Market Matters…‘tis the season to be…worried? As the holiday shopping season rapidly approaches, retailers are making a list (of excuses) and checking it twice: a “sluggish” economy, a climbing jobless rate, a lack of confidence among consumers, etc., etc., etc. In fact, this week some retailers took center-stage in the midst of earnings season to report their results (and whine about the weeks ahead). Wal-Mart led the way with another profit increase aided by productive cost-cuts, and even increased its earnings forecast for the entire year. HOWEVER, the retail giant also projected weaker domestic sales in the fourth quarter. Kohl’s posted better-than-expected results as higher margins helped improve its bottom line. HOWEVER, the company’s outlook for the holidays fell short of Street expectations. Macy’s reaped benefits of tighter inventory controls; HOWEVER, it also projected sales below analysts’ views. Finally, both Abercrombie & Fitch and J.C. Penney recorded strong profits in their late-week reports. While certain naysayers continued to proclaim “doom and gloom” for the season, the eternal optimists point out that retailers “cry wolf” every year this time and are perhaps setting themselves (and everyone else) up for some surprisingly strong holiday results that serve to jumpstart operations into the next year. (It could happen?) [/i][/b]
On the transaction front, HP joined the M&A game by announcing a $2.7 bln deal to acquire 3Com and further enhance its IT product line. Cadbury snubbed the 9.8 bln pound (or $16 bln depending on the ever-changing dollar’s valuation) offer from Kraft, claiming it to be grossly undervalued, and a hostile fight seems likely. Motorola took the “bigger is not necessarily better” approach and initiated a search for a cash-rich suitor for its home and network mobility division that some value at upwards of $4 bln. Analysts believe the company would like to reduce its debt-load and focus greater resources on its growing cell-phone biz. In other corporate news, Intel attempted to shut up AMD once and for all by agreeing to settle ongoing disputes for a paltry $1.25 bln. (But will European and US regulators go away as well?) Homebuilder Toll Brothers began seeing a light at the end of the housing tunnel as sales contracts for new homes jumped over 40% last quarter. UPS predicted volume increases in the coming year and enhanced shipping activity often serves as a nice precursor for global growth (and transport rate hikes).
Crude dropped to its lowest level in a month as traders finally focused on growing inventories and weaker demand. While small-cap stocks have led the market rally since March, investors have begun to exhibit a preference for large-cap (less volatile) industry leaders over the past few weeks. The Dow Jones pushed higher on a six day winning steak as news from the G-20 revealed that much of the global stimuli should remain intact for the foreseeable future. While investors initially welcomed the news, some analysts warned that the economy and markets continue to be too reliant on government intervention and may be in for a rude awakening once the measures begin to wind down. After a short setback from its winning streak, equities started a new one on Friday on favorable earnings news from Disney and a bit of newfound optimism that the holidays may not be as dire as many retailers are projecting. ‘tis the season to be…jolly?
Weekly Economic Calendar
With little in the way of economic data this week, several Fed bigwigs made headlines by pontificating about unemployment, the dollar, and future rate hikes. The general consensus seemed to be that the current low interest rate environment was indeed contributing to a devalued dollar, but given the escalating jobless picture and lack of inflationary pressures (for now), the policymakers are inclined to leave funds at near 0% “for an extended period.”
Meanwhile, in the latest Wall Street Journal survey, leading economists project September 2010 as the potential date that the Fed may begin raising rates (though the world may be a very different place in 10-months…hopefully for the better). The polled economists also expect unemployment to remain above the 9.5% level (currently 10.2%) and GDP to grow at about a 3% clip through next year. Overseas, the euro-zone countries recorded positive expansion (though ever-so-slightly) for the first time in a year-and-a-half, and the Bank of England increased its economic outlook as well. By and large, analysts believe that the global economy has indeed turned the corner though the rebound will be slow and sluggish over the next year or so.
While economists remain concerned, first and foremost, about the labor picture, weekly jobless claims fell again last week and now stand at the lowest level since early 2009. Further, total claims also declined, another positive sign that the overall labor market may be stabilizing. Still, the most recent Reuters/University of Michigan confidence reading declined to its weakest showing in three months as workers are clearly worried about their employment situations. The dueling domestic deficits (budget and trade) continued to soar and certain government officials believe the imbalances will need to be addressed sooner than later and cannot be put off indefinitely. Treasury Secretary Geithner make such a case during his travels through Asia where he also reinforced the Administration’s firm commitment to a strong dollar.
On the Horizon…Retailers remain in the limelight as Home Depot (11/17), Target (11/17), Gap (11/19), and AnnTaylor (11/20) all report quarterly earnings; likewise, the October retail sales data gives investors one last glimpse into mindset of the consumer as they project activity for the holiday season. DR Horton (11/20) also issues its latest earnings report as analysts continue to monitor the progress within housing. The data of the week is vast and diverse as all sectors are represented and inflation-watchers try to gauge just when price-pressures (and related worries) may begin to work their way back into the economic picture. As for the markets, while plenty of naysayers have emerged with messages of “too far, too fast,” the general mood remains one of “cautious” optimism (though, at times, it doesn’t seem very “cautious”). Investors like the fact that the Fed and other Central Banks will keep various stimulus programs operational for the time being, and, in fact, have extended some beyond expected expiration (i.e. homebuyer tax credit). However, the naysayers view these developments with extreme skepticism and worry about the impact once the stimuli eventually come to an end. But for now…the trend is still your friend.
Ron Brounes
http://www.ronbrounes.com
| Market/Index | Year Close (2008) | Qtr Close (09/30/09) | Previous Week (11/06/09) | Current Week (11/13/09) | YTD Change |
|---|---|---|---|---|---|
| Dow Jones Industrial | 8,776.39 | 9,712.28 | 10,023.42 | 10,270.47 | 17.02% |
| NASDAQ | 1,577.03 | 2,122.42 | 2,112.44 | 2,167.88 | 37.47% |
| S&P 500 | 903.25 | 1,057.08 | 1,069.30 | 1,093.48 | 21.06% |
| Russell 2000 | 499.45 | 604.28 | 580.35 | 586.28 | 17.39% |
| Global Dow | 1526.21 | 1,894.59 | 1,903.30 | 1,950.46 | 27.80% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps |
| 10 yr Treasury (Yield) | 2.24% | 3.31% | 3.50% | 3.43% | 119 bps |
On the transaction front, HP joined the M&A game by announcing a $2.7 bln deal to acquire 3Com and further enhance its IT product line. Cadbury snubbed the 9.8 bln pound (or $16 bln depending on the ever-changing dollar’s valuation) offer from Kraft, claiming it to be grossly undervalued, and a hostile fight seems likely. Motorola took the “bigger is not necessarily better” approach and initiated a search for a cash-rich suitor for its home and network mobility division that some value at upwards of $4 bln. Analysts believe the company would like to reduce its debt-load and focus greater resources on its growing cell-phone biz. In other corporate news, Intel attempted to shut up AMD once and for all by agreeing to settle ongoing disputes for a paltry $1.25 bln. (But will European and US regulators go away as well?) Homebuilder Toll Brothers began seeing a light at the end of the housing tunnel as sales contracts for new homes jumped over 40% last quarter. UPS predicted volume increases in the coming year and enhanced shipping activity often serves as a nice precursor for global growth (and transport rate hikes).
Crude dropped to its lowest level in a month as traders finally focused on growing inventories and weaker demand. While small-cap stocks have led the market rally since March, investors have begun to exhibit a preference for large-cap (less volatile) industry leaders over the past few weeks. The Dow Jones pushed higher on a six day winning steak as news from the G-20 revealed that much of the global stimuli should remain intact for the foreseeable future. While investors initially welcomed the news, some analysts warned that the economy and markets continue to be too reliant on government intervention and may be in for a rude awakening once the measures begin to wind down. After a short setback from its winning streak, equities started a new one on Friday on favorable earnings news from Disney and a bit of newfound optimism that the holidays may not be as dire as many retailers are projecting. ‘tis the season to be…jolly?
Weekly Economic Calendar
With little in the way of economic data this week, several Fed bigwigs made headlines by pontificating about unemployment, the dollar, and future rate hikes. The general consensus seemed to be that the current low interest rate environment was indeed contributing to a devalued dollar, but given the escalating jobless picture and lack of inflationary pressures (for now), the policymakers are inclined to leave funds at near 0% “for an extended period.”
| Date | Release | Comments |
|---|---|---|
| November 12 | Initial Jobless Claims (11/07) | Lowest level of claims since early in year |
| November 13 | Balance of Trade (09/09) | Highest deficit with China is almost a year |
| The Week Ahead | ||
| November 16 | Retail Sales (10/09) | |
| November 17 | PPI (10/09) | |
| Industrial Production (10/09) | ||
| November 18 | Housing Starts (10/09) | |
| CPI (10/09) | ||
| November 19 | Initial Jobless Claims (11/14) | |
| Leading Economic Indicators (10/09) |
Meanwhile, in the latest Wall Street Journal survey, leading economists project September 2010 as the potential date that the Fed may begin raising rates (though the world may be a very different place in 10-months…hopefully for the better). The polled economists also expect unemployment to remain above the 9.5% level (currently 10.2%) and GDP to grow at about a 3% clip through next year. Overseas, the euro-zone countries recorded positive expansion (though ever-so-slightly) for the first time in a year-and-a-half, and the Bank of England increased its economic outlook as well. By and large, analysts believe that the global economy has indeed turned the corner though the rebound will be slow and sluggish over the next year or so.
While economists remain concerned, first and foremost, about the labor picture, weekly jobless claims fell again last week and now stand at the lowest level since early 2009. Further, total claims also declined, another positive sign that the overall labor market may be stabilizing. Still, the most recent Reuters/University of Michigan confidence reading declined to its weakest showing in three months as workers are clearly worried about their employment situations. The dueling domestic deficits (budget and trade) continued to soar and certain government officials believe the imbalances will need to be addressed sooner than later and cannot be put off indefinitely. Treasury Secretary Geithner make such a case during his travels through Asia where he also reinforced the Administration’s firm commitment to a strong dollar.
On the Horizon…Retailers remain in the limelight as Home Depot (11/17), Target (11/17), Gap (11/19), and AnnTaylor (11/20) all report quarterly earnings; likewise, the October retail sales data gives investors one last glimpse into mindset of the consumer as they project activity for the holiday season. DR Horton (11/20) also issues its latest earnings report as analysts continue to monitor the progress within housing. The data of the week is vast and diverse as all sectors are represented and inflation-watchers try to gauge just when price-pressures (and related worries) may begin to work their way back into the economic picture. As for the markets, while plenty of naysayers have emerged with messages of “too far, too fast,” the general mood remains one of “cautious” optimism (though, at times, it doesn’t seem very “cautious”). Investors like the fact that the Fed and other Central Banks will keep various stimulus programs operational for the time being, and, in fact, have extended some beyond expected expiration (i.e. homebuyer tax credit). However, the naysayers view these developments with extreme skepticism and worry about the impact once the stimuli eventually come to an end. But for now…the trend is still your friend.
Ron Brounes
http://www.ronbrounes.com
