Market Talk

Or, at least, Google was weighing on the market. Stocks certainly have taken off since our report at 10:30 in the a.m. Guess the markets put those disappointing earnings reports behind them, and are buying the Fed’s argument that there isn’t any inflation, at least any that’s going to last.

Good luck with that one.

Big show today. We covered Bank of America’s earnings, the SEC’s likely settlement with the banks over the issue of mortgage-backed securities, and the potential Groupon IPO.

A dose of cautionary comments on three things that seem to only go up lately: the euro, stocks and corporate earnings.

First on the euro, which surged through $1.43 today its highest level vs USD since January 2010, and looks as if it’s left any and all concerns about sovereign debt in the dust.

Nomura says in a report that it’s too early for the euro to shed that risk. “The uncertainties about the economic outlook, debt dynamics, and the political framework around managing sovereign insolvency are simply too great,” firm says.

It estimates “a debt restructuring isolated to Greece/Ireland/Portugal would trigger direct and indirect losses around $240bn for core Eurozone banks, while bank losses would rise to $480bn in a restructuring including Spain.” German banks have the largest exposure to the periphery, Nomura says, with estimated losses of $185B in a restructuring scenario involving Spain.

Implied risk premium on the euro “has compressed significantly since January,” firm says, as the single currency “decoupled from sovereign risk.” That process “has probably run too far at this point: a persistent risk premium is still needed.”

On to stocks and some thoughts from BofA Merrill small-cap strategist Steve DeSanctis. He points out that weaker economic news, higher energy prices and disaster in Japan tripped up stocks in early March, but a “liquidity driven rebound” has put the Russell 2000 within 1% of its all-time high.

“Volatility came tumbling down despite the fact that none of the earlier concerns…have been resolved,” he writes, and small caps “are now very close to the full year’s return we have been expecting.” DeSanctis says he’s been “taken back by the strength of the overall equity market and in small caps in particular given the economic backdrop and where absolute and relative valuations stand,” and thinks 1Q earnings estimates are too high. Continue reading…

The Street currently expects S&P 500 operating earnings to climb roughly 32% in 2012 from current levels, a number that Credit Suisse strategist Doug Cliggott says “looks very aggressive, especially given the already elevated levels of the US economy’s profit margins.”

Cliggott writes in a research note that the profit share of US national income, “in essence, the US economy’s profit margin,” has been climbing steadily since 4Q 2008. When the profit share of national income is rising, the S&P 500 has averaged 12% annual returns, he says. When it’s declining, average annual return falls to 2%.

Now it looks as if the profit share as a percentage of national income may be peaking, Cliggott says, as it was steady at 12.7% in 3Q and 4Q 2010. But here’s the rub: in the last 10-12 years, profit share of US income and S&P 500 operating earnings have been “highly correlated,” he says, meaning a peak in operating EPS “may also not be too far out in time.” Continue reading…

Bottom line on the February jobs report: better, but nothing to spark a celebration. In fact, the report was insubstantial enough to be quickly overwhelmed by sharp gains in crude oil.

Of course, the jobs report did offer enough to get some economists excited, which isn’t too hard considering how long they’ve been gazing at a bleak picture.

February’s job gains “represent the first cog in the labor market gear that will drive the economy into a self-sustaining expansion this year,” economists at PNC say. From where we sit here at MT, it’s very premature to talk “self-sustaining expansion” while the Fed still has the liquidity pedal pinned to the floor, so PNC’s getting a little bit giddy. Firm says “solid gain of 192,000 net jobs reflects strength across most employment categories,” except, of course, government  employment, which ditched 30,000 state and local jobs.

PNC does note wages were “unspectacular” though, “gaining just 1 cent, and not keeping up with the inflationary push from energy and food.” Flat workweek and limp increase in earnings were key points of weakness most economists noted.

Bernard Baumohl, chief global economist at Economic Outlook Group, was much less impressed than the gents at PNC. Digging into the numbers shows companies “in a holding pattern when it comes to hiring. Nothing more, nothing less,” he said. Continue reading…

It took about three months (which is a little longer than we initially expected) but GM shares finally reached another milestone: they breached below their November $33 IPO price.

As you recall, it was one of the most highly anticipated and hyped-up IPOs in years, and got off to a bit of a shaky start as shares flirted with breaking the IPO price throughout its first week of trading. Of course, the underwriters weren’t about to let this thing flop right away, and the stock eventually gained a little momement, carried along by a buoyant mood in the stock market overall.

It hit a high of $39.48 in early January, but it’s been mostly downhill since then, even as the broader market continued higher. The sell-side analysts have (naturally) been unabashedly bullish, with more than 70% calling the stock a buy, or some equivalent rating.

GM made $510 million in its fourth-quarter, and full-year profit of $4.7 billion. Investors don’t appear to be impressed, with the stock currently down 4% at $33.20; earlier as low as $32.05.

Stocks see selling with some conviction (NYSE listed volume more than 5.7 billion shares)  for the second day in a row, spurred on by fear that soaring oil prices will derail the fragile economic recovery.

Nymex crude briefly hit $100/barrel for first time in more than two years, sending shivers through industrial stocks, and stocks of companies most sensitive to discretionary consumer spending, like Tiffany and Coach.

H-P shares tumble almost 10% after disappointing earnings and outlook, and drop accounts for roughly 35 points of Dow Industrials’ decline.

First back-to-back triple-digit drop for DJIA since early June, average falls 107.01 to 12105.78, and Nasdaq Comp slides 33.43 to 2722.99. S&P 500 ends 8.04 lower at 1307.40.

No real sign that the source of the market’s current angst — unrest in North Africa and Middle East — is about to abate, so oil prices (instead of the Fed) may be calling the shots here for a bit.

Weekly jobless claims, January durable goods orders and new home sales will be tomorrow’s economic reports of interest. On the earnings calendar, GM, Target, Sears and Kohl’s all report before the open; AIG reports after the close.

Fed Chairman Ben Bernanke defends his agency’s monetary policy, while Campbell’s continues to struggle selling soup.

The rally refuses to yield. Stocks once again shake off some early weakness and grind out more gains, led by the energy, materials and consumer staples sectors.

Interesting feature today — Treasurys also gain, 10-yr note’s yield easing back down to 3.57% on some safe-haven buying after conflicting reports about Iranian warships heading for Suez Canal. Oil also rallied, as did gold, silver, copper, cotton, etc. Sort of a buy everything type day.

Economic data generally strengthening, but not without flashes of hotter prices, though no sign investors are nervous about inflation yet. Major averages stretch their multi-year highs, DJIA rises 29.97 to 12318.14, and Nasdaq Comp adds 6.02 to 2831.58. S&P 500 ends 4.11 higher at 1340.43.

DJIA makes it 15 winners in last 20 sessions; S&P 500 notches 16 out of 20, and up 98% from March 2009 low. Nasdaq less than 28 points from its October 2007 high.

By the way, Weight Watchers (WTW), today’s poster child for hot money and subject of an earlier post, closed at $65.39, up $20.47, or 46%. Volume was 10.5 million shares, 30-times the normal daily average for the past year. More than ample reward (way more) for a good earnings report. Another QE2 success story, right Ben?

Anyone wondering what smoking-hot money looks like, take gander at the action in a few stocks in the last couple days.

Remarkable (jaw-dropping, actually) action in Weight Watchers (WTW) shares today, with the stock continuing to mark up fresh all-time highs as we write. The company had a strong 4Q earnings report and executives sound upbeat, but c’mon. Shares have been jammed up more than twenty bucks, 45%, to $65.30. What the?

Now, we’ve seen a few things in our roughly 16 years hanging around Wall Street and covering financial matters, but never seen the stock of a company as mature as Weight Watchers explode to the upside as it is today. Simply extraordinary. On a good earnings report. Even if it’s a fantastic earnings report, a 45% jump on volume of 9.5 million, 27-times normal average daily of about 350K? A lot of stocks don’t go up that much when the company gets bought out, never mind an earnings report.

And this ain’t no short squeeze, gang, as short interest looked to be only about 4%. No, this just looks like scorching-hot money trying to find a home, any home. Continue reading…

Once again it looks as if the Dow Industrials’ winning streak (now at eight straight sessions) may be in jeopardy, but it would be foolish to underestimate the bulls’ ability to turn things around, especially late in the session.

“These days, opening indications and actual closing prices are two very different animals,” Barry Ritholtz noted earlier at the Big Picture. He has a precise summation of how the bull vs bear battle has gone during the past several months:

In the face of massive liquidity of QE2, there remains a firm bid beneath this market. So far, losses have been modest to minuscule, with selling pressure well contained. M&A, share buybacks, anything but disappointing earnings are an excuse to put on the rally caps. Even dips are an excuse to buy. (We are running 53% cash on specific name selling, not overall market calls).

The bears are bloody but unbowed — they know a correction is imminent. But the bulls have heard this line for nigh on two years, and yet still the market still powers higher. The Dow, S&P and Nasdaq are all at multi-year highs. There is a difference between being early — a matter of days or weeks — and wrong. So far, the bears have been wrong.

Eventually, the grizzlies must be fed. They have their champions, including various Fed Hawks, who are terrified of an inflationary spiral. Lacker, Plosser and Fisher may be mortal enemies of price instability, but they are friends of Yogi and Boo-Boo and Baloo, well known amongst ursines for their opposition to easy money. And easy money is a bull’s best friend.

Even the most ardent bull knows that this too, will pass. The bears will have their day, before their next bout of hibernation.

The 64 trillion question: When? Continue reading…