Tuesday, October 13, 2009

Morning Note...

Futures flat to slightly lower (-20bps) this morning as USD weakness (which typically produces equity strength) is counterbalanced by lukewarm JNJ earnings, weaker-than-expected consumer confidence in Germany (which is, after all, the largest EU nation, the world’s largest exporter, and the 4th largest economy), and a surprise GS downgrade from financial analyst du jour Meredith Whitney.  The S&P500 hit a 2009 high yesterday (on one of the lowest volume days of the year) and may be due for a pause.  JNJ is trading down $1 (sell the news?) despite an earnings beat.  Gold continues to move higher on growing inflation fears and continued USD weakness.  The dollar has achieved levels not seen since pre-Lehman collapse, meaning it has essentially unwound the “flight-to-quality” trade that took it higher during a time of global uncertainty.  Other metals and commodities are also bid higher this morning.  ALTR, CSX, and INTC are due to report after the close.  Congress may generate headlines today, as a Health Care Bill vote in the Senate Finance Committee is expected.  Goldman Sachs has a bullish piece out this morning that predicts US stocks are in a “perfect storm” for M&A activity given 1) inexpensive valuations, 2) available cash at potential acquirers, and 3) “accommodative” capital markets for financing deals.  WSJ reports that the Obama Administration has shelved plans for $200B in new taxes on multinationals.  CIT bankruptcy looks likely.  CSCO to buy STAR for $3B.  JPM earnings tomorrow…

It’s worth noting that the response to JNJ’s earnings may be the trend as earnings season gets underway.  Easy comps resulting in better-than-expected data may, in fact, be “baked in” to the market given recent strength.  Thus unless we see absolute blow-out numbers (i.e. even better than the better-than-expected…confused yet?), profit taking into year-end – also known as “buy the rumor (of better earnings), now sell the news (the actual release)” – may be the trend.  Of course, this is simply speculation and JNJ’s release and subsequent pre-market action does not a trend make, but it’s certainly a thought worth considering.  So where would all the cash raised from profit-taking go?  Hmmm…tough to buy gold at these elevated levels but it continues to make higher highs.  TIPS have also outperformed of late, gaining 7.9% while Treasuries have lost 2.8%, which marks the “biggest outperformance since the US first issued TIPS in 1997” (BBERG).  Stay tuned for the answer to that one….  Back to the USD:  Now that we’re back at pre-Lehman levels, where does it trade from here?  As stated earlier, the “flight-to-quality-given-global-uncertainty” trade appears to have unwound itself (perhaps prematurely, but that is another issue entirely…), yet the path of least resistance probably remains lower.  Can anyone honestly argue that the “full faith and credit” of the United States of America is worth more today than it was a year ago?  Unlikely…thus, taking an oversimplified view of the world, the dollar may have more downside ahead.  Great line from last night’s BTIG note from Mike O’Rourke, who noted that President Obama pushed off meeting the Dalai Lama (after winning the Nobel PEACE Prize?!) until after he meets with China’s Premier Hu Jintao:  “It appears as though the President’s pragmatism trumped idealism.  In this new era of Sino-U.S relations, the President is opting to keep his largest creditor happy.  The Dalai Lama better start buying Treasuries.”

Here’s a great tidbit for the bears out of Barclay’s:  In years when the stock market is up 17% or more (current S&P500 YTD = +19% and DJIA YTD = +12%), October is a down month 5 out of 6 times.  See quote section below for more interesting numbers from Barclay’s. 

BofA/MLCO reinstates GLW with Buy; assumes KEY, USB with Buy; assumes FITB, STI with Neutral.  DBAB initiates C with Buy.  BCAP ups LCRX.  FBRC ups PSUN.  GSCO ups PKX.  TWPT ups BAM.  UBSS ups ARQL.  BofA/MLCO cuts MAC.  GSCO cuts VPRT.  BARD cuts PPO.  JEFF ups CY, JNPR, FFIV; cuts SYNA.  AMD upped at JMP.  CSFB cuts AMP, MET.  CATY announces $70M stock offering.  DRYS upped at LAZA.  KEYB cuts JOYG.  PHG upgrade at BNP and RBS following earnings.  CSFB ups RMD. 

Asia higher overnight.  Europe roughly 50bps lower.  Oil +110bps.  Gold +25bps.  USD -25bps.  Bonds higher, yields lower.

Brightpoint News: 

PreMarket Brightpoint Activity (yest close/premkt/% change/volume):

PreMarket S&P 500 Activity (last/% change prior close/volume): 
CIT GROUP INC              .88        -15.37%            3761591
METLIFE INC                  37.01    -2.84%              13162
ESTEE LAUDER               39.75    +2.63%             2000
COMCAST CORP-A         15.66    +2.49%             800
ADV MICRO DEVICE        6.29      +2.44%             231605
WHOLE FOODS MKT       32.09    -2.4 %              1880
JOHNSON&JOHNSON      61.05    -2.37%              709642
COACH INC                    33.73    -2.23%              250
SUPERVALU INC             15.72    -2.18%              620
UNISYS CORP                2.95      +2.08%             2965
ZIONS BANCORP            17.35    +2.06%             800

Today’s Trivia:  What iconic American institution celebrates its 217th birthday today?

Yesterday's Answer:  Woodrow Wilson won the Nobel Peace Prize in 1919 for development of the League of Nations.  Teddy Roosevelt won in 1906 for brokering peace between Russia and Japan.     

Best Quotes:   “Today could be the first time in 2009 that ... the S&P 500 closes in the green for 7 straight days.  SPX is +5% over the last 6 sessions, closing up each day.  Even this 6-day streak of green is the first all year, and a 5-day green streak has only happened once before in 2009 (last month).  Even during February's ugliness, the market didn't have 7 consecutive days of red.  We'll see what happens today on a slow day of earnings and econ data, but I bet we close lower.”  --BCAP trader

No comments:

Post a Comment