Market Talk

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

Investors are focused on a couple key influences this morning, namely the G-20 meeting, and Cisco’s weaker-than-expected outlook.

Hope is that cooperation at the G-20 gathering in Seoul can overcome any discord related to currencies, Fed’s QE2 and global trade. As for Cisco, its weaker outlook will weigh on the tech sector, and based on premarket decline, CSCO alone will be a roughly 31-point drag on the DJIA.

US bond market closed in observance of Veterans Day, no data on the calendar. Disney reports quarterly results after the close. Dollar’s stronger, USD index recently up 0.4%; euro strains to hold $1.37 level. S&P futures down 7.60.

QE2 worries are replaced by renewed concerns over European sovereign debt, leading U.S. stocks lower. Donna Kardos Yesalavich, Kathleen Madigan and George Stahl report.

- More than 80% of companies that reported earnings have topped analysts’ estimates. But don’t get too giddy. “After all, ‘better than expected’ could simply reflect the low level of the underlying estimates and the strength of the actual data,” Pragmatic Capitalism says.

- Is fresh, massive stimulus via QE2 really necessary? The Reformed Broker blogger Josh Brown isn’t so sure. He notes companies continue to report decent earnings. And more disturbing is the fact that “outside of home prices, inflation is becoming more and more of a reality…The propping up of the dead and the dying via federal spending and zero percent rates is not warranted with markets and prices rebounding elsewhere.”

- On the other hand, the risks of not engaging in QE2 are too great, James Picerno writes at The Capital Spectator. “Calling on the Fed to stand pat risks repeating the mistakes of monetary history,” he says. “We have to deal with the pressing threats as they arrive, and worrying about runaway inflation today is
premature, and perhaps more than a little dangerous. The day for fighting that battle will come. But not now.”

- Credit Suisse notes much of the earnings season move for equities might be over, despite the fact that there’s plenty of reports still to come. “Our Portfolio Strategy team finds the bulk of the impact of earnings on market performance seems to occur in the first two weeks of earnings season, which ends today,” firm says, according to MarketBeat.

- As the reviews pour in regarding Windows Phone 7 devices, so far so good for Microsoft (MSFT). NYT’s Bits blog posts a roundup of reviews. The new lineup of phones are getting “overwhelmingly positive reactions,” blog says. “It’s still unclear if this will translate into sales or make it possible to attract customers away from existing platforms.”

- Hulu’s considering slashing price of Hulu Plus — its subscription service still in beta mode — to $4.95 per month from $9.95, MediaMemo blogger Peter Kafka reports, citing sources.

- Latest iPad rival hits the market. H-P releases its $800 touchscreen tablet computer.

- FCC weighs in on the Cablevision/News Corp dispute over Fox.

- Deal Journal’s Shira Ovide looks at the best and worst deal Apple ever made.

- WSJ profiles the state of Jay-Z’s empire, the rap monger who’s worth an estimated $450 million.

Blue-chip stocks finish the week slightly lower as investors acted with caution ahead of the weekend’s G-20 meeting.

DJIA edged down 14 points (0.1%) to 11132, but close up for the week, its third straight weekly gain and seven of the last eight. DJIA’s up 9.7% over the last eight weeks. For Friday, AmEx dropped 3.1% and Verizon fell 1.3%, leading the index lower as both earnings topped expectations but still failed to please investors.

S&P 500 gained 2.8 points (0.2%) to 1183 and tech-heavy Nasdaq Comp rose 20 points (0.8%) to 2479.

- The 10-year yield has fallen 40 bps during the past month, James Hamilton notes at Econbrowser. “If you wanted to attribute all of this to expectations of QE2, and if you were assuming that $400 billion in long-term bond purchases could lower the rate about 13 basis points, you might think the market has already discounted some $1.2 trillion in additional large-scale asset purchases,” he says. “All of which raises the interesting possibility that if the Fed were to announce in November another trillion in purchases, nothing would happen, because the market has already discounted it.”

- “The fact that an IMF meeting ended with the participants unable to feign a narrowing of differences on the currency front is further evidence that positions are hardening,” Yves Smith writes at naked capitalism.

- Bank stocks no longer driving this rally. “That old adage of ‘as financials go, so goes the market’ — I don’t think that’s tru this time,” said John Lynch, chief equity strategist at Wells Fargo Funds management Group.

- Next-gen 4G mobile phone systems promise faster speeds and better audio. Various US carriers have already promised to roll the new technology out within the next couple of years, but Apple (AAPL) will wait until the technology is more mature before adding it to the iPhone, according to TechCrunch. Instead, the blog speculates that AAPL will release phones next year that are compatible with many more carrier networks using different technologies.

- The Reformed Broker blogger Josh Brown channels his inner Alanis Morrisette as he discusses Dow 11000. “When I consider the state of the market rally, I can only think to myself, ‘Isn’t it ironic, don’t ya think?’”

- Piper Jaffray’s Gene Munster tells Silicon Alley Insider that tablets built with Google’s (GOOG) Android software will provide some “very stiff competition” to Apple’s (AAPL) iPad. While Apple will probably ship about 20M-25M iPads next year, Munster says “ultimately we think that Apple won’t have the majority of the (tablet) market share. It’ll probably be with Android-based tablets.”

- “The biggest problem with TARP is that the other portions of the response were so poorly crafted,” the Economist’s Free Exchange blog says. “And the legacy of that underperformance — a weak American recovery alongside continued wealth on Wall Street — is what continues to give political TARP-bashing its potency.”

- Southwest (LUV) announces it’s ending its eight-year tenure as the “official airline” of the NBA after the two sides couldn’t agree on an extension. Farewell then to Slam Dunk One, a specially painted plane that marked the partnership which is now destined for a new color scheme. “With our tough financial climate and limited resources, we had to make the tough decision to say goodbye to one of our dear friends and partners, and both sides agree — we’ll miss each other!” gushes Southwest’s blog.

- Big Picture blogger Barry Ritholtz says America needs an intervention. “The credit crisis and now foreclosure debacle have revealed to anyone who cares to look what we have sought to ignore: That the past decade has been based on a set of fundamental beliefs that are intrinsically false,” he says. “The sooner we stop kidding ourselves, the sooner we can move forward with more productive honest economic lives.”

- Jets-Vikings: the hyperbole bowl, WSJ’s Jason Gay writes.

So, no surprise here, banking stocks are leading U.S. stocks higher today, just like they are in Europe, after the Basel III committee released its proposed capital structure for banks. The main takeaway is that banks under the accord will have to put aside more of their capital for a rainy day.

The initial impression on the Street is that these new rules won’t have much effect on US banks, that they won’t have to raise a lot of capital to meet the new requirements because by and large they already meet them. Citi, Bank of America, Wells Fargo and JPMorgan are all higher, and while every sector is rising, the bank sector is  rising twice as much as the next leading sector (materials as of this writing.) The S&P 500 shot through its 200-day moving average right out of the gate.

The feeling is that the rules are “manageable,” as one Citi analyst put it, and given everything these banks have been through, and have put us all through, it’s hard to avoid the sinking feeling that once again, the banks are getting off light.

“Why should Europe’s banking shares tack on a near 2% gain in early trade?” Dow Jones Newswires Alen Mattich wrote (subscription required) from London this morning. “Because the requirements will be imposed only very gently over eight years or so. And banks almost universally already meet most of the capital requirements. That’s because regulators have colluded with them over asset valuation, allowing absurdly overpriced valuations to create the illusion of strong earnings which, in turn, were tacked on to the capital base.”

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With emerging-market stocks trading at their highest valuations in more than two years, relative to developed market stocks, “a number of analysts and strategists are starting up a chorus that sings the phrase ‘this time it’s different,’” Ticonderoga’s John Stoltzfus writes, “and it makes us not just a little nervous.”

After nearly three decades “walking the beat on ‘investment street,’ we’ve never heard or known the phrase ‘this time it’s different’ to ring true for too long before some kind of proverbial ‘Terminator’ or ‘Black Swan’ arrives on the landscape,” he says.

And don’t buy the whole “decoupling” spiel that’s being thrown around again, either.  It’s too early for that, Stoltzfus says.

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The G20 has one word for you: austerity.

OK boys, let's mix it up!

Not much conviction displayed today by bulls or bears, with major stock indexes finishing marginally mixed. Bears couldn’t gain any firm advantage off another downward revision to 1Q GDP, and bulls couldn’t capitalize on a slightly better-than-expected consumer sentiment gauge and frisky euro.

Speaking of the euro, US stocks seemed tethered to the single currency for much of the session, with some momentary disconnects early and then late in the day. At times, they display the type of synchronization that would make a drill instructor proud.

Aside from the encouragement provided by the euro, bulls may’ve been a bit disillusioned by the recent stream of data suggesting a stalling recovery. Meanwhile, bears seemed hesitant to get too aggressive, lest some central bank or government fire a renminbi-like weekend surprise at them (G-20 meets). Anyway, there’s always next week and potential for more proof (or not) that the recovery is laboring.

Key data include readings on personal income & spending, home prices, pending home sales, consumer confidence, June ISM and, of course, June non-farm payrolls.    

Financials soar today after overhaul bill’s finalized. That might tell you something about how toothy investors think the regulations will be. Consumer staples, telecom tumble. DJIA slips 8.99 to 10143.81, and Nasdaq Comp rises 6.06 to 2223.48. S&P 500 ends 3.07 higher at 1076.76.