Market Talk

Given what’s going on in Egypt, and spreading across not only that nation but the Middle East — reports are coming out of Jordan that people are taking to the streets there, too — nobody seems to much care about this morning’s GDP report or earnings.

It’s unfortunate for us that we taped today’s Markets Hub just before the protests in North Africa finally landed on traders’ radar. Since video coming out of Cairo and other Egyptian cities has started to hit CNN, Fox and CNBC, stocks have been cratering. Treasurys have been rallying, and crude has been rising as well. Egypt, after all, is home to the Suez Canal, a critical point for oil supplies (remember 1956?)

Crude futures are up more than 4% at $89.32/barrel, totally reversing in just a couple hours the losses of the past few days. Seems like these exogenous events always come out of left field. Who three weeks ago would’ve predicted a popular uprising in Tunisia that would spread across North Africa like wildfire? I bet most Tunisia’s wouldn’t even have predicted it.

The other thing to keep in mind is that stocks were primed for a sell-off, regardless of what happening in Egypt. The major indexes, the Dow and S&P 500, have been flirting with the 12000 and 1300 marks, respectively. Both were kissed, but not overcome. Markets appears ready for a big sell-off earlier this week, too. So some of this is just traders trying to get ahead of the inevitable, and marking profits now.

But the images coming out of Egypt are breathtaking, no doubt. Here’s today’s Market Hub, US edition:

The holiday season is off to a fairly good start as preliminary mall traffic and retail sales figures are up from a year ago. From WSJ:

Retailers extended the shopping blitz from a day to an entire week, offering “door buster” promotions in the days leading up to the Thanksgiving weekend. And deals for “Cyber Monday,” typically the first Monday after Thanksgiving, began showing up online earlier as well.

The string of promotions appeared to have succeeded in getting consumers to open their wallets. Roughly 212 million shoppers visited a store or website over the weekend, an increase of 8.7% from last year, according to the National Retail Federation.

The average shopper spent $365.34, up 6.4%, according to the federation, which surveyed 4,306 people on Thursday through Saturday and made projections for Sunday.

The vast promotions retailers are extending to consumers didn’t start last week. They’ve been going on throughout much of November and consumers have gobbled them up. According to comScore, Americans have spent $11.6 billion shopping online since November 2, which represents a 13% rise from last year’s total.

So far so good. But FusionIQ CEO Barry Ritholtz says be careful not to draw vast conclusions from preliminary Black Friday sales. Not only do November and December account for about 20% of retailers’ annual profits, but the Dec. 15 to 25 period makes up about 40% of total holiday sales.

“Will consumers have the strength and the money to continue the momentum?” Ritholtz ponders. “One last note: Most retail forecasts tend to be way too optimistic. We will find out if this year is the forecasters hit their marks.”

That may be one of the reasons retail stocks are lagging today. EBay, Best Buy and Wal-Mart are all down, while Amazon is one of the few retailers doing well. Its stock was recently up 1.6% at $180.05 and earlier hit another fresh all-time high of $181.84.

- “The global financial system continues to be unsound in the same way that a Ponzi scheme is unsound,” John Hussman writes. “There are not enough cash flows to ultimately service the face value of all the existing obligations over time.”

- On an essentially flat day yesterday, CBOE’s VIX volatility index fell 8.5% to 18.96, lowest levels since April. “If there’s one point I would emphasize when VIX watching, it’s to pay the most attention when it does something unusual,” says Adam Warner, as VIX is exhibiting “clear signs of complacency.”

- Growth of Chinese and Brazilian credit-card balances from 2008 to 2009 “can be a source of either encouragement or worry — or both,” FT’s Alphaville says. “A sustained run-up in debt can be ultimately destabilizing,” blog notes. “So can a burst of capital inflows. And this is all playing out rather quickly against a background of currency wars, central bank interventions, and expected quantitative easing in the US.”

- Remember when the critics came out in droves when Apple (AAPL) released its first versions of iOS without cut-and-paste functionality? “It’s hard to imagine any company launching a new mobile OS would take a similar tack,” John Paczkowski writes. “Yet that’s exactly what Microsoft has done with Windows Phone 7, which will arrive at market next month without that feature.”

- Amazon’s (AMZN) attempting to carve a niche market for Kindle, with plan to launch “Kindle Singles” — essentially works that may be longer than a magazine article but shorter than typical books. MediaMemo blogger Peter Kafka raises some obvious questions: What will pricing look like? How will wholesale pricing work? And is this directed at conventional publishers, or self-published by the authors? AMZN didn’t immediately comment to Kafka.

- Windows Phone 7 may be Microsoft’s (MSFT) best chance at making a serious dent in the smartphone market, Ryan Kim writes at GigaOm. “They’ve done a good job creating something that looks and feels distinct,” he says. “We still need to put the phones through their paces but the basic building blocks are there.”

- Small business optimism barely nudged higher in September, but it still remains at recessionary levels. Poor sales remain the biggest hurdle for small businesses during this sluggish recovery. “Usually small business owners complain about taxes and regulations (that usually means business is good),” Calculated Risk says. “But now their self reported biggest problem is lack of demand.”

- Not only are small businesses not interested in getting more financing, but they increasingly think financing conditions will worsen from current levels, writes FT’s Alphaville, based on NFIB’s small business survey for September. “Maybe investors are front-running the Fed, but small businesses seem unconvinced that further easing will actually loosen credit.”

- Wall Street pay is on pace to break a record high for a second straight year, WSJ reports.

- So far so good. Intel earnings beat expectations. And, as MarketBeat notes, the deets beyond the headline numbers also look pretty solid.

This is already a bit dated, now that the oh so credible results of the stress tests are out, but here’s this morning’s Markets Hub video. Focus is on earnings from the likes of Microsoft, Amazon, Ford, McDonald’s, Kimberly-Clark and Verizon. We didn’t have the results of the tests when we taped, so we just mentioned it toward the end.

By the by, did’ja get a load of those stress-test results, by the way? Bear Stearns could have passed that test.

US stocks surge across the board as combination of positive blue-chip corporate earnings meet better-than-expected housing and euro-zone data to fuel rally.

Major indexes more than erase yesterday’s losses, post biggest gains since July 7 and seventh biggest point gains of 2010. DJIA jumps 202 (2%) to 10322, it has risen in three of the last four sessions and is up 2.2% this week. S&P 500 gains 24 (2.3%) to 1094; Nasdaq Comp surges 59 (2.7%) to 2246.

Caterpillar, UPS and 3M all post strong top-line growth as well as impressive guidance, which sets the tone for today’s action. Existing home sales also fell less than economists expected, pleasing investors. Unexpectedly large rise in initial jobless claims gets brushed off.

But the tone takes on a much different tone after the closing bell. In after-hours trading, Amazon shares plunge 13% to $104.12 after the online retailer reports disappointing per-share earnings of 45 cents for the second quarter, below the average analyst estimate of 54 cents, and issued disappointing third-quarter sales guidance.

Meanwhile, Microsoft blows out the estimates, beating easily on the top and bottom lines. “We saw strong sales execution across all of our businesses, particularly in the enterprise with Windows 7 and Office 2010,” said Kevin Turner, chief operating officer. No word yet, though, about the company raising its dividend, and that might be keeping MSFT shares in check, down 0.8% in after-hours trading.

(George Stahl contributed to this post.)

- Yves Smith at naked capitalism doesn’t see much substance in China’s pledge to make its currency exchange rate more flexible. “While this does represent an announcement of an intent to liberalize, it lacks any particulars as to timing and mechanisms.”

- China pledging to make its exchange rate more flexible is, at this point, just an announcement “which may or may not be followed through,” Barry Ritholtz writes at The Big Picture. “As such, we should treat it as a precursor, and not the significant shift the market seems to be making of the announcement.”

- UC San Diego economics professor James Hamilton still sees deflationary forces swirling through the economy even as inflation is the bigger longer-term risk. “America needs leaders willing to talk honestly about our long-run fiscal challenges and what needs to be done to address them,” he says. “I can dream, can’t I?”

- The IPO market has become a “sad tale,” says Fred Wilson. “The cost is just too high and the benefits are just too low for most companies these days.”

- The biggest headwind to US growth isn’t the state of Europe, it’s a lack of credit here. it’s a lack of credit here. “Two years ago, when the government rushed to bail out Wall Street, the justification was always the same. We have to do it. If we don’t, the banks will stop lending. And then the world will end,” Henry Blodget writes at Business Insider. “So we bailed out Wall Street. And the world didn’t end. But the banks still aren’t lending (And you can’t blame them, really.)”

- Apple’s (AAPL) iPad will hurt Kindle sales for Amazon (AMZN), but it won’t be a Kindle-killer, MediaMemo blogger Peter Kafka says. Keep in mind AMZN still offers a wider range of e-books than AAPL and sells them for much less. “My guess is that even after Apple eats into Kindle’s share, Amazon is going to find plenty of people who just want an e-reader.”

- China’s announced currency move probably won’t amount to much in the short term, Michael Schuman writes at Time’s Curious Capitalist blog. “This is a baby step on a long road to a truly market-determined yuan exchange rate,” he says. “Until China allows a free-floating currency, controversy over its value will persist, and the yuan will play a limited role in the global economy.”

- The stock market has reached an important inflection point, as “valuations remain uncomfortably rich and market action is tenuous,” writes John Hussman. “When an overvalued market loses support from market internals, it frequently produces discontinuous outcomes ranging from brief ‘air pockets’ to ‘panics’ to ‘crashes,’” Hussman says.

- Former IMF chief economist Simon Johnson remains less than impressed with financial regulatory reform, labeling it “dead on arrival.”

- China isn’t the first country that has pledged to make its currency exchange rate more flexible. “Exiting up does not doom the economy to a Japanese-style lost decade,” VoxEU says.

US stocks recover from steep early losses and finish higher, with consumer discretionary leading the way.

No clear catalyst for the mid-afternoon turnaround. Better-than-expected home-sales and a speech from Obama that wasn’t as harsh as some expected may have contributed to the reversal.

DJIA, which has finished higher for four straight sessions and 10 of the last 11, gains 9 to 11134. S&P 500 rises 3 to 1209 and Nasdaq Comp jumps 14 to 2519.

Moody’s downgrade of Greece weighed on stocks early, with the Dow falling as much as 109. But equities embarked on a slow and steady recovery before turning positive late in the session.

Plethora of earnings after hours. American Express’s (AXP) 1Q profit doubles on tumbling loan-loss provisions and a 16% jump in card-member spending. Shares rose 2% in after-hours trading to $47.70. The stock has nearly quadrupled from a 14-year low early last year.

Amazon (AMZN), however, isn’t enjoying the same success. Analysts are finding reasons to be disappointed with Amazon’s (AMZN) 1Q report. Results topped consensus estimates, but “it was not a monster beat,” says BGC Partners analyst Colin Gillis. JMP Securities’ Sameet Sinha also notes domestic year-over-year revenue growth was slower than 4Q, while the mid-point of Amazon’s 2Q operating income guidance is below the consensus.

AMZN shares were recently down 4.7% at $143 in after-hours trading.

(Scott Morrison contributed to this post.)

- It’s been a sweet six weeks for S&P 500. Index hasn’t had a 1% pullback, either on a single or multi-day basis. And, according to Bespoke, there have only been 10 other periods since 1990 in which the index went at least 40 days without a 1% decline.

- Breaking up the nation’s biggest banks doesn’t come without costs. “In evaluating the benefits of busting up the big guys, we shouldn’t lose sight of the possibility that this is also a strategy that could carry very real costs,” according to Atlanta Fed’s macroblog.

- In its eight page letter to shareholders, Goldman Sachs (GS) denies it bet against clients.

- Recent consumer spending reports suggest “signs of pent up demand being satisfied slowly but surely,” Barry Ritholtz notes. Data isn’t as cheer as the bulls believe, but it’s also not as dire as the pessimists proclaim. Ultimately, “a slow, painful recovery still awaits us.”

- It’s mindboggling that Fannie Mae (FNM) and Freddie Mac (FRE) aren’t included in Sen. Chris Dodd’s financial regulatory reform bill. “This denial is so egregious,” NYU’s Regulating Wall Street blog says, especially since both are involved in more than half of all US mortgages.

- Recent economic news seems to be trending in right direction. Unfortunately, housing doesn’t fall into that category as sales, starts, prices and builder confidence have all weakened this year, Economist’s Free Exchange notes. “A weak housing sector will be a drag on employment, and so long as employment growth lags, recovery is in doubt.”

- Bebo, Digg exemplify “hot going cold” in Silicon Valley. “At one time Digg and Bebo could do no wrong,” Kara Swisher says. “Now, no right.”

- Apple (AAPL) will likely introduce its mobile ad platform tomorrow at its iPhone developer event. And, ironically, Google (GOOG) can’t wait, Peter Kafka writes.

- Amazon’s (AMZN) Kindle may be coming to Target (TGT). Tech blog Engadget posts a picture of a Target inventory form showing a listing for the e-reader. Blog says Kindle could hit stores April 25. “Is this Amazon’s first response to Apple’s (AAPL) iPad?” Jay Yarow ponders at Silicon Alley Insider.

- Twitter investor Fred Wilson says the microblogging’s platform and ecosystem is at an “inflection point.” Silicon Alley Insider reads between the lines and wonders if Twitter “could buy or build its own photo-uploader and mobile app, squashing third-party developers in its way.”

- SEC investigating a few dozen financial firms regarding repo 105s is a welcome move, but it brings into question whether the agency has enough reach to be effective, Yves Smith says.

- Amazon (AMZN) currently controls nearly all of the e-book market. That will change with the iPad, Nook and others taking share, but maybe they can all thrive together, MediaMemo blogger Peter Kafka ponders.

- Current financial reform proposals are “toothless facades of what real regulation should look like,” Barry Ritholtz writes. He offers 10 questions finance reformers need to answer before passing legislation.

- New iPhones potentially on both AT&T (T) and Verizon Wireless may possible be Palm’s worst nightmare, Digital Daily blogger John Paczkowski says.

- This March has been a great month for stocks. And more gains may be on the way. April’s historically one of the best months of the year for the market, with the Dow averaging a 1.9% gain in April over last 50 years, according to Bespoke.

- “Regulation has to be smarter than something as simple as narrow banking,” Paul Krugman says. “Government backing — the 21st-century version of deposit insurance — plus regulation so that the backed institutions don’t abuse the privilege is still the way to go.”

- Non-profits can’t possibly save print journalism, Newsosaur blogger Alan Mutter argues.

- Ireland’s government announced plans to inject billions of euros into the nation’s beleaguered banking system and outlined bigger-than-expected discounts on loans to be transferred by financial institutions to the nation’s “bad bank.”

- Wondering what the next big battle between Wall Street and Washington will be? Capital ratios and liquidity, Andrew Ross Sorkin says.

- This perfectly exemplifies how bad the job market truly has gotten.

- Mark Hulbert says some are drawing the wrong lessons from this week’s market anniversaries.

- The view from the bottom. Our MarketBeat bud Matt Phillips compiles some quotes from market watchers when stocks were bottoming out this time last year.

- “As we celebrate the one year birthday of the current bull market, a key characteristic that still looms one year in is the lack of conviction and confidence in the economic outlook for those on Main Street versus the more optimistic view of those who work on Wall Street,” Peter Boockvar writes.

- Wards of the state enjoy a nice day. Citi (C), AIG, Fannie Mae (FNM) and Freddie Mac (FRE) all rally.

- Small business owners now say conditions will be worse six months from now. “It’s not a pretty picture,” Economist’s Free Exchange blog says. “The problem is clearly not labor supply. Rather, the economy’s principal job creators are seeing too little demand to justify increases in hiring. That’s the drag on recovery.”

- Cisco (CSCO) says faster router “will forever change the Internet? Does the announcement live up to hype? Shares close flat at $26.13.

- Government has bailed out the banks, now it’s time to bail out our nation’s schools, former labor secretary Robert Reich says.

- An improved Web browser on Amazon’s (AMZN) Kindle is long overdue, MediaMemo blogger Peter Kafka notes. “At this point having a wireless device that only grudgingly accesses the Web makes no sense. And it certainly won’t fly once Apple’s (AAPL) iPad ships next month.”

- “The biggest banks in some European countries today are already too big to save,” former IMF chief economist Simon Johnson says. “Unless we take immediate and real action to reduce the power – and size – of our largest banks, we are heading in exactly the same direction.”

- Monetary policy and unemployment: Should the Fed have done more? Mark Thoma ponders.