Market Talk

The longer the Mideast revolts last, and the subsequent jump in crude prices, the more people are going to start drawing lines between gas prices, the consumer, the state of the state and federal government and the economy.

Don’t mean to bum you out, but the more of those lines that get connected, the worse the picture gets.

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:

Premarket US stock futures currently point to a flat open, though that could shift after our first look at 4Q GDP, due at 8:30 a.m. ET. Earnings reports should also provide some influence, with Chevron due before the open, and investors showing disappointment with Ford’s fresh results, shares down 7% premarket.

Investors also peeved by Amazon’s outlook for higher costs and lower 1Q profits; AMZN down 8.5% premarket. Microsoft shares flat ahead of the open after solid results, though there’s some quibbles with Windows revenue.

In addition to GDP, we’ll also see Reuters/Univ of Michigan final look at January consumer sentiment at 9:55 a.m.

S&P futures up 0.20, DJ futures up 3. Ten-year lower, yield at 3.41%.

Newswires Kevin Kingsbury had this take on Ford’s earnings:

Ford (F) slides 7.4% premarket to $17.40 as company reports weaker 4Q results as prior-year figures were boosted in part by an earning surge at its credit arm, largely due to lease residual gains one analyst at the time called “unsustainable.” Still, F says earnings excluding debt-related and other charges was 30c, well short of 48c Street estimate and last year’s 43c profit. Revenue fell less than expected, with the decline due to selling Volvo in mid-2010. F shares through Thursday were up 65% the past year.

Kathleen Madigan, Donna Kardos Yesalavich and I discuss the final 3Q GDP revision as well as how surging commodity prices look good but may hurt company balance sheets come 2011. Check it all and more on today’s markets hub:

While you’re all sitting this holiday season cozy and warm, bathed in the glow of the yule log, roasting chestnuts and holding off Jack Frost, drinking eggnog and reflecting on the year behind and the year ahead, looking ahead to a year of peace and prosperity and plenty, think about the following from Gluskin Sheff’s David Rosenberg:

Consensus views of 1,350 on the S&P 500 and 4% real GDP growth are far too high. Not one strategist polled by Bloomberg is bearish on equities. So we have a complacency problem on our hands, the exact opposite of what we experienced at the March 2009 and the July 2010 lows. For that reason, the outlook for at least the first half of 2011 is less than positive.

Moreover, equities are at the high end of the range and are priced for good news on earnings and economic growth. Valuations are not at extremes (however, according to the Shiller normalized P/E ratio the market is still on the expensive side) but sentiment is. Negative divergences are increasingly apparent and momentum is actually subsiding. We see better buying opportunities ahead but continue to favour companies that are “special situations” — consistent dividend growth, undervalued, strong balance sheets, and non-cyclical in the sense that they have low correlations with the direction of North American growth.

In my view, real GDP growth in the U.S.A. is set to slow from around 3% in 2010 to 2% in 2011, or possibly even lower. This is not a double-dip but it is a slower growth profile. We went to 3% in 2010 from -2.6% in 2009 so the second derivative was positive. But for the coming year, the second derivative is likely going to decline. This augurs for a non-cyclical exposure; more defensive and still yield-oriented. As the Bank of Canada strongly suggested, global growth is going to slow and hence a sense of caution over global multinational cyclicals is warranted.

Here’s our rundown of the third-quarter GDP report. Don’t be fooled, it wasn’t good. Sure, the economy expanded, but there’s enough in there to give plenty of pause, and investors are already holding their breath ahead of next week, which is shaping up to be one of the loopiest weeks you’ll ever see, between the midterms, the Fed meeting and the jobs report.

First glimpse at US 3Q GDP at 8:30 a.m. ET is the early focus for investors, with economists looking for 2.1% growth.

The Fed says it’s considering all incoming economic data as a guide for future actions to stimulate the economy, so good GDP news could be perceived as bad news for aggressive QE expectations.

Reuters/Univ of Michigan’s final Oct consumer sentiment measure set for 9:55 a.m. Microsoft shares enjoy some premarket gains, up 3.3% after solid quarterly results.

US dollar recovers a little after yesterday’s pounding. S&P futures down 5.90, DJ futures down 39. Ten-year note flat, yield at 2.65%.

So, hmm, looks like that stellar September is getting a little clipped here today, but regardless stocks staged an impressive rebound in September. You can, and should, question its real sources and how long it will last, but right now, it is what it is.

Still, the data this morning weren’t exactly supportive, and you wonder if at some point the market will succumb to plain old reality.

Gone are the cares of life's busy throng, Beautiful dreamer, awake unto me.

If you ever needed proof that the market believes what it wants to believe (not that you don’t get it on a near-daily basis anyhow,) today would be one of those Exhibit A kind of days.

The futures are pointing to a solidly “up” opening, with Dow futures up 53. They were lower before 8:30 a.m. when a couple of data points hit the tape. Must’ve been some bang-up data to spark a rally, right?

Er, no.

Initial jobless claims slid 16,000, to 453,000. This was greeted as good news, but it’s really no news. Initial claims have been stuck at roughly this level all year. It’s good only in that it didn’t move higher, back toward the recent high of 500,000. That 453,000 level indicates no improvement in the jobs market. Additionally, another 250,000 some-odd folks fell off the edge of the proverbial cliff, i.e., they exhausted their last batch of emergency claims and are now on their own. How many of them do you think found jobs? Add some bodies to the 99er wood pile.

Then there was the GDP report. This was the third estimate of 2Q GDP, which used to be called the “final” estimate, but the BEA changed the language on that recently; there is no final reading on GDP anymore. Anyhow, the latest is that GDP rose 1.7% in the second quarter, a tick higher than the second estimate of 1.6%. That is a negligible change. There wasn’t anything in those reports worth getting excited over.

But regardless, the stock market’s in full-on, heads we win, tails we win mode.

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Wow, that one stings the nostrils

Friday’s September ISM manufacturing report should be intriguing.

Similar to last month, the September regional manufacturing reports from the various Fed districts, frankly, have stunk. There’s been spotty improvements, at best, in some readings, but weak reports overall.

If you recall, those lame regional gauges led to tempered expectations for August ISM manufacturing, which then inexplicably surprised on the upside. That eased double-dip concerns and helped spark the rally that’s taken stocks back to their highest levels since May.

The latest dud manufacturing report comes from the Richmond Fed, with the headline September reading actually slumping into contraction territory. This one’s awful, citizens, with everything tumbling (except future expectations) sharply. The headline -2 reading is the lowest since January, and second-lowest since April 2009. Lowlights include:

Shipments: -4 from 11 in August

Volume of orders: goose egg from 10

Capacity utilization: goose egg from 14

Average workweek: another goose egg from 14 (was 16 in July)

Wages: 8 from 13

All ugly, but Richmond Fed puts on a brave face on this stinker, with the following headline:

“Manufacturing Activity Pulled Back in September, But Expectations Upbeat”

Nice take. Feel better now?

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