Thursday, November 5, 2009

Morning Note...

Futures slightly higher this morning (+50bps) on better-than-expected earnings from QCOM and CSCO last night.  Bullish action remains somewhat tepid, however, as markets digest generally worse-than-expected Retail Sales data out of the Consumer Sector.  To expand on that slightly, Retailers seem to be beating their comparison sales on the whole, but given that this should be the first easy year-over-year comparison (given where the world was one year ago), the “true expectation” (the “whisper numbers”) were slightly higher.  Remember, the Consumer continues to be engine that drives the economy, and shaky comp sales could certainly cause concern for Retailers heading into holiday shopping season… On the positive side, Q3 Nonfarm Productivity came in better-than-expected at +9.5% versus +6.5%/e.  Clearly this indicates businesses are continuing to squeeze more work out of fewer people, as cost-cutting and budget constraint continues across the corporate sector.  Additionally, Q3 Unit Labor Costs were -5.2% vs. -4.2% expected.  Finally, Initial Jobless Claims were 512k vs. 522k expected, and Continuing Claims were 5.749M vs. 5.75M expected.  Expect to hear more clamoring about the Underemployment Rate, as some economists continue to stress that true unemployment numbers are historically high when you factor in those who have given up looking for work, those who have had benefits expire, etc…

Markets generally reacted positively to yesterday’s Fed announcement that low interest rates will be maintained for an extended period.  The late afternoon sell-off was attributed to concerns from the financial sector, as rumors of a BAC capital raise spooked investors, and fears that today’s jobs data would be surprisingly bad.  Across the pond, the BofE followed their American cousins in maintaining low rates (0.5%), and took one step further in pledging more quantitative easing.  Additionally, the ECB maintained 1% interest rates as well.  In political news, the Senate (by a 98-0 vote) took a step toward adding stimulus directly to the consumer by – among other things – extending unemployment claims by 14 weeks.  The first-time homebuyer credit was also extended, and the carryback period for 2008 or 2009 loses was extended from 2 years to 5 years for businesses of all sizes.  This bill should be put to the House today and tomorrow, and let’s see if Obama immediately signs it (expect a flowery press conference) to potentially temper what could be official 10% unemployment tomorrow morning.  Remember that Obama has “gamed” the jobs data before – last month at this time he came out bullish on economic recovery, and most assumed he had an early look at the numbers.  So if we hear that this bill is making incredibly rapid progress through the House, the read-through is probably that Obama needs it done to offset what could be poor unemployment data…

ACIW misses by 6c.  UBSS ups IRE, CRXL, ARRY.  CECO, EDMC higher on earnings.  CF lower on “best and final” $45 offer from Agrium.  DEG raises outlook.  FSYS higher on earnings.  GGC higher on earnings.  GIVN higher on earnings.  Cramer positive IMGN.  LAMR beats by 11c and guides higher.  MCHP, MEND, MITI higher on earnings.  NWS/A higher on 4c earnings beat.  PIPR ups ONNN on positive earnings results.  PCS beats by 12c.  PLCE reports better-than-expected SSS and guides higher.  RIMM higher on buyback announcement.  SIRI beats by 2c.  DBAB raises SPRWA, VALE.  TRMA higher on earnings.  TRW raised at KEYB.  WFMI -8% despite top-line earnings beat.  BCAP ups PALM, cautious on banks with downgrade of BAC & C.  IMS may sell itself to TPG.  WSJ reports VZ’s launch of the MOT Droid may be the toughest test for AAPL’s iPhone yet, and warns RIMM is vulnerable.  CSFB ups MDT.  JEFF ups D.  PIPR ups ATRC, THOR.  WEED ups IRE.  WELA ups ALY.  GSCO cuts TAP.  HSBC cuts FMX.  JPHQ cuts AREX.  MSCO cuts TEX.  RBCM cuts GRMN. 

Asia mixed overnight.  Europe rallies to positive after trading lower for much of the session.  USD flat.  Oil -15bps.  Gold +40bps.  Bonds ticking higher, thus yields are lower.

Brightpoint News: 

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

S&P 500 PreMarket (last/% change prior close/volume): 
IMS HEALTH INC            19.40    +15.41%           1082115
CVS CAREMARK COR      32.27    -10.73%            178777
WHOLE FOODS MKT       28.98    -9.61%              139178
DYNEGY INC-A                2.00      +6.95%             34500
CIGNA CORP                  31.29    +5.07%             5509
WENDY'S/ARBY'S-A        4.35      +4.57%             400770
QUALCOMM INC             43.24    +3.94%             582843
FANNIE MAE                  1.13      +3.67%             87809
STAPLES INC                 20.88    -3.51%              3200
CISCO SYSTEMS            24.10    +3.48%             1982627
DEVELOPERS DIVER        7.64      -3.29%              1499
KOHLS CORP                  54.74    -3.18%              58195
SARA LEE CORP             11.75    +3.07%             17770

Today’s Trivia:  Most people know that the 25th anniversary is dubbed “Silver.”  What is the 40th?  How about the 50th?

Yesterday's Answer:  Average winter temperatures are -22 F at the North Pole and -76 F at the South Pole… this divergence is due to a variety of factors, but foremost is simply elevation.  The South Pole is higher, thus automatically colder…

Best Quotes: “Overall these results have the potential to make investors really nervous about Q4 earnings expectations.  40%-60% of a retailers yearly eps comes from Q4 and the best indication we have of how it will look is this disappointing month of October despite the easiest compares in decades.  The reason I think the reaction is going to be sloppy today isn't the actual results.  8 different retailers raised Q3 guidance.  However, when you consider the MVRX is up ~70% ytd which represents ~50% outperformance I would have to assume the incremental shareholder is a seller not a buyer. 

With that being said there will be some really interesting relative value plays that show up today.  Keep in mind these are my initial reactions and are subject to change.  However, 1) This should be an inflection point for WMT.  Investors are going to hide there till they figure it out.  2) TGT came in line and has been underperformer so rotation there wouldn't surprise me at all.  3) In the department stores darlings like KSS and JCP could be traded for stocks that seem to be stabalizing like JWN and M.  4) In the teen space ARO will be seen as being "over" and AEO as "not turning" so I can't believe Im saying this but the stabalization and internation growth in ANF may create interest today.  5) Finally, despite TJX and ROST doing fantastic I have a feeling investors won't go there.  There is going to be some great opportunities presenting themselves today on a relative basis.”  

--BCAP retail trader

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