BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Telecom longs, Semi longs and Medical longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is mildly positive as the advance/decline line is mildly higher, almost every sector is rising and volume is about average. The chance of a U.S. recession beginning this year on Intrade.com has plunged to 16.5% from a high of 35% in January. It is also down from 28% during the spike in subprime fears and Greenspan's recession talk in March. Moreover, the ECRI Weekly Leading Index rose again and is just off cycle highs. The 10-week moving-average is just off highs, as well. The growth rate of this index is currently 3.8%, while the growth rate of the future inflation gauge is falling at a -3.1% rate. I continue to believe that the 10-year yield will average around 4.75% this year and the Fed will remain on hold, while making both dovish and hawkish comments depending on current market perceptions. After a likely sluggish first quarter, I still expect U.S. economic growth to re-accelerate and begin moving back to more average levels this quarter, which should help companies beat lowered earnings' expectations. I suspect diminishing recession fears are the main reason for the recent modest rise in long-term rates. Considering the historically extreme readings in many gauges of investor angst over the last six weeks, the fact that earnings expectations have been lowered dramatically, that short interest is at record highs and that even most bulls hate earnings season and have raised cash, I wonder if upcoming earnings reports will provide another upside catalyst for stocks. As well, the large "sell in May" crowd has likely already sold ahead of these reports. Hmmm ...I expect US stocks to trade mixed-to-higher into the close on short-covering, rising earnings optimism and bargain-hunting.
Friday, April 13, 2007
Stocks Surging into Final Hour on Rising Earnings Optimism
Today's Headlines
Bloomberg:
- Crude oil in NY is falling .30/bbl. after Valero Energy, the nation’s largest refiner, said it will restart a facility that had been closed due to “fire damage.” Refiner “outages” across the country have resulted in low production of gasoline and a decline in supplies, which has boosted gasoline prices to record highs for this time of the year. US oil inventories are still near eight year highs.
- Cisco Systems(CSCO) is at the high end of its long-term sales forecast for growth of 10-15%, said Chief Development Officer Charlie Giancarlo. The company is seeing “very strong demand,” Giancarlo said.
- Blackstone Group LP is considering a $20 billion takeover offer for SLM Corp.(SLM), the largest US student loan provider.
- General Electric(GE) said first-quarter profit rose 8% as CEO Immelt’s strategy of selling more power-plant and aviation equipment overseas paid off.
- McDonald’s(MCD) said first quarter profit rose, topping analyst estimates, on the biggest European sales gain since 1994.
- Genentech(DNA) is testing a breast-cancer treatment that may add $1.5 billion in annual sales to its Herceptin drug business.
- The dollar fell to a two-year low against the euro and weakened versus the yen, despite a better trade deficit report, as core producer prices came in below estimates.
- Merck’s(MRK) share jumped the most in more than two years after the drugmaker said profit rose 13%, beating estimates, as sales of its newer products offset losses to generic competition.
Wall Street Journal:
- China has renamed the 50-year-old Chinese Export Commodities Fair as an import-export exposition and for the first time set aside 315 stands for foreign companies out of a total of 31,000.
- US automakers, including General Motors(GM), are looking for an American alternative to the next generation of hybrid-car batteries coming out of Japan.
NY Post:
- Jones Apparel Group(JNY) may sell the Barneys NY apparel and accessories chain to Istithmar, the private equity firm owned by Dubai, for about $950 million.
Boston Global:
- Boston Mayor Thomas Menino has implemented a plan to reduce greenhouse-gas emissions throughout the city. Menino plans to reduce fuel consumption by city-owned vehicles 5% within 5 years. The city also plans to buy at least 15% of its electricity from renewable energy sources and recycle 10% more material within five years.
Washington Post:
- The SEC will change its process for settling with companies, which could reduce penalties that businesses pay, citing officials.
Euro am Sonntag:
- SAP AG(SAP) expects sales to grow significantly more than the overall market for business-management software in 2007, helped by new products for mid-sized companies, deputy CEO Leo Apotheker said.
Energy News Today:
- Valero Energy(VLO) restarted a crude unit capable of processing 104,000 barrels of oil a day at its “fire-damaged” refinery near Sunray, Texas.
Xinhua News Agency:
- China’s stock transaction tax revenue surged six-fold in the first quarter as its stock markets rose, citing Shu Qiming, a State Administration of Taxation official.
- Crude oil in NY is falling .30/bbl. after Valero Energy, the nation’s largest refiner, said it will restart a facility that had been closed due to “fire damage.” Refiner “outages” across the country have resulted in low production of gasoline and a decline in supplies, which has boosted gasoline prices to record highs for this time of the year. US oil inventories are still near eight year highs.
- Cisco Systems(CSCO) is at the high end of its long-term sales forecast for growth of 10-15%, said Chief Development Officer Charlie Giancarlo. The company is seeing “very strong demand,” Giancarlo said.
- Blackstone Group LP is considering a $20 billion takeover offer for SLM Corp.(SLM), the largest US student loan provider.
- General Electric(GE) said first-quarter profit rose 8% as CEO Immelt’s strategy of selling more power-plant and aviation equipment overseas paid off.
- McDonald’s(MCD) said first quarter profit rose, topping analyst estimates, on the biggest European sales gain since 1994.
- Genentech(DNA) is testing a breast-cancer treatment that may add $1.5 billion in annual sales to its Herceptin drug business.
- The dollar fell to a two-year low against the euro and weakened versus the yen, despite a better trade deficit report, as core producer prices came in below estimates.
- Merck’s(MRK) share jumped the most in more than two years after the drugmaker said profit rose 13%, beating estimates, as sales of its newer products offset losses to generic competition.
Wall Street Journal:
- China has renamed the 50-year-old Chinese Export Commodities Fair as an import-export exposition and for the first time set aside 315 stands for foreign companies out of a total of 31,000.
- US automakers, including General Motors(GM), are looking for an American alternative to the next generation of hybrid-car batteries coming out of Japan.
NY Post:
- Jones Apparel Group(JNY) may sell the Barneys NY apparel and accessories chain to Istithmar, the private equity firm owned by Dubai, for about $950 million.
Boston Global:
- Boston Mayor Thomas Menino has implemented a plan to reduce greenhouse-gas emissions throughout the city. Menino plans to reduce fuel consumption by city-owned vehicles 5% within 5 years. The city also plans to buy at least 15% of its electricity from renewable energy sources and recycle 10% more material within five years.
Washington Post:
- The SEC will change its process for settling with companies, which could reduce penalties that businesses pay, citing officials.
Euro am Sonntag:
- SAP AG(SAP) expects sales to grow significantly more than the overall market for business-management software in 2007, helped by new products for mid-sized companies, deputy CEO Leo Apotheker said.
Energy News Today:
- Valero Energy(VLO) restarted a crude unit capable of processing 104,000 barrels of oil a day at its “fire-damaged” refinery near Sunray, Texas.
Xinhua News Agency:
- China’s stock transaction tax revenue surged six-fold in the first quarter as its stock markets rose, citing Shu Qiming, a State Administration of Taxation official.
Trade Deficit Shrinks Again, Core PPI Flat, Confidence Declines
- The Trade Deficit for February shrank to -$58.4 billion versus estimates of -$60.0 billion and -$58.9 billion in January.
- The Producer Price Index for March rose 1.0% versus estimates of a .7% gain and a 1.3% rise in February.
- The PPI Ex Food & Energy for March was unch. versus estimates of a .2% rise and a .4% gain in February.
- The preliminary Univ. of Mich. Consumer Confidence reading for April fell to 85.3 versus estimates of 87.5 and a reading of 88.4 in March.
- The Producer Price Index for March rose 1.0% versus estimates of a .7% gain and a 1.3% rise in February.
- The PPI Ex Food & Energy for March was unch. versus estimates of a .2% rise and a .4% gain in February.
- The preliminary Univ. of Mich. Consumer Confidence reading for April fell to 85.3 versus estimates of 87.5 and a reading of 88.4 in March.
BOTTOM LINE: The US trade deficit unexpectedly narrowed in February from the previous month, as the US purchased fewer goods from China and imported less petroleum, Bloomberg reported. Imports from China fell to the lowest since May 2006. Exports of consumer goods during January and February were the best on record for any two-month period. Oil imports fell to $20.7 billion, the lowest since June 2005 as both volume and prices fell. The trade deficit with China fell to $18.4 billion in February versus $21.3 billion the prior month. I expect the trade deficit to only improve modestly over the intermediate-term as falling commodity prices more than offset improving US growth relative to other developed nations.
Prices paid to US producers rose more than forecast in March, however core prices were unexpectedly flat, Bloomberg reported. The core reading shows that companies are mainly absorbing higher energy prices rather than passing them along to customers. Producer Prices rose 3.2% year-over-year in March, around long-term average levels. The Core PPI has shown deceleration the past 4 months despite the recent bounce higher in commodity prices, which is a positive. I expect the PPI to decelerate from current levels as commodity prices fall.
Overall consumer confidence declined in April as energy prices rose, Bloomberg reported. The expectations component fell to 74.3 from 78.7 the prior month. However, the current conditions component of the index is still a healthy 102.4 versus 103.5 the prior month. Regular gas prices at the pump rose to $2.79/gallon on April 10, the highest since last August. While consumer confidence remains muted, mainly due to the rise in gas prices and media's obsession with housing, recent strong retail sales reports show they continue to spend. I still expect consumer confidence to head back to cycle highs over the intermediate-term as energy prices fall, the job market remains healthy, stocks rise further, housing sales stabilize at relatively high levels, interest rates remain low and inflation decelerates.
Thursday, April 12, 2007
Friday Watch
Late-Night Headlines
Bloomberg:
- Merck & Co.(MRK) won dismissal of federal securities lawsuits claiming the company defrauded investors before withdrawing its Vioxx painkiller from the market in September 2004. Merck’s experimental arthritis drug Arcoxia, the successor to its withdrawn Vioxx, shouldn’t be allowed on the market because of safety concerns, US regulators said. Merck also raised its first-quarter earnings forecast to 78 cents a share, as much as 34% higher than its earlier forecasts, citing higher sales across its product lines.
- New Century Financial(NEWC) won permission to sell about 2,000 mortgages to a Royal Bank of Scotland Group PLC subsidiary unless a rival tops the bank’s $47.3 million bid.
- CBS Corp.(CBS) said it will no longer broadcast Don Imus’s morning radio program in response to the talk-show host’s remarks.
- Apple Inc.(AAPL) delayed the release of its new Macintosh system software after shifting engineering resources to ensure the iPhone makes its debut in June. The stock fell 3.2% after-hours.
- The US Congress must not exclude fossil-based fuels, such as liquids extracted from coal, from proposed legislation to reduce gasoline use, said Alexander Karsner, assistant secretary for renewable energy at the Energy Dept.
- Codelco, the world’s largest copper producer, said the current rise in copper prices is “temporary.”
Investor’s Business Daily:
- Jones Soda(JSDA) plans to boost sales of its premium soft drinks via mass-market retailers such as Wal-Mart Stores(WMT).
Business Week:
- US workers can more easily sue companies for being unfairly fired because federal, state and local lawmakers have passed laws expanding who qualifies for legal protection during the past 40 years. Since 1991, the number of lawsuits filed in federal court against businesses has increase to 14,353 from 8,273.
AP:
- Durham County District Attorney Mike Nifong apologized to three former Duke University lacrosse players a day after they were cleared of sexually assaulting a stripper. Nifong, who stepped down as the lead prosecutor on the case in January amid charges of ethics violations, said that the judgments he made “proved to be incorrect.”
Financial Times:
- Apple Inc.(AAPL) has opened talks with some music companies about introducing a music subscription service for its iTunes online store.
Xinhua News Agency:
- China began a six-month campaign to crack down on Internet pornography yesterday, targeting distributors of videos and pictures and the organizers of online strip shows.
South China Morning Post:
- Cnooc Ltd, China’s largest offshore oil producer, increased total reserves by 7% last year, boosted by overseas acquisitions, citing the company’s annual report. The gain is the fastest in four years.
Economic Times:
- Nymex Holdings(NMX) and Merrill Lynch(MER) are interested in buying stakes in commodity exchanges in India, with the government set to allow overseas investment of as much as 49% in those bourses.
Late Buy/Sell Recommendations
CSFB:
- Reiterated Outperform on (AKAM). One of the primary drivers of our Outperform rating is our belief that with increased adoption of video content over the Internet, Internet bandwidth consumption-and in turn the use of CDNs that ease the demand for bandwidth-is poised for tremendous growth unlike anything we have seen to date.
Lehman Brothers:
- Raised Samsung Electronics to Overweight.
Business Week:
- Avalon Pharmaceuticals(AVRX) shares may rise more than 180% in a year on the promise of a drug in early-stage trials, citing Patrick Flanigan of WR Hambrecht.
- Sunpower Corp.(SPWR), a maker of panels and solar cells that generate electricity from sunlight, could have its earnings double this year and again in 2008. ThinkEquity Partners’ David Edwards raised his 12-month target price for Sunpower to $60 from $50 because of the company’s five-year outlook.
Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated -.%.
NASDAQ 100 indicated -.%.
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
- (GE)/.44
Upcoming Splits
- None of note
Economic Releases
8:30 am EST
- The Trade Deficit for February is estimated to widen to -$60.0 billion versus -$59.1 billion in January.
- The Producer Price Index for March is estimated to rise .7% versus a 1.3% gain in February.
- The PPI Ex Food & Energy for March is estimated to rise .2% versus a .4% gain in February.
10:00 am EST
- The preliminary Univ. of Mich. Consumer Confidence reading for April is estimated to fall to 87.5 versus a reading of 88.4 in March.
Bloomberg:
- Merck & Co.(MRK) won dismissal of federal securities lawsuits claiming the company defrauded investors before withdrawing its Vioxx painkiller from the market in September 2004. Merck’s experimental arthritis drug Arcoxia, the successor to its withdrawn Vioxx, shouldn’t be allowed on the market because of safety concerns, US regulators said. Merck also raised its first-quarter earnings forecast to 78 cents a share, as much as 34% higher than its earlier forecasts, citing higher sales across its product lines.
- New Century Financial(NEWC) won permission to sell about 2,000 mortgages to a Royal Bank of Scotland Group PLC subsidiary unless a rival tops the bank’s $47.3 million bid.
- CBS Corp.(CBS) said it will no longer broadcast Don Imus’s morning radio program in response to the talk-show host’s remarks.
- Apple Inc.(AAPL) delayed the release of its new Macintosh system software after shifting engineering resources to ensure the iPhone makes its debut in June. The stock fell 3.2% after-hours.
- The US Congress must not exclude fossil-based fuels, such as liquids extracted from coal, from proposed legislation to reduce gasoline use, said Alexander Karsner, assistant secretary for renewable energy at the Energy Dept.
- Codelco, the world’s largest copper producer, said the current rise in copper prices is “temporary.”
Investor’s Business Daily:
- Jones Soda(JSDA) plans to boost sales of its premium soft drinks via mass-market retailers such as Wal-Mart Stores(WMT).
Business Week:
- US workers can more easily sue companies for being unfairly fired because federal, state and local lawmakers have passed laws expanding who qualifies for legal protection during the past 40 years. Since 1991, the number of lawsuits filed in federal court against businesses has increase to 14,353 from 8,273.
AP:
- Durham County District Attorney Mike Nifong apologized to three former Duke University lacrosse players a day after they were cleared of sexually assaulting a stripper. Nifong, who stepped down as the lead prosecutor on the case in January amid charges of ethics violations, said that the judgments he made “proved to be incorrect.”
Financial Times:
- Apple Inc.(AAPL) has opened talks with some music companies about introducing a music subscription service for its iTunes online store.
Xinhua News Agency:
- China began a six-month campaign to crack down on Internet pornography yesterday, targeting distributors of videos and pictures and the organizers of online strip shows.
South China Morning Post:
- Cnooc Ltd, China’s largest offshore oil producer, increased total reserves by 7% last year, boosted by overseas acquisitions, citing the company’s annual report. The gain is the fastest in four years.
Economic Times:
- Nymex Holdings(NMX) and Merrill Lynch(MER) are interested in buying stakes in commodity exchanges in India, with the government set to allow overseas investment of as much as 49% in those bourses.
Late Buy/Sell Recommendations
CSFB:
- Reiterated Outperform on (AKAM). One of the primary drivers of our Outperform rating is our belief that with increased adoption of video content over the Internet, Internet bandwidth consumption-and in turn the use of CDNs that ease the demand for bandwidth-is poised for tremendous growth unlike anything we have seen to date.
Lehman Brothers:
- Raised Samsung Electronics to Overweight.
Business Week:
- Avalon Pharmaceuticals(AVRX) shares may rise more than 180% in a year on the promise of a drug in early-stage trials, citing Patrick Flanigan of WR Hambrecht.
- Sunpower Corp.(SPWR), a maker of panels and solar cells that generate electricity from sunlight, could have its earnings double this year and again in 2008. ThinkEquity Partners’ David Edwards raised his 12-month target price for Sunpower to $60 from $50 because of the company’s five-year outlook.
Night Trading
Asian Indices are -.25% to +.25% on average.
S&P 500 indicated -.%.
NASDAQ 100 indicated -.%.
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
- (GE)/.44
Upcoming Splits
- None of note
Economic Releases
8:30 am EST
- The Trade Deficit for February is estimated to widen to -$60.0 billion versus -$59.1 billion in January.
- The Producer Price Index for March is estimated to rise .7% versus a 1.3% gain in February.
- The PPI Ex Food & Energy for March is estimated to rise .2% versus a .4% gain in February.
10:00 am EST
- The preliminary Univ. of Mich. Consumer Confidence reading for April is estimated to fall to 87.5 versus a reading of 88.4 in March.
BOTTOM LINE: Asian indices are mostly higher, boosted by technology and energy stocks 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.
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