Lot of ground to cover in today’s show: big stock rally, earnings, the falling dollar and the rising (very, very slowly) yuan. Today’s special guest is Mike Ryan, chief investment strategist at UBS Wealth Management.
Earnings
US stocks on the launch pad as Asian and European markets engage in a spirited rally. Intel earnings credited for sparking gains, but earnings are almost a side note as US dollar index slumps to lowest levels in more than 16 months, and euro explodes higher.
EUR/USD surges above $1.45, and US stocks have a propensity to chase a bolting euro. No surprise either to see oil and gold soar. Seems sovereign debt problems — both in Europe and US — are too slow-moving, deferred and, at times, abstract for today’s capricious markets to get hung up on.
March existing home sales due at 10:00 a.m. ET. AT&T reports before the open; Apple, AmEx after the close.
S&P futures up 17.40, DJ futures up 137. Ten-year lower, yield at 3.41%.
Speaking of Intel, Kevin Kingbury posted the following:
Some mea culpas are going around on Wall Street as Intel (INTC) blew past 1Q expectations and gave a surprising strong 2Q revenue view in the face of what had been conventional wisdom about supposedly weak desktop and laptop demand. Auriga notes, “Consensus was clearly too pessimistic on PC sales (the primary source of upside).” While admitting that growth is under pressure from tablets and the economy, “data center will likely bolster both revenue and profitability.” RW Baird boosts its price target to $29 from $27 as it says INTC’s new Sandy Bridge product “is strong so far, debunking the myth about lack of demand for high-performance CPUs in PCs.” INTC up 6.2% premarket at $21.10.
Big show today, markets trying to rebound after yesterday’s sell-off, earnings from Goldman and J&J as well as a look at this afternoon’s earnings, and author, economist and sometimes actor Ben Stein comes on to talk about the U.S. debt issues, the future of the economy and the importance of diversification.
Asian markets overnight felt the reverberations of S&P’s outlook cut on US government debt, with stocks marking substantial declines.
European markets currently engaged in a moderate bounce from sharp selling yesterday, and euro’s recovering. Stage set for modest rebound for US stocks after yesterday’s sell-off
Oil continues to slide, recently at $106.43/barrel, and gold’s up a little after another fresh Comex settlement high yesterday at $1492.30.
Goldman Sachs, J&J earnings headlines hitting the tape now. Both stocks rising in premarket trading. Intel, IBM after the close. March housing starts due at 8:30 a.m. ET.
S&P futures up 1.80, DJ futures up 27. Ten-year note lower, yield at 3.39%.
Meanwhile, last night Texas Instruments reported a weak first quarter and warned the Japanese disaster would cut into its second quarter. Kevin Kingsbury adds some perspective:
Citigroup calls the impact on Texas Instruments (TXN) in the wake of Japan’s disaster largely as expected. It lowers guidance amid TXN’s cut and moves price target to $40 from $42. But the investment bank does call TXN’s underlying business “good” and “order strength is contributing to an optimistic” 2H view. Susquehanna concurs, adding, “Outside of baseband/Japan, demand commentary sounds good.” FBR says, “We remain constructive on TXN as the firm has meaningful barriers, growing scale and a low 12x P/E multiple,” which should send shares higher. “That said, many TXN comparables are also inexpensive.” Auriga keeps its sell rating, contending it is “somewhat pessimistic” about a 2H rebound. TXN down 2.3% premarket at $34.
- Feel the excitement?
Another listless day of trading for stocks, as bull-bear duel produces what’s essentially a flat session. Both sides seem as if they’re waiting for something to happen, with bears maybe looking for another big shoe to drop, while bulls sift for some catalyst to reenergize the months-long uptrend.
Volume again suggests little conviction, with NYSE composite trading volume only slightly better than yesterday’s year low. Ramped-up M&A action not creating as much zing for markets overall as deal parade continues.
Materials sector performs well, while health-care and industrials decline most. DJIA slips 6.13 to 12393.90, and Nasdaq Comp edges up 2.00 to 2791.19. S&P 500 ends 0.24 lower at 1332.63. Continue reading…
Posted by John Shipman
on February 17, 2011
Earnings, Economic Indicators, Federal Reserve, Markets, Stocks / Comments Off
Earnings, Economic Indicators, Federal Reserve, Markets, Stocks / Comments Off
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…
This shouldn’t come as a surprise to dedicated readers of The Upshot or this blog, but there are a couple of reasons why corporate America looks so healthy these days, and it has nothing to do with the state of the consumer.
The main source of revenue growth for corporations is overseas sales, as Gluskin Sheff’s David Rosenberg points out today (see below.) That plus a ruthless obsession with cost-cutting have been the two drivers of corporate America’s recovery (you could add, too, official government policy to make banks profitable again. Okay, three, three main drivers.) Meanwhile, sales growth is the U.S. is running at barely a 3% clip, Rosenberg points out. It gets back to something we’ve been saying for a while: there just isn’t a lot of demand in the U.S., and because of that, companies aren’t doing a lot of hiring over here.
Do not kid yourself; the American economy is still digging its way out of a deep, deep hole, and it will be some time before it’s capable of supporting the populace on its own. It’ll be interesting to see whether or not the Fed has the brass to turn off the spigots in June when QE2 runs out or, Heaven forbid, actually raise interest rates.
Mark this well: the fact that the Fed still has its fed funds rate at zero, zero, tells you everything you need to know about how the Fed really feels about the economy. Absolutely everything.
One of the reasons I got so irate yesterday about this whole corporate-tax reform thing that the President brought up is because we’d been working on today’s Upshot column, which happens to be about corporate taxes, so I was sort of amped up on the topic to begin with.
The reality of the tax code is that it’s been getting bigger and bigger, with more deductions, more loopholes, more carve-outs that save companies money. The bottom line of that expansion is that the effective tax rate, what companies pay after winding their way through the byzantine tax code, has been steadily falling since at least the mid-’90s. So companies are paying less in taxes to Uncle Sam, while they’re earning more. How you feel about that trend probably is influenced greatly by whether or not you’re a stockholder. Or a Republican.
So here’s the thing: any earnest reform of the tax code would be aimed at making companies pay more, not less, by stripping out of a lot of the loopholes. If that’s what Obama was really after, I doubt the U.S. Chamber of Commerce would be applauding him; more likely, they’d be screaming that he’s a socialist out to steal their wealth. They’d be manning the ramparts.
Something tells me this is all just more noise, more distraction to make us think the government’s got a plan. Anybody or any company that can afford a good accountant likes the current tax code just fine, and has about, oh, I dunno, a trillion reasons to oppose any meaningful reform.
Anyhow, that wasn’t the point of the column. The point of the column was that the lower tax rates are a boost to the bottom line. From today’s column:
As President Obama asks businesses for assistance in revamping the corporate tax code, it’s worth examining the helpful role of research and development and other tax breaks on fourth-quarter corporate earnings.
Chemical maker DuPont Co., conglomerate General Electric Co., software giant Microsoft Corp. and others are noting the boost provided by lower taxes on earnings in the final quarter of 2010. Two were key: an extension of a federal credit for research and development spending, and the benefit of production in low-tax countries.
DuPont, for instance, said a favorable tax rate contributed more than a quarter of its fourth-quarter per share profit. The company said its full-year tax rate was lower than expected, reflecting “a more favorable geographic mix of earnings in low-tax jurisdictions outside the U.S.” It credited U.S. tax law changes, including the R&D tax credit, for the improved results.
Stocks are back into rally mode, while the euro bounces around and the Treasury market flashes an inflation-warning sign.
Earnings season is coming in stronger than expected:
With about 50% of companies already reporting, fourth-quarter profits for the biggest U.S. corporations have been exceptionally strong and 2010 is poised to deliver the third-best full-year gain since 1998—with sharp advances in the telecommunications and energy sectors and a rebound in financial services.
Excluding financial companies, whose losses in 2009 skewed results, weighted earnings for the companies in the Standard & Poor’s 500 Index are up 17% on an as-reported basis for companies representing 54% of the group’s market value.
Unlike the initial period of the recovery, when cost cutting strongly boosted profits, the results suggest a solid pickup in spending by businesses and consumers. Sales for the group rose about 9% from a year ago, according to S&P. Job cuts continue to be critical under tight expense controls.
S&P now forecasts fourth-quarter earnings will rise about 32% over a year ago when all 500 companies report, more than three times as fast as its forecast at the outset of this reporting season. Profits then were seen rising 9.8%, with sales expected to be up 6%, according to S&P.
Then you look at a company like Exxon, which this morning reported fourth-quarter earnings surged 50%, to more than $9 billion, on, you guessed it, rising oil prices. Not a bad time to be a major U.S. corporation.
