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Post by cyclops on Oct 31, 2010 10:44:26 GMT 10
The S&P 500 settled essentially unchanged, sticking to a relatively tight trading range this week as traders awaited an FOMC announcement next week and the midterm elections. Four of the 10 S&P 500 sectors gained, led by a 1.4% advance in materials. Tech (+0.8%) also was an area of strength, lifted by an 8.7% rise in Broadcom (BRCM) on an earnings beat, which helped the Nasdaq outperform the other major indices. Industrials underperformed with a loss of 1.0%. Tech In corporate news, about 180 S&P 500 companies reported earnings this week. Roughly 80% topped EPS estimates, versus 60% topping sales forecasts. Shares of 3M (MMM) took a hit despite posting an upside earnings report. Shares fell -6.9%. Fellow Dow components Microsoft (MSFT) and Merck (MRK) both topped earnings estimates, while Chevron (CVX) missed. Halliburton (HAL) faced stiff selling pressure on heavy volume following reports regarding the stability of the cement mixture foundation at the Deepwater Horizon well. HAL fell -6.8% on the week. IBM (IBM) announced that its board had approved $10 bln for share repurchases. IBM rose 2.8% for the week. In economic news, the advance estimate of Q3 GDP showed annualized growth of 2.0%, in-line with estimates. While the growth tops the 1.7% rate seen in the second quarter, it is well below the rate needed to spur enough job creation to bring the unemployment rate down significantly. Existing home sales rose 10% to an annualized rate of 4.53 mln units, topping the Briefing.com consensus of 4.25 mln units. New home sales for September increased 6.6% month-over-month to an annualized rate of 307,000 units, which is greater than the rate of 299,000 units that had been forecasted among economists polled by Briefing.com. Initial jobless claims for the week ended Oct 23 fell to 434,000, well below the Briefing.com consensus estimate of 458,000. Unfortunately, just like back in early July when claims last broke through the 450,000 barrier, the decline in the initial claims level was not "real" (i.e., a behavioral decision by firms to refrain from firings). Instead, the claims level was adversely affected by poor seasonal adjustment factors that were unable to correctly account for the Columbus Day holiday. Continuing claims dropped to 4.36 mln, a two year low. In other news, the dollar shed -0.4% in a volatile week of trade as the CRB Index climbed 1.2%. Next week, the market’s attention turns to the FOMC meeting that is expected to include the announcement of more quantitative easing. In addition, voters hit the polls for midterm elections Tuesday. Republicans are expected to retake the majority in the House. Democrats are expected to lose several seats in the Senate, but maintain the majority.
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Post by cyclops on Nov 6, 2010 13:19:05 GMT 10
The S&P 500 rallied 3.6% this week, gaining every session as the U.S. held midterm elections, the FOMC announced further quantitative easing and the employment report Friday showed stronger-than-expected gains. The three major indices hit two year highs. Buying interest was broad-based with all 10 sectors advancing. A better-than expected U.S. ISM manufacturing reading and robust Chinese manufacturing growth helped commodity-related stocks outperform. Materials gained 4.3% and energy climbed 5.1%. Financials were the top gainers, up 6.9%, receiving a boost on reports that the Fed will allow better capitalized banks to raise dividends. Defensive sectors underperformed on a relative basis. The FOMC declared that current economic conditions warranted $600 bln more in quantitative easing. The Fed made it well known prior to the announcement that it would be embarking on further asset purchases, though the size was unknown. Most media reports pegged the value at $500 bln, so the end result was slightly larger than expected. The Treasury securities purchases will be made by the end of second quarter 2011 and will be Treasury securities primarily in the 2-year and 10-year maturity range with a average duration of five to six years. The FOMC also left interest rates unchanged at 0.00% to 0.25%, as expected. In economic news, the October employment report surprised to the upside. Nonfarm payrolls increased by 151,000, topping the Briefing.com consensus that called for a gain of 60,000. Excluding temporary census hires, the payroll increase was the largest since March 2007. Even more surprising was a 159,000 gain in private payrolls. Private payrolls gained in excess of 100,000 for each of the last four months. The climb in payrolls, however, was unable to drop the unemployment rate, which held steady at 9.6%, as expected. The election results were generally in-line with expectations. The Republicans retook the House of Representatives, picking up more than 60 seats. Republicans picked up six seats in the senate, with the Democrats maintaining control. In corporate news, third quarter earnings season is winding down as most of the companies reporting are smaller names. Among the more widely held companies, Dow component Pfizer (PFE, -1.3%) posted better than expected results and issued in-line guidance. Kraft (KFT, -3.7%) came under pressure when its earnings report missed bottom line estimates. The prospect and announcement of further quantitative easing resulted in a volatile dollar, with the dollar index hitting the lowest level since December 2009. The weak dollar spurred buying interest in commodities, sending the CRB index up 4.3% for the week.
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Post by fastoy on Nov 8, 2010 12:53:35 GMT 10
Just read this about the General Motors IPO;
While the NYSE kept General Motors' GM ticker symbol warm during its stint off-road, miner GEO Minerals already uses it in Toronto. So the car maker's Canadian listing will use GMM, presumably for General Motors (Mended).
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Post by cyclops on Nov 14, 2010 19:51:50 GMT 10
The S&P 500 shed -2.2% this week, coming under pressure on increasing European sovereign debt concern, a sharp drop in Chinese shares and a profit warning from tech bellwether Cisco (CSCO). The decline breaks a five week winning streak. Only the energy sector posted a weekly gain, up 1.0%. The other nine sectors all posted declines of at least 1.3%, with financials shedding 4.1% and tech falling 3.2%. Shares of Cisco plunged -17.0%, acting as the main drag this week. The company posted better-than-expected fiscal first quarter earnings per share, but issued downside guidance for the second quarter and fiscal year. Cisco expects second quarter revenues to be up 3-5% and fiscal year revenues to be up 9-12%. Those forecasts are below current Thomson Reuters consensus estimates that call for growth of 12.8% and 13.1%, respectively. The company is keeping a conservative outlook due to slow public sector spending. Fellow Dow component Disney (DIS +1.5%) reported earnings that came up just short of expectations. Reassuring comments from the company mitigated some of the initial disappointment from the earnings report. In other corporate news, Intel (INTC +1.4%) increased its dividend by 15%. Chevron (CVX +0.5%) offered to acquire Atlas Energy (ATLS +43.7%) for $4.3 bln, a hefty 37% premium. Shares of Boeing (BA -11.5%) fell on news that its Dreamliner 787 delivery date will be delayed once again. In economic news, the initial claims data should provide a boost to consumer confidence. Granted the initial claims level is still high, yet the latest reading is the first reading below 440,000 since the recession began that didn't have any statistical or seasonal biases behind it. This is an encouraging report on the heels of the October employment report that could prompt more discouraged workers to begin looking for work again. Continuing claims continued their downward trend, falling to 4.301 mln (Briefing.com consensus 4.350 mln) from 4.387 mln for the week ending October 30. Although that downtrend has been driven by the expiration of benefits more so than a pickup in hiring activity, the drop in initial claims is an encouraging marker that hiring activity could pick up soon. Separately, the trade deficit narrowed in September to $44.0 bln (Briefing.com consensus -$44.8 bln) from $46.5 bln in August. In overseas news, European sovereign debt worries were back at the forefront, with notable concern regarding Ireland. Speculation that the country's bailout of its financial sector will prove too expensive and require an EU bailout of Ireland sent the spread between the 10-year Ireland and German notes to all time highs. Meanwhile, China's Shanghai Composite plunged more than 5% Friday on speculation that China will raise interest rates. The news spurred selling interest in commodities. The CRB Index plunged 3.2% as the dollar index climbed 2.0%
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Post by cyclops on Nov 21, 2010 14:08:57 GMT 10
The S&P 500 ended flat as a sharp drop on Tuesday was offset by a large gain Thursday. Speculation that China will raise rates, concerns regarding the state of Ireland and a successful IPO from General Motors all influenced trade during the week.
Trading was mixed, with 5 of the 10 sectors gaining. None of the sectors posted a gain or loss in excess of 0.9%.
In corporate news, General Motors (GM +3.8%) returned to the public market with great acclaim after an IPO (post-bankruptcy) that raised more than $20 bln for the company.
The M&A market remains active. Caterpillar +3.6% is buying Bucyrus (BUCY +28.1%) for $7.6 bln, a 32% premium. EMC (EMC +0.5%) is buying Isilon Systems (ISLN +28.4%) for 2.25 bln, a 29% premium.
Several retailers reported earnings this week as third quarter earnings reporting season winds down. Target (TGT +3.9%), Lowe's (LOW +1.8%), Home Depot (HD -0.7%), TJX (TJX +0.7%), Staples (SPLS +5.7%) and Gap (GPS +1.0%) all posted upside quarterly results. Wal-Mart (WMT +0.5%) posted in-line results but provided upside guidance. Sears Holdings (SHLD -7.9%), however, missed both EPS and revenue estimates.
Separately, Dell (DELL +3.5%) reported better than expected earnings and Cisco (CSCO -2.7%) announced a $10 bln share repurchase plan.
In economic data, retail sales brought good news. Total retail sales increased 1.2% in October (Briefing.com consensus +0.7%) on top of an upwardly revised 0.7% increase in September. Excluding autos, retail sales jumped 0.4% (Briefing.com consensus +0.4%) versus a 0.5% gain in September. All in all, the Retail Sales report is another key data point that suggests the U.S. economy is on a growth path that holds potential to produce some positive surprises.
The Consumer Price Index increased 0.2% in October (Briefing.com consensus +0.3%) while core CPI, which excludes food and energy, was unchanged (Briefing.com consensus +0.1%) for the third straight month.
On a year-over-year basis, CPI is up just 1.2%. Core CPI is up only 0.6%, which is the smallest increase in the history of the index, which dates to 1957, according to the Bureau of Labor Statistics
Housing starts dropped 11.7% to 519,000 (Briefing.com consensus 600,000) and were revised 3.6% lower for September to 588,000. Building permits were up 0.5% in October to 550,000, yet that was below the Briefing.com consensus estimate of 570,000.
Separately, the latest initial claims report might not have produced much of a surprise relative to the consensus estimate, yet it has provided surprisingly good news for the labor market as claims held below the 450,000 level for the second straight week.
Initial claims rose 2,000 to 439,000 (Briefing.com consensus 442,000) for the week ending November 13. This is still an elevated level, but the sustained move below 450,000 without any special factors contributing to it is a reminder that the labor market is growing less stressed.
In overseas news, Shanghai markets dropped 5% in one session at the end of the previous week, and had a session this week where the market lost 4% on speculation of an increase in rates. On Friday, China once again raised its banking reserve requirement.
Meanwhile, Ireland remained in focus on speculation regarding a possible bailout for the country. According to reports, Ireland is in ongoing talks with the ECB, EU and IMF about a possible aid package
The treasury market had a busy week, with the 10-year yield spiking to 2.87% from 2.79%. Just two weeks ago rates were as low as 2.49%. Several Fed officials have expressed opposition to the latest quantitative easing efforts.
The dollar rose 0.4% and commodities fell 1.6%.
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Post by cyclops on Nov 28, 2010 9:54:34 GMT 10
U.S. equity markets experienced light trade this week due to the Thanksgiving Day holiday, but that trade was volatile due to geopolitical concerns. The end result was a mixed week among the major averages.
Contagion fears are spreading across Europe, sending markets there and around the world lower. With Ireland working on a bailout agreement with the EU and IMF, the talk has turned to Portugal and Spain. Bond yields for all of these countries have continued to increase.
A situation has also arisen in Asia following the latest conflict between North and South Korea. North Korea fired artillery shells into Yeonpyeong Island off the west coast of South Korea on Tuesday. South Korea and the U.S. have responded with military exercises, which led North Korea to warn Friday that the two are putting the Korean Peninsula on the "brink of war."
In the end, the Dow and S&P 500 ended the week modestly lower while mid- and small-cap shares outperformed, helping the Nasdaq Composite and Russell 2000 rise modestly. That has been the story throughout the year, with the Dow and S&P gaining 6.4 and 6.7% year to date, respectively, while the Nasdaq is up 11.7% and the Russell has gained 17.2%.
The reason all of the major averages did not close lower this week was a batch of better-than-expected economic data on Wednesday. Initial Jobless Claims fell to 407,000 for the week ended November 20 (Briefing.com consensus 442,000) while the final reading for November Michigan Sentiment improved to 71.6 (consensus 69.3).
It appeared that those results were offset by weak Durable Goods Orders and New Home Sales in October, but that proved not to be the case. The 3.3% decline in orders (consensus -0.3%) was somewhat offset by an upwardly revised figure of 5.0% in September (prior 3.5%) while the report's key metric, orders of nondefense capital goods, which fell 4.5%, appear to be following a recent trend where they decline in the first month of a quarter only to increase in the next two months. The decline in New Home Sales to 283,000 (consensus 314,000) was also overlooked following a basically in-line Existing Home Sales figure the day before.
Looking ahead to next week, preliminary results for Black Friday and the first weekend of the Christmas shopping season should be out on Monday, November 29. Economic data are on the calendar, particularly the November employment report on Friday, December 3. The Federal Reserve calendar contains a few speeches, but the regional Beige Book economic survey on Wednesday, December 1 is the key item. Ongoing developments in the eurozone and Korea, however, should remain the market's focus.
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Post by cyclops on Dec 5, 2010 11:27:32 GMT 10
The major indices rallied this week, with the S&P 500 advancing +3.0% in broad-based gains as eurozone concerns eased and the market shrugged off a worse-than-expected employment report.
All 10 of the sectors gained as 89% of S&P 500 components settled in the green. Cyclical sectors sported the best advances, led by materials, +5.7%, and energy +5.0%. The resource-related sectors benefited from a 5.0% surge in commodities, with oil spiking 6.7%.
Defensive stocks underperformed on a relative basis. Consumer staples gained +0.9% and utilities rose +1.3%.
Stocks got off to a slow start as European shares plunged on contagion concerns despite EU officials putting together an 85 bln euro bailout for Ireland. But the ECB President hinted at more bond purchases and support for the euro area, sending stocks surging Wednesday, climbing more than 2%. Buying carried through for the remainder of the week despite no official announcement out of the ECB.
In corporate news, retailers reported solid same store sales numbers. Abercrombie (ANF) led the pack in terms of stock gain, climbing 15.9%.
Regional banks sported solid gains, with Wisconsin-based Marshall & Ilsley (MI) rallying 17.6%.
Treasuries fell as stocks rallied, with the yield on the 10-year note climbing above 3.0% for the first time since July. Meanwhile, the dollar shed 1.5%
In economic news, the headlines for the November employment report disappointed in just about every respect, though the equity market was able to shrug off the data.
Nonfarm payrolls increased a modest 39,000 (Briefing.com consensus +130,000); private payrolls were up 50,000 (Briefing.com consensus +140,000); the unemployment rate jumped to 9.8% (Briefing.com consensus 9.6%); average hourly earnings were flat (Briefing.com consensus +0.1%); and the average workweek held steady at 34.3 hours (Briefing.com consensus 34.3).
The struggles of the labor market shone through in the indication that the percentage of people unemployed 27 weeks or longer ticked up to 41.9% from 41.8%; meanwhile, the "real unemployment rate," which also accounts for marginally attached workers and persons employed part-time for economic reasons, remained unchanged at 17.0%.
There were some positive economic items, however. The November Consumer Confidence Index spiked to 54.1 from 49.9 in October, easily topping the Briefing.com consensus of 52.0. Separately, pending home sales unexpectedly increased.
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Post by cyclops on Dec 12, 2010 16:09:16 GMT 10
The yield on the 10-year Treasury note settled at 2.92% on Monday. When the stock market closed on Friday, the yield on the 10-year note rested (and we use that word loosely) at 3.32%. If one had been told before the week started that there would be a 40 basis point spike in the 10-year yield, it would have been understandable if they thought volatility would also spike and that the stock market would have a bad week.
As it turned out, volatility, measured by the VIX Index, dropped 2.2%, while the S&P 500 gained 1.3% this week. In fact, the S&P 500 broke out to a new 52-week high and is now sitting at its best level since September 2008.
Various theories abounded for the sudden reversal of fortune in the Treasury market, which hit the back end of the yield curve particularly hard. Some suggested it was a reflection of growing concerns about inflation. Others indicated it was a statement of concern about the U.S. budget deficit that was exacerbated this week by a tax compromise plan announced by President Obama (more on this in a bit).
Our sense of things is that the bond market is working its way through an adjustment phase, not so much because it is overly fearful at this time of rising inflation and a higher deficit, but because it understands a reflation of the U.S. economy is under way and that an extraction of the safe-haven/recession premium is in order.
If the "old normal" of double-dip recession fears supported yields closer to 2.50%, the "new normal" of economic recovery trends probably supports something closer to 3.00% to 3.50%.
It is easy of course to get caught in the echo chamber of negativity on this matter. To wit, things have been good in the bond market for so long that there is a magnetic resonance to claims that this is the initial popping of the bond bubble, or that it is a clear indication that bond vigilantes are starting to circle the wagons, or that it is a harbinger of scary inflation numbers coming our way.
There is a bit of panic selling going on we think as some holders are daunted by the thought of seeing nice-sized profits being quickly eroded in emotional sell offs. In any event, added volatility in the Treasury market is probably something we will have to get used to seeing in the months ahead.
The coming week should be another week of active trading in the Treasury market. Participants will return Monday armed with the latest inflation reading out of China. They will also contend with a bunch of important economic data released throughout the week in the U.S., including the PPI, CPI, Retail Sales, Industrial Production, and Housing Starts reports. Not to be outdone, there is an FOMC meeting on Tuesday that will certainly hold the market's utmost attention.
So, the week ahead will bring no rest for the weary.
Getting back to the week that was, it was underpinned in our estimation by a recovery theme. That is, there were several happenings that were consistent with the ongoing recovery from the great financial crisis.
The government sold its remaining stake in Citigroup (C); AIG (AIG) said it would pay back all amounts owed under its credit agreement with the Federal Reserve Bank of New York, which total approximately $20 bln; General Electric (GE) said it will increase its quarterly dividend by 17%; and volatility dropped sharply.
2011 GDP forecasts, meanwhile, were revised upward with economists factoring for the effects of a tax compromise plan the president reached with Republican leaders that included the following provisions:
--Every American family will keep their lower tax rates for the next two years --A 2% employee payroll tax cut for workers next year --The top rate of 15% for capital gains and dividends remains in place for another two years --A maximum 35% estate tax with an exemption up to $5 mln
These provisions were agreed to by the president, contingent on the extension of some other tax cuts and a 13-month extension of unemployment benefits.
Democratic leaders have expressed their disappointment in the compromise plan, although it was generally accepted by the market that a bill would be passed before January 1 that would ensure the lower tax rates remain intact for all taxpayers. An inability to pass such a bill is a near-term risk then for the market, which has shown little fear of late.
To the latter point, the stock market's ability to move higher this week in the face of rising long-term rates is a telling sign that a belief in the recovery trade, which should lead to higher rates, was stronger than the fear of a rising deficit and/or uncontrollable inflation.
Fittingly, the financial sector (+3.8%), which benefits from a steepening yield curve, powered this week's advance and was followed by the telecom services (+2.0%), technology (+1.4%) and industrials (+1.3%) sectors.
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Post by cyclops on Dec 19, 2010 15:27:16 GMT 10
Following a volatile, headline-driven week, U.S. equity markets ended up basically where they began, eking out a small gain.
Seven of the 10 S&P sectors rose, led by Materials (+1.7%), Consumer Staples (+1.6%) and Health Care (+1.5%). Financials (-1.4%) led the underperformers.
The most notable move of the week occurred in the Treasury market. Yields extended their recent, aggressive run, with the 10-year peaking at 3.56%, approximately 115 basis points above the October low and 99 basis points above the closing level on November 3, when the Federal Reserve announced a second round of quantitative easing. The sell-off in Treasuries ran out of steam on Thursday and Friday, however, with the 10-year falling back to 3.32%.
In equities, the major averages began the week by failing to hold their gains on Monday and Tuesday, falling back near unchanged in late-afternoon trade.
Tuesday was a busy session. Markets rallied as better-than-expected November retail sales data more than offset disappointing earnings and guidance from Best Buy (BBY). The retail sales report not only exceeded consensus estimates, but flew in the face of weak wage growth reported in the November employment report. However, the major averages saw a delayed sell-off following the FOMC policy directive, which did not acknowledge the backup in long-term rates that has occurred despite the Fed's bond purchase program.
That negative sentiment carried over into Wednesday. The major averages opened higher despite trading lower premarket after Moody's place Spain's long-term debt rating on review for a possible downgrade. But the opening levels did not hold and markets saw a gradual sell-off throughout the course of the day as Treasuries sold off and the dollar rallied.
A rally Thursday brought the major averages back to even on the week. Negative earnings from FedEx (FDX) initially sent the stock down 4%, but the company also increased its guidance, helping shares rebound to close up 2% on the session. The aforementioned pullback in Treasury yields also aided the rebound.
With the three-day Christmas weekend next week, the calendar is full in the middle of the week. Walgreens (WAG) is the only earnings report of note, out Wednesday before the open. The economic calendar is full, with existing home sales and the third estimate for third quarter GDP on Wednesday -- though the latter is not typically revised to any great extent -- as well as durable orders, personal income/spending and new home sales on Thursday.
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Post by cyclops on Dec 27, 2010 11:50:47 GMT 10
The major indices rose to fresh two-year highs, led by financial companies. Trading across all capital markets was on the light side due to the holiday-shortened week.
The S&P 500 increased 1.0% on broad-based gains. Financials led the way, up 2.4%, benefiting from M&A activity. There were two new deals involving regional banks and Toronto Dominion (TD) offered $6.3 bln in cash to acquire Chrysler Financial from Cerberus.
Overall news flow was light, as is typically the case towards the end of the year.
In corporate news, shares of Nike (NKE 86.05) fell 3.6% after a disappointing futures orders figure offset an earnings beat for the current quarter.
Walgreen (WAG 39.19) climbed 3.9% after besting analyst expectations for its latest quarter. The company benefited from expanding margins in its pharmacy business.
Economic data had a limited impact on trading and were mostly in-line with expectations.
November existing home sales increased 5.6% m/m on a seasonally adjusted basis, matching the Briefing.com consensus estimate. Third quarter GDP was revised upward from 2.5% to 2.6%, though the figure was slightly below the consensus estimate of 2.7%. The stock market ignored this release since it was dated.
Weekly initial jobless claims held steady as expected and November personal income (0.3% vs 0.2% consensus) and personal spending (0.4% vs 0.5% consensus) were essentially in-line with estimates.
The November durable goods orders report provided the biggest surprise relative to economists' estimates. Total durable goods orders slipped 1.3% compared to the expected decrease of 1.1%. Excluding transportation, orders were up 2.4%, much faster than the 0.8% increase consensus estimate.
The upcoming week will be slow in terms of news flow with only a handful of earnings reports and a light economic calendar.
Happy Holidays!
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Post by cyclops on Jan 1, 2011 16:54:51 GMT 10
Year In Perspective 2010--Strong Finish to a Bumpy Ride:
2010 turned out to be a good year for the major averages, with the S&P finishing up 13% YTD. This is a smaller increase than the +25% gain in 2009, which represented an impressive rebound off the post-crisis lows, but 2010 was still another year of improvement after the 39% plunge in 2008. Additionally, this year's return is more than three times the average return of +4% over the past 7 years, although we'll be the first to admit that the average annual return can't come close to describing the action of the past seven years. As we exit 2010, the S&P is now +87% from the March 2009 lows, but still 20% below the 2007 peak of 1576. Below we'll recap the events that shaped the year, take a look ahead at the most important themes for 2011, and give a summary of the performance of various aspects of the world markets.
2010 represented the second year of the financial markets' rebound, which took place amid continued economic recovery for the world. There weren't nearly as many critical events in 2010 as there were in 2009 or 2008, but there were still several noteworthy items/themes that shaped the year. This played out through an early-spring rally, a pre-summer selloff and then a fall rally to finish the year at two-year highs. Notably, December was especially strong, with a monthly gain of +6.5% and only four down days during the month.
Looking back at the year, among the many noteworthy factors shaping 2010, the key events included the following:
The European Debt Crisis -- We discussed this at the end of 2009 as one of the "Key Themes" for 2010, and it will again be a major item of interest in 2011. Intensifying concerns about Greece and contagion effects weighed on global markets during the first few months of 2010. Although the eventual Greece bailout was announced in February, concern quickly shifted to other weak areas, such as the peripheral EU nations of Ireland, Portugal, Spain and Italy. Although Ireland just recently caved and accepted a bailout this fall, contagion concerns remain evident around Europe, and these continue to impact the euro on a daily basis. As mentioned above, this remains an area of great focus in 2011. Continued monetary stimulus from major central banks around the world, as other emerging countries tighten -- The continued monetary stimulus has been most evident in Europe, Japan and the U.S., while other (primarily Asia and some Latin American regions) governments are tightening to slow down growth/inflation. The U.S.'s recent Quantitative Easing Part II (aka QE2) initiative in November demonstrated the need for continued support domestically. The latest U.S. measures follow the EU's sweeping bailout package in the spring, and Japan's "Comprehensive Monetary Easing" plan announced in early October. Shortly after the U.S.'s QE2 plan came to fruition, the EU bailed out Ireland. It is still not clear if the U.S. and Europe will need further monetary stimulus in 2011 as the current programs run out. At the same time, the emerging growth regions of China, India, Thailand, Chile and Brazil are tightening rates in order to slow down growth and rising prices. The 2010 "Flash Crash" -- On May 6 intensifying European jitters and the persistent risk-on/risk-off trade culminated in the sharpest intraday market plunge since 1987, which was instantly coined "The Flash Crash." The Dow lost as much as 1000 points intraday, before rebounding sharply to close down ~350 pts. The exact cause of the flash crash is still unknown, but an influx of computerized sell orders amid a lack of bids in a very nervous market seems to be the biggest contributing factor. This sparked a broad regulatory review of the allowance of high-frequency trading programs and their influence on the broader market. BP's oil spill -- After this summer, video images of oil spewing from the ruptured BP Macondo oil well in the Gulf of Mexico are burned into the brains of any market/news watcher. Late on April 20, the Macondo Well exploded, causing catastrophic damage to the well and catching fire to the Deepwater Horizon rig. The well itself is 65% owned by BP, 25% by Anadarko (APC) and 10% by Mitsui, while the Deepwater Horizon is owned by Transocean (RIG). The explosion took 11 lives and sent an untold amount of crude oil in the Gulf of Mexico over the following 4 months. As a result BP announced plans to divest up to $30 billion in assets to help pay for the disaster (to date the co has sold close to $22 billion in assets). The static kill on the well was completed on Aug. 4 and the well was declared dead on Sept. 19. Foreclosure issues surface -- In October, bank stocks experienced heightened volatility on growing concerns about their foreclosure processes, as several companies had halted related activities after the government began investigating documentation and processes around certain foreclosures. Some of the related issues (such as the extent of mortgage putbacks, mortgage holder recourse) remain, although for now the market has focused on other more positive factors for the financial sector. Tighter regulation of many areas of the financial markets -- Broad financial regulatory measures were outlined in the Dodd & Frank Bill, which includes the Volcker rule, limitations on size/scope of banks, etc. The Durbin bill proposed caps on debit interchange fees. The CFTC has stepped up regulation of commodities trading, and the SEC has cracked down on various aspects of the markets, including the April case against Goldman (GS) and their current insider trading probe concerning expert networks. Most recently, the FCC's Net Neutrality vote is the first attempt at regulating the broadband market. Political shift in the U.S. Congress -- The November elections resulted in a major shift in power in Congress, with Republicans gaining a net of 6 Senate seats and 63 House seats, winning control of the House back. This shift in power could change the implementation health care and financial regulatory changes in place. Korean tensions remain elevated this year -- While Korean tensions remain a constant, there were two major spats that surprised the markets this year. In March, North Korea sunk a South Korean naval ship with a torpedo, and more recently in November, North Korea fired artillery shells into Yeonpyeong Island off the west coast of South Korea, killing two South Korean marines and wounding several others. Although Korean tensions are nothing new, the more aggressive nature of the latest move by North Korea adds ongoing uncertainty to the geopolitical picture. While these were the major events of the year, there are several broader areas of interest as well.
M&A Recovers: First increase in M&A volume since 2007; High cash balances and low rates to fuel M&A in coming years
2010 represented the first increase in global M&A since 2007, with a 19% year-over-year increase in dollar volume to $2.08 trillion worth of deals during the year. The United States made up 35% of the volume, or $728 billion of global M&A activity, representing an increase of ~13% YoY. While it is a healthy improvement, the 2010 global figure is well below the $4 trillion in deals that took place in 2007, with analysts seeing the next few years as a hot period for M&A activity, fueled by low interest rates and extremely high cash levels on corporate balance sheets.
Some of the bigger U.S. deals announced this year include Quest's (Q) proposed acquisition of Century Link (CTL) for $22.2 billion, and Sanofi's (SNY) hostile $18.2 billion bid for Genzyme (GENZ). The largest deal to close in 2010 globally was MetLife's (MET) acquisition of Alico from American Intl Group (AIG) for $12.6 billion. Another notable deal involving AIG was the failed Prudential bid for AIG's Asian multi-line insurance arm AIA Group for $35.5 billion in cash. Resource grabs were also a theme of 2010, with 3 out of the top 4 proposed deals in 2010 involving scarce materials. The top proposed deal of 2010 was the failed $42.9 billion bid for Potash by BHP Billiton. The second largest global deal still pending is Petrobras's proposed $42.5 billion acquisition of Offshore Brazil Oil Properties from Federative Republic of Brazil. The fourth largest global deal of 2010, which is still pending, was the U.K's International Power GBP 16.3 billion bid for Belgium's GDF Suez Energy. Hewlett Packard (HPQ) and Dell (DELL) provided some excitement this fall, with their bidding war for 3par (PAR). HPQ finally won with its offer of $2.1 billion or $33/share for PAR stock representing a 242% premium from the initial $18 bid from DELL on 8/16. Caterpillar's (CAT) pending acquisition of Bucyrus (BUCY) was also notable at $8.6 billion, or $92/share in cash, which came in at the 10th largest US deal, and 22nd largest global deal. The most active M&A participant in 2010 was The Carlyle Group, with 37 deals and $16.1 billion in total volume.
Looking ahead, it is expected that 2011 will be another big year for M&A, fueled by record cash balances and low interest rates.
IPO Market Bounces Back: Busiest year for new issues since 2007; Chinese IPO volume spikes
After a couple of years in the doldrums, the IPO market had a strong, bounce-back year in 2010. Not only was there a sharp increase in the sheer quantity of new deals hitting the market, but the number of prominent, large IPOs also picked up -- most notably, General Motors' (GM) record setting $23.1 billion deal. To put this resurgence into better context, with 154 new deals, 2010 shapes up to be the busiest year for public stock offerings since 2007 when there were 214 new issues. Of course, driving this sharp turnaround was a surge of IPOs flowing out of China. In 2010, there were 40 Chinese IPOs to list on the U.S. market, accounting for more than a quarter of the total number of IPOs. Furthermore, China-based IPOs trading here in the U.S. raised a total of $3.5 billion in financing, which is three times more than last year. Reminiscent of the dot.com era, several of these IPOs skyrocketed higher immediately upon hitting the open market, including recent names like Youku.com (YOKU), China DangDang (DANG), and Noah Holdings (NOAH). Fueling the strong demand for these new deals was the strong economic growth outlook for China which has bolstered corporate profits and growth rates in that country.
Looking ahead to 2011, many analysts are expecting the IPO market to be strong once again with more deals expected than in 2010. Once again, activity is expected to remain at a fevered pick in the Asia-Pacific region with an estimated 60% of new IPOs originating there. In the U.S., an economy showing increasing signs of life, clarity on the business tax rates, and the Fed's QE2 policies are a few elements that are anticipated to drive solid IPO volumes. A few well-known, highly-regarded companies that may test the IPO market next year include Facebook, Groupon, Toys 'R Us, HCA, and Skype.
Valuation/Earnings Growth: Slower earnings growth ahead off a higher base; Valuation is reasonable for stocks
Looking at the broad market performance, like 2009, the second half of 2010 was much better than the first half. The 2010 low in the S&P occurred exactly in the middle of the year, at 1010 on July 1. That represented a 9% decline from the start of the year. The S&P has since gained 23% from the July 1 low, fueled by attractive valuations and easy monetary policy.
We closed out 2009 with the S&P 500 trading at 15x forward four quarters' earnings. At its current level, the S&P 500 is trading at ~13.5x forward four quarters' earnings. Following the very strong earnings growth of ~40% in 2010 (helped by easy comparisons vs. 2009 in first three quarters of the year), earnings growth is expected to slow to 13% in 2011. Although this is still strong earnings growth, it represents a notable slowdown from this year, which in combination with continued recovery uncertainty, may justify the lower market multiple.
Looking at the earnings yield (the inverse of the P/E ratio), it currently stands at ~7.4%. This compares quite favorably to the 3.3% yield in the 10-year treasury.
Please See Briefing.com's 2011 Market Outlook report for detailed analysis of current market valuation.
Conclusion: Outlook is relatively bullish, but 2011 could be another bumpy year
With low interest rates, improving economic data and healthy projected earnings growth, the outlook for 2011 is relatively bullish. Although broad market valuation remains reasonable, with stocks at 2-year highs, sentiment near a bullish extreme and several macro risks still in the picture, it may be a bumpy ride again in 2011. We'd also note that correlations are very low, meaning picking the right stock will be important. Also, with volatility at the low end of the three-year range, insurance in the form of puts is relatively cheap given the extremely bullish sentiment. This may be a good hedge against some of the headline risk that remains, as there continue to be real problems the market needs to deal with.
As we enter the New Year, the key factors we'll be watching most closely in 2011 include the following:
Geopolitical tensions -- North Korea, Iran and the possibility for flare ups in internal political tensions around some of the emerging markets regions that have been in front of the global recovery. Pace of economic recovery -- Although a double-dip is out of the majority of economist's forecasts, the sustainability of improving economic conditions is a key area of interest -- critical areas include unemployment (currently at 9.8% vs. 10% when we exited 2009), housing market data. Pace and direction of monetary policy -- Along the same lines, the level and direction of monetary policy, and the economy's ability to grow on its own, is a major question. Once this is confirmed, the exit strategy will be in focus. Slower earnings growth -- More difficult earnings comparisons, diminished impact of cost-cutting initiatives enacted amid the recession, lack of top-line growth. State fiscal problems -- Fiscal problems at the state level are expected to intensify during 2011, and there is much debate about the extent of these issues and how the Federal government will handle them as they spread to the municipal level. Changing environment for financial sector -- The financial sector will be working through looming mortgage foreclosure and potential putback issues, increased regulation, persistent unemployment, European problems and upcoming enactment of Basel III. On the other hand, the ability for banks to reinstate dividends would be a positive for those individual names, and may be seen as a signal of strength from the higher quality institutions. Political gridlock -- The recent shift in power could change the implementation health care and financial regulatory changes in place. Valuations of market leaders -- This year's leaders are trading at egregious valuations (read NFLX, APKT, FFIV, etc), so it will be interesting to see if these correct as people become more concerned with valuations of the cleaner growth stories. Record cash balances -- Corporate balance sheets are holding record amounts of cash, and it is likely that at least a portion of this cash will be deployed over the coming year with possible uses including M&A, dividends and buybacks.
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Post by cyclops on Jan 8, 2011 10:08:56 GMT 10
Strong gains on Monday to begin the new year helped U.S. equity markets rally this week.
Monday's rally benefitted from the seasonality effect of new funds being put to work on the first day of the month, but strength in overseas trading, a rally in financials after Bank of America (BAC) put more of its public mortgage repurchase claims behind it, and continued momentum buying were also reasons.
Seven of the 10 S&P sectors rose, led by IT (+2.7%), Health Care (+1.8%) and Financials (+1.7%). The latter was in focus again Friday, this time selling off following negative headlines regarding a foreclosure case in Massachusetts, but managed to rebound somewhat.
The economic focus this week was on the employment sector. Wednesday's record ADP Employment figure of 297,000 raised estimates for Friday's Nonfarm Payroll number, but it came in at a weaker-than-expected 103,000 on private payrolls of 113,000.
Upward revisions to Nonfarm Payrolls in October and November, however, created an offset of sorts that tempered some of the headline disappointment. At the same time, December's report followed a familiar form as the labor market is recovering, but not at a fast enough pace for the Federal Reserve to take its foot off of the quantitative easing pedal.
Retailers were also in focus this week, releasing same-store sales figures for December. While 14 of the 25 companies Briefing.com covers missed expectations, meaning growth slowed in December, a weather disruption at the end of the month played a part. An argument could also be made that expectations were inflated following a very strong November, and December still capped off a relatively strong Christmas shopping season.
Looking ahead to next week, the economic calendar includes the Federal Reserve's regional Beige Book economic survey on Tuesday, Retail Sales and Industrial Production on Friday, and PPI/CPI data on both Thursday and Friday. The next round of Treasury auctions will also take place with $66 bln in 3-, 10- and 30-year Notes and Bonds for sale.
While the "unofficial" beginning to fourth quarter earnings reporting season is on Monday with Alcoa's (AA) release, the only big names for the week are Intel (INTC) on Thursday and JPMorgan Chase (JPM) on Friday. The calendar will really pick up the following week.
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Post by cyclops on Jan 16, 2011 13:27:22 GMT 10
Major indices rallied this week, with the S&P 500 advancing +1.7% in broad-based gains as fourth quarter earnings reporting season kicked off. Better-than-expected earnings and better-than-feared sovereign debt offerings from Portugal, Italy and Spain helped support the market.
Nine of the 10 of the sectors gained, led by Financials, +3.2%, and energy +3.3%. The resource-related sectors benefited from a 6.7% in oil prices.
Defensive stocks underperformed on a relative basis. Telecom fell -1.6% and utilities rose +0.5%.
The body of U.S. economic data this week continues to paint a picture of economic recovery and that core inflation will remain in check. The stock market had an overall limited reaction to the releases, however. Retail sales topped estimates and inflation was muted, though initial claims were slightly higher than expected.
In earnings news, Alcoa (AA -2.7%) topped estimates and issued better-than-expected guidance.
JPMorgan Chase (JPM +2.5%) reported a 47% increase in net income that topped estimates. The company also said it would like to raise its dividend soon.
Intel (INTC +1.9%) reported better than expected earnings, with net income rising 48% and issued first quarter revenue guidance 7% of the consensus estimate.
In other corporate news, Merck (MRK) plunged after announcing changes related to its clinical studies on cardiovascular medicine Vorapaxar.
Companies continue to seek acquisitions. Some of the more sizeable deals include Duke Energy (DUK +0.6%) buying Progress Energy (PGN +0.1%) in a $13.7 bln stock transaction; DuPont (DD +0.1%) buying Danisco for $5.8 bln in cash; and speculation that Johnson & Johnson (JNJ -0.1%) has interest in acquiring Smith & Nephew (SNN +7.9%).
As a reminder, U.S. equity and bond market s are closed Monday in observance of Martin Luther King Jr. Day.
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Post by cyclops on Jan 30, 2011 19:52:13 GMT 10
The major indices were poised to gain for the eighth out of nine week, but sharp selling Friday resulted in modest losses. Earnings reports acted as the primary drivers of equities. Economic data continued to paint of picture of recovery as annualized real GDP in the fourth quarter rose 3.2%.
The S&P 500 declined -0.5%. Seven of the 10 of the sectors settled in the red, though selling interest was mixed with only 51% of S&P 500 stocks trading lower. Consumer discretionary, consumer staples and health care were the worst performing sectors. Energy (+1.2%) and materials (+0.9%) outperformed thanks to better-than-expected results from the likes of Halliburton (HAL, +12.0%) and AK Steel (AKS, +10.5%). The flood of earnings reports this week included 14 Dow components. Results for the latest quarter were generally ahead of estimates, with 11 Dow companies posting better-than-expected EPS. But several companies missed on revenue and issued tepid guidance. Cyclical names DuPont (DD, +4.0%) and Caterpillar (CAT, +3.2%) outperformed on the heels of strong earnings reports as revenue surged 15% and 68%, y/y, respectively. On the downside, American Express (AXP, -4.7%) fell after missing EPS expectations. Boeing (BA, -3.4%) was also a laggard after coming up short on revenue as the company's new flagship airliner remains muddled in delays. Outside of the Dow, high flyer Netflix (NFLX, +19.7%) rallied after reporting strong results and issuing upside guidance. Netflix is now worth a whopping $11.3 bln and trades at a forward price-to-earnings multiple of 50x. Fellow high flyer Amazon (AMZN, -3.5%) failed to meet the market's lofty expectations. The company topped estimates for the current quarter, but a moderate earnings forecast was met with selling pressure. Ford Motor (F, -9.4%) shares plunged following a disappointing earnings report. Revenue declined by a smaller-than-expected 6.6%, though earnings came well short of expectations as costs increased and European operations posted a loss. In economic news, Real GDP increased 3.2% from the previous quarter on a seasonally adjusted rate. Although this figure was slightly below the consensus, the data are extremely strong after stripping out the inventory impact—real final sales skyrocketed 7.1%, the fastest quarterly increase since Q2 1984. Impressively, widespread growth drove the expansion. New home sales for December increased 17.5% month-over-month and existing home sales climbed 12.3, both ahead of expectations. The uptick in sales reflect why housing starts were on an upward path in the second half of 2010. Durable goods orders for December dropped 2.5% in an ugly follow up to the 0.1% decline that was recorded in the prior month. The sharp decline in December was well below the Briefing.com consensus that called for a 1.5% increase. Nondefense aircraft orders declined an unheard of 99.5% during the month from $5.085 bln to $24 mln. When we look at the nonseasonally adjust data, we say that aircraft orders actually increased from $5.7 bln to $10.6 bln. The drastic difference between the seasonally and nonseasonally adjusted figures suggest there will be a upward revision. Importantly, business investment remained strong as orders for nondefense capital goods excluding aircraft increased 1.4% in December as we saw in the GDP report. The latest initial jobless claims tally for the week ended January 22 came in at a three-month high of 454,000, which is worse than the 410,000 claims that the consensus called for. Continuing claims came in at 3.99 million, up from 3.90 million. Separately, the latest FOMC statement didn't contain any major surprises. The FOMC left rates unchanged at 0.00-0.25% and maintained the expansion of its asset purchase program, with a continued intention to purchase $600 bln of longer-term Treasury securities by the end of Q2 2011. In overseas news, Standard & Poor's lowered its sovereign debt rating on Japan by one notch to from AA to AA-. That matches Fitche's rating, but is one ahead of Moody's current rating. Meanwhile, massive protests in Egypt continue to draw attention.
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tc
New Member
Posts: 37
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Post by tc on Feb 1, 2011 0:07:56 GMT 10
New home sales for December increased 17.5% month-over-month and existing home sales climbed 12.3, both ahead of expectations. The uptick in sales reflect why housing starts were on an upward path in the second half of 2010. Given the causes of the GFC, it is interesting to try and work out how the bit from Cy's post above fits with the Bloomberg article below. I guess its nice to know the market isn't alarmed by the declining property valuations. online.wsj.com/article/SB10001424052748704680604576110442537531026.html?mod=rss_whats_news_us
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