Market Talk

So can we call this one the Steve Jobs rally?

US stocks rise after Apple unveils its latest product, the iPad. Of course, there was other news today, too. The FOMC left interest rates alone, Geithner got an earful from Congress, and new homes sales slid. Oh, and there were some earnings reports.

DJIA rises 42 (0.4%) to 10236, after dropping as much as 90 after Fed announcement, and spending most of the session in the red. S&P 500 rises 5 (0.5%) to 1098, Nasdaq Comp gains 18 (0.8%) to 2221. The Dow’s up two of the past three sessions, but down five of the past eight, since the selling started on the idea of January. For the technically minded, the Dow and S&P 500 have been bouncing just above their 100-day moving averages, 10176 and 1092, respectively, which are acting as some support here. Once wonders what lies beneath.

Actually, we’ll answer the question in the headline. It was the FOMC report, which contained a “dissenter” among the committee voters, the first inkling that maybe, at some point, perhaps, possibly, the economy’s come off the floor enough that the central bank can start thinking about maybe, at some point, perhaps, possibly raising interest rates off the floor, too. Maybe.

Fed days often produce gains for stocks. The trick is to see what happens the next day. Because before the usual noise associated with the Fed, stocks looked weak again.

Besides all that high profile stuff, new home sales “unexpectedly” fell (after existing sales took an absolute swan dive,) underscoring once again the precarious state of housing. Did somebody saw housing hit bottom?

And Caterpillar falls sharply after offering a tepid outlook. The industrial bellwether saw sales and profits slide sharply, and while it sees a rise this year, it doesn’t see much of a rise.

And the day isn’t even over. The President will deliver his first State of the Union address tonight. Originally, this was going to be a victory lap for healthcare reform, but since that plan got scuttled, the administration will focus on something more mundane, like, oh, the economy.

- From Geithner’s hearing to the FOMC statement and Obama’s State of the Union address tonight, politics seem to be overshadowing fundamentals in the markets these days. “If there ever was a day that encapsulates the new economic world we live in, it is today,” says Miller Tabak’s Peter Boocvkar.

- Recent data from Investor’s Intelligence show a 23% one-week drop in bullish sentiment. “Declining sentiment from high levels tends to be bearish for the market, not bullish,” Jason Goepfert writes at Sentiment’s Edge blog.

- Tablet day – what else can we say. Here’s the Journal’s recap. But one thing Steve Jobs didn’t show off today: much in the way of new media, MediaMemo blogger Peter Kafka says.

- Matt Taibbi weighs in on populism. The man needs no introduction, just go read it.

- Turbo Tim defends AIG bailout.

- Hoenig: the lone dissenter.

- “The dollar seems be benefiting from the ever so slightest of hints that the Fed might be prepared to take tiny, baby steps towards tightening,” Grainne McCarthy writes at MarketBeat.

- Toyota dealers say they are trying to operate normally a day after automaker decided to halt sales and production of eight models because of safety concerns.

- At Davos, global business leaders warned Western governments that a populist crackdown on the financial industry could crimp this fragile recovery.

- NYT’s Room For Debate blog has an excellent discussion about Ben Bernanke and whether he should be confirmed for a second term as Fed chairman. Yves Smith says he doesn’t deserve another term after being a “major architect” of the worst crisis since the Great Depression. But Tyler Cowan says it would be a mistake if populist outrage prevented Bernanke from getting confirmed.

So there’s no doubt the iPad will be splashed across the front page of every major paper in the country tomorrow. Apple’s latest “creation” almost completely overwhelmed the results of the FOMC meeting, where the central bank as expected kept rates flat.

Meanwhile, both events were merely widely expected shows. The real news today came in the morning, with a “surprise” drop in new home sales, and Caterpillar reported a steep drop in 4Q earnings, and a cautious outlook.

Newswires’ Roger Cheng reports:

For all the talk of the pending split between Apple (AAPL) and AT&T (T), it seems the couple is doing just fine.

Apple earlier this week reiterated its suppport of AT&T’s network upgrade plans, and AT&T is once again the carrier partner for the new iPad. That shoots holes in the theory that Verizon Wireless would carry the device on its network, and possibly puts doubt into those Verizon Wireless iPhone rumors as well.

And while much of the focus for the iPad’s 3G services has been on the $30 unlimited plan, Goldman Sachs’ Jason Armstrong calculates that the capped $15 plan could prove to be “very profitable” for AT&T.

He estimates that the cost of 100 megabytes of data on a fully loaded network is $1. With a 250 megabyte cap, that’s quite a windfall for AT&T. The bigger question is how much the unlimited users will cost the network.

Firm notes the average iPhone consumes 400 megabytes of data per month, while a cellular laptop card uses 2 gigabytes, and the iPad should fall somewhere in between.

AT&T up 1.5% at $25.70; Apple up 1% at $208.37.

(Photo courtesy of Apple.com)

Believe it or not, there are other things going on in the world besides everyone watching some dude in a black turtleneck and jeans play with a brand new touch-screen device.

As expected, the Fed leaves short-term interest rates near zero, but gives a slightly more upbeat reading of the economy’s outlook.

Here’s a snip from Dow Jones reporter Michael Derby in the wire’s version of Market Talk:

The FOMC statement looks pretty free of surprises. On rates, it says “the Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” It has also reaffirmed its plan to end mortgage purchases at the conclusion of March, along with again flagging the impending end of most of the emergency lending programs.

Also of note is Kansas City Fed President Thomas Hoenig voting against keeping rates so low. He remains concerned that all the stimulus funneled into the economy to fight the crisis may ignite inflation in the future.

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What took you so long?

Tommy, where were you a month ago? I took a flyer just before the release of the December 16 FOMC statement, suggesting it was a good time for some dissent on the committee. Check it out here. Glad to see Kansas City’s Tommy Hoenig now seems to agree.

The tablet is here.

Alright, then, Apple went ahead and introduced the product that absolutely everybody knew they were going to introduce: a big iPhone they’re calling the Newton. No, no, we kid, it’s called the iPad. Jobs is on stage in California right now, typically in his black turtleneck and jeans, vaunting with pride over his new toy, and the fawning audience, we’re sure, is buying every ounce of it.

We’re not sure which website is better for following this. One the one hand, WSJ.com’s Digits blog is being written by professional, seasoned journalists determined to report the news and get the facts. On the other hand, Fake Steve is much funnier (and also is written by a seasoned professional actually.)

No word on pricing yet, but it’ll cost more than a netbook, we guarantee that. But, dang, you want one already, don’t you? You know you do.

Anybody else sick of all the hype surrounding Apple’s (AAPL) expected tablet unveiling later today?

Apple fanboys are in rare form ahead of today’s event, with rumors and images about this purported device flying around the blogosphere. For pete’s sake, Silicon Alley Insider’s lead story right now is titled “10 Ways The Apple Tablet Will Change Your Life Forever.”

A little much, don’t you think? Especially for a product that Apple has not yet said one word about.

Listen, this tablet will probably be a fantastic, overpriced product that could revolutionize the media industry just like the iPod changed the music business.

But WSJ reporters Yukari Iwatani Kane and Don Clark do a good job of putting all of this in perspective. They reflect on previous tablets that hit Silicon Valley in the early 1990s…and flopped miserably.

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Okay, so while the market nose dives again, this time after new home sales “unexpectedly” dropped, let’s listen to some of the House oversight committee’s hearing on the AIG bailout, and the testimony of Treasury Secretary Tim Geithner.

-12:35: So that’s it for Turbo Timmy. Now former Treasury Secretary Hank Paulson’s stepping into the dunk tank. Don’t think we’re gonna live blog this one, though, folks, as entertaining as it’s sure to be.

-12:33: Geithner says “if you stand back and let the market correct itself, you run the risk of catastrophe.” Really? That’s too bad. Remember when the markets were supposed to be self-correcting? When’d that idea go the way of the Edsel?

-12:29: If Geithner had beaten the drum this hard back when he was running the NY Fed, maybe things would’ve been different. If I recall, he had one or two comments to this effect, but largely seems like he stood by and let the good times roll.

- 12:27: Geithner says the laws of the land created the situation where the taxpayers were exposed and companies had to be bailed out. He’s pushing for financial reform there, but he’s wrong. The laws of the land did not force any of those things to happen. It was decisions made by the Fed, and the law did not force their hand.

- 12:20: Got pulled away to deal with some edits for tomorrow’s column for the paper. My gawd, are they still talking?

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This is exactly the kind of thing we’re talking about. Caterpillar, that bellwether of everything industrial, reported this morning that sales fell 37% in 2009, to $32.4 billion from $51.3 billion in 2008. For 2010, they expect sales will be up anywhere from 10% to 25%. So at the high end of their estimate, Caterpillar expects sales in 2010 could be somewhere around $40 billion.

So in 2010, if the economy does as well as everybody’s praying it does, if the “bullwhip effect” really juices things, Caterpillar expects it sales will be 20% below where they were in…2008.

That is the shrinking of corporate America.

There’s another company that’s worth focusing your attention on, which we write about in today’ Journal, an unlikely bellwether named Jacobs Engineering that has its fingers in everything from autos to biotech to forestry. The company has held up about as well as any during the recession, but they’re still eyeing the recovery pretty warily.

Chief Executive Craig Martin characterizes business overall as “still slow,” noting the company hasn’t seen its clientele’s capital expenditures restored to “anywhere near previous levels and don’t see it being restored anywhere near previous levels in the near term.”

Capital expenditures may be “at or near the bottom,” Mr. Martin said. Jacobs’ backlog is slipping, too, off 8% to $14.9 billion. “The next few quarters are certainly going to show us the bottom absent some events that drives us into a double-dip recession or some other kind of bad news,” he said. “There is still a lot of uncertainty in the marketplace out there,” Mr. Martin said.

Caterpillar shares, incidentally, are down in preamarket trading about 2.7%, and the futures have turned modestly negative, as both CAT and Boeing offered pretty tepid outlooks. DJ futures down 12.