million acres of a tree that produces non-edible oil for making bio-diesel to help it cope with its energy needs, citing Cao Qingyao, a spokesman for the State Forestry Administration.
Financial News:
- Fortress Investment Group LLC has 25 times more interested subscribers to its IPO than available shares to sell. They NY-based firm plans to sell 34.3 million shares for $16.50 to $18.50 apiece, which values the company at about $7 billion.
- European governments are failing to impose tighter financial sanctions on Iran over its nuclear research program, citing Gregory Schulte, the US ambassador to the IAEA. Schulte said a range of non-military measures should be used to place pressure on Iran’s leadership.
Asahi:
- North Korea last month signed a memorandum promising to halt its nuclear reactor in return for energy and other humanitarian assistance. North Korean Vice Foreign Minister Kim Kye Gwan and US Assistant Secretary of State Christopher Hill made the agreement when they met in Berlin.
Late Buy/Sell Recommendations
Citigroup:
- Raised (SRX) to Buy, target $30.
Night Trading
Asian Indices are -1.0% to -.25% on average.
S&P 500 indicated -.12%.
NASDAQ 100 indicated -.15%.
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
- (AET)/.76
- (AYE)/.35
- (APPB)/.23
- (BEC)/.97
- (BMC)/.38
- (BRCM)/.31
- (ELY)/-.13
- (CCI)-/.08
- (DO)/1.38
- (DRIV)/1.46
- (ENER)/-.06
- (ESRX)/.97
- (IN)/.11
- (LVLT)/-.14
- (MAR)/.49
- (MFE)/.34
- (MGAM)/-.08
- (OO)/.13
- (PNRA)/.63
- (PEP)/.72
- (Q)/.08
- (RAI)/.85
- (TBL)/.58
- (TRB)/.61
- (BER)/.89
Upcoming Splits
- None of note
Economic Releases
8:30:
- Initial Jobless Claims for last week are estimated at 312K versus 307K the prior week.
- Continuing Claims are estimated at 2495K versus 2553K prior.
10:00:
- Wholesale Inventories for December are estimated to rise .5% versus a 1.3% increase in November.
Bloomberg:
- Blackstone Group LP agreed to sell eight midtown Manhattan buildings it will get in its $39 billion purchase of Equity Office Properties Trust to Macklowe Properties for about $7 billion.
- GlaxoSmithKline Plc(GSK) won clearance to sell the first weight-loss pill approved by US regulators without a doctor’s prescription.
- YouTube Inc. founders and investors may reap as much as $1.53 billion selling Google Inc.(GOOG) stock they received when the video-sharing Web site was bought last year.
- Japan’s bank lending failed to accelerate, adding to signs the economy may not be strong enough to withstand an increase in interest rates, the lowest among major economies.
- Copper futures in Shanghai fell as increased global stockpiles led to speculation that demand for the industrial metal is still lagging behind supply. Stockpiles of the metal, tracked by exchanges in London, New York and Shanghai, rose 1.2% to 272,990 tons yesterday, the highest in 32 months.
- China plans to plant 32 million acres of a tree that produces non-edible oil for making bio-diesel to help it cope with its energy needs, citing Cao Qingyao, a spokesman for the State Forestry Administration.
Financial News:
- Fortress Investment Group LLC has 25 times more interested subscribers to its IPO than available shares to sell. They NY-based firm plans to sell 34.3 million shares for $16.50 to $18.50 apiece, which values the company at about $7 billion.
- European governments are failing to impose tighter financial sanctions on Iran over its nuclear research program, citing Gregory Schulte, the US ambassador to the IAEA. Schulte said a range of non-military measures should be used to place pressure on Iran’s leadership.
Asahi:
- North Korea last month signed a memorandum promising to halt its nuclear reactor in return for energy and other humanitarian assistance. North Korean Vice Foreign Minister Kim Kye Gwan and US Assistant Secretary of State Christopher Hill made the agreement when they met in Berlin.
Late Buy/Sell Recommendations
Citigroup:
- Raised (SRX) to Buy, target $30.
Night Trading
Asian Indices are -1.0% to -.25% on average.
S&P 500 indicated -.12%.
NASDAQ 100 indicated -.15%.
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
- (AET)/.76
- (AYE)/.35
- (APPB)/.23
- (BEC)/.97
- (BMC)/.38
- (BRCM)/.31
- (ELY)/-.13
- (CCI)-/.08
- (DO)/1.38
- (DRIV)/1.46
- (ENER)/-.06
- (ESRX)/.97
- (IN)/.11
- (LVLT)/-.14
- (MAR)/.49
- (MFE)/.34
- (MGAM)/-.08
- (OO)/.13
- (PNRA)/.63
- (PEP)/.72
- (Q)/.08
- (RAI)/.85
- (TBL)/.58
- (TRB)/.61
- (BER)/.89
Upcoming Splits
- None of note
Economic Releases
8:30:
- Initial Jobless Claims for last week are estimated at 312K versus 307K the prior week.
- Continuing Claims are estimated at 2495K versus 2553K prior.
10:00:
- Wholesale Inventories for December are estimated to rise .5% versus a 1.3% increase in November.
BOTTOM LINE: Asian indices are lower, weighed down by commodity and utility shares in the region. I expect US equities to open modestly lower and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
DJIA Hits Another All-Time High, S&P 500 at 6-year High on More Positive Economic Data, Falling Energy Prices
Indices
S&P 500 1,450.02 +.14%
DJIA 12,666.87 unch.
NASDAQ 2,490.50 +.77%
Russell 2000 816.20 +.71%
Wilshire 5000 14,622.55 +.23%
Russell 1000 Growth 572.40 +.32%
Russell 1000 Value 835.96 +.06%
Morgan Stanley Consumer 708.49 -.26%
Morgan Stanley Cyclical 946.13 +.12%
Morgan Stanley Technology 576.80 +1.50%
Transports 4,979.84 +.32%
Utilities 469.80 +.03%
MSCI Emerging Markets 116.30 +.03%
Sentiment/Internals
Total Put/Call .86 +1.18%
NYSE Arms 1.22 -3.50%
Volatility(VIX) 10.32 -3.10%
ISE Sentiment 113.0 -19.86%
Futures Spot Prices
Crude Oil 57.84 -1.80%
Reformulated Gasoline 154.50 -1.75%
Natural Gas 7.73 +1.55%
Heating Oil 167.05 -1.21%
Gold 656.40 -.35%
Base Metals 216.82 -1.55%
Copper 245.95 -1.48%
Economy
10-year US Treasury Yield 4.74% -2 basis points
US Dollar 84.75 -.02%
CRB Index 298.87 -.73%
Leading Sectors
Networking +2.14%
REITs +1.99%
Semis +1.59%
Lagging Sectors
Gold & Silver -.51%
Oil Service -.73%
Energy -.74%
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
Piper Jaffray:
- Upgraded (IFIN) to Outperform.
Afternoon/Evening Headlines
Bloomberg:
- US technology stocks rallied, pushing the S&P 500 to another six-year high and the Nasdaq to its eighth gain in nine days, after Cisco Systems forecast sales that beat estimates.
- Gasoline futures fell after a government report showed that inventories of the motor fuel rose to their highest in almost eight years. Crude oil also fell more than $2/bbl. from session highs.
- Brazil and the US, the world’s biggest ethanol producers and consumers, plan to help an as-yet unselected Central America country produce ethanol as they seek to bolster the international market for the fuel.
- Corn futures fell to a three-week low in Chicago on speculation that demand for US supplies will slow after a rally in prices last year and the arrival of new crops being harvested in South America.
- Varian Medical(VAR) will replace Equity Office Properties(EOP) in the S&P 500, S&P said.
- Walt Disney(DIS) said first-quarter profit more than doubled on asset sales and income from last year’s two biggest-selling DVD releases, “Pirates of the Caribbean” and “Cars.” The stock rose .50 in after-hours trading.
- Electronic Data Systems(EDS) said fourth-quarter profit almost doubled after it generated more revenue from government orders and reduced costs. The stock rose 4.5% after-hours.
- EMC Corp.(EMC) said it will offer 10% of its VMware business unit in an IPO. The stock soared 7.7% after-hours.
- A newly completed map of the horse genome will give scientists a better understanding of human genetics, researchers said.
- Hedge fund SAC Capital Partners is reportedly stepping up its private equity practice by hiring former Ripplewood Holdings managing director Peter Berger.
- Merrill Lynch(MER) introduced an index that mimics a hedge-fund trading strategy that exploits imperfect forecasts of US stock volatility.
S&P 500 1,450.02 +.14%
DJIA 12,666.87 unch.
NASDAQ 2,490.50 +.77%
Russell 2000 816.20 +.71%
Wilshire 5000 14,622.55 +.23%
Russell 1000 Growth 572.40 +.32%
Russell 1000 Value 835.96 +.06%
Morgan Stanley Consumer 708.49 -.26%
Morgan Stanley Cyclical 946.13 +.12%
Morgan Stanley Technology 576.80 +1.50%
Transports 4,979.84 +.32%
Utilities 469.80 +.03%
MSCI Emerging Markets 116.30 +.03%
Sentiment/Internals
Total Put/Call .86 +1.18%
NYSE Arms 1.22 -3.50%
Volatility(VIX) 10.32 -3.10%
ISE Sentiment 113.0 -19.86%
Futures Spot Prices
Crude Oil 57.84 -1.80%
Reformulated Gasoline 154.50 -1.75%
Natural Gas 7.73 +1.55%
Heating Oil 167.05 -1.21%
Gold 656.40 -.35%
Base Metals 216.82 -1.55%
Copper 245.95 -1.48%
Economy
10-year US Treasury Yield 4.74% -2 basis points
US Dollar 84.75 -.02%
CRB Index 298.87 -.73%
Leading Sectors
Networking +2.14%
REITs +1.99%
Semis +1.59%
Lagging Sectors
Gold & Silver -.51%
Oil Service -.73%
Energy -.74%
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
Piper Jaffray:
- Upgraded (IFIN) to Outperform.
Afternoon/Evening Headlines
Bloomberg:
- US technology stocks rallied, pushing the S&P 500 to another six-year high and the Nasdaq to its eighth gain in nine days, after Cisco Systems forecast sales that beat estimates.
- Gasoline futures fell after a government report showed that inventories of the motor fuel rose to their highest in almost eight years. Crude oil also fell more than $2/bbl. from session highs.
- Brazil and the US, the world’s biggest ethanol producers and consumers, plan to help an as-yet unselected Central America country produce ethanol as they seek to bolster the international market for the fuel.
- Corn futures fell to a three-week low in Chicago on speculation that demand for US supplies will slow after a rally in prices last year and the arrival of new crops being harvested in South America.
- Varian Medical(VAR) will replace Equity Office Properties(EOP) in the S&P 500, S&P said.
- Walt Disney(DIS) said first-quarter profit more than doubled on asset sales and income from last year’s two biggest-selling DVD releases, “Pirates of the Caribbean” and “Cars.” The stock rose .50 in after-hours trading.
- Electronic Data Systems(EDS) said fourth-quarter profit almost doubled after it generated more revenue from government orders and reduced costs. The stock rose 4.5% after-hours.
- EMC Corp.(EMC) said it will offer 10% of its VMware business unit in an IPO. The stock soared 7.7% after-hours.
- A newly completed map of the horse genome will give scientists a better understanding of human genetics, researchers said.
- Hedge fund SAC Capital Partners is reportedly stepping up its private equity practice by hiring former Ripplewood Holdings managing director Peter Berger.
- Merrill Lynch(MER) introduced an index that mimics a hedge-fund trading strategy that exploits imperfect forecasts of US stock volatility.
BOTTOM LINE: The Portfolio finished higher today on gains in my Semi longs, Telecom longs, Biotech longs, Computer longs, Retail 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 positive today as the advance/decline line finished higher, most sectors rose and volume was heavy. Measures of investor anxiety were mixed into the close. Today's overall market action was modestly bullish. The tech sector outperformed, rising 1.5%. Many "growth" stocks surged 3%-4%. The Naz is already 3.0% higher year to date. Oil is down $1.17/bbl., at session lows. The dollar was stable and the 10-year yield fell another 2 basis points despite stock gains. The NYSE Arms rose to above-average levels throughout the day, while the ISE Sentiment Index plunged 20% to a low 113.0. I suspect stocks will build on today's gains by the weekend.
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