Futures slightly lower this morning as markets digest last week’s better-than-expected
jobs data and the subsequent potential for sooner-than-expected rate hikes. Bernanke may address such concerns during a noon speech. Other news is light this morning. F may file for a $1B offering. LLY won approval from the FDA to broaden use of a top-selling drug. There is talk the government will announce that the taxpayer will make out better-than-anticipated on TARP repayments. ODP reaches settlement on 2007 SEC investigation. The USD is flat to slightly higher on increased potential for interest rate hikes. Commodity and material names are lower overseas (taking commodity-heavy markers like US South Africa and down with them). Looking ahead, the Bank of Canada’s rate decision is due tomorrow. (Recall they posted an 80k jobs gain last week.) Russia ’s PPI, CPI, and Retail Sales are due Thursday night. The health care debate is heating up, as Obama gave Democrats a “pep talk” over the weekend. Speaking of China , “Cash for Appliances” and a stimulus package aimed at job creation may be forthcoming sooner than later. We’ll see $74B in Treasury auctions Tuesday, Wednesday, and Thursday. Friday brings US Advanced Retail Sales, Consumer Confidence, and Business Inventories. Washington
Note that today marks the 68th anniversary of
Pearl Harbor… The summit on climate change kicks off today. Friday volumes were higher given the surprise jobs number…we’ll see if that volume continues into this week. There are some concerns that fall under the “be careful what you wish for” heading: given confirmation of a v-shaped recovery, the very stimulus that helped surge this market recovery from the March lows faces the danger of withdrawal. As a result, the question on many investors’ minds following Friday’s jobs number is “where do we go from here?” If the market is indeed a forward-looking instrument, and if the past 5-6 months’ action has been in anticipation of – among other things – a recovery in the jobs market, then is that confirmation a “sell the news”-type event? And looking out a bit further, what happens to Treasuries? If rates are hiked and/or quantitative easing is…well, eased…then presumably bonds will sell-off and yields will tick higher. However, couldn’t equity markets also sell-off on rate hikes and/or stimulus withdrawal, thus causing a “flight-to-quality” effect on bond prices as well? Not sure how all that plays out in 2010… But it’s safe to say that the Fed needs to get all this dead-center-perfect for markets to escape unscathed. If you are feeling especially bearish, see the quote section below. Copenhagen
According to my informal survey a couple weeks back, many believe markets will drift sideways to higher into year-end. Toward that end, here’s a great point from a friend this weekend: assuming most losses are on the short-side, expected tax-loss buying into year-end. That may be a hidden driver of inverse January effect action…
CSTR tgt lowered at TWPT. AKAM raised guidance. Barron’s positive S. BofAMLCO ups SRCL. BCAP ups JASO, SPWRA, STP. FBRC ups NYB; cuts AAP. GSCO ups ACE, POT. BARD ups KSS. CSFB cuts ABX, DD. FBRC cuts AAP. GSCO cuts BARE, MMC, NLC. OPCO cuts ENDP.
ups AMD. AXL announces 14M share offering. OPCO ups BRCD. GSCO adds CMI to Conviction Buy List. Barron’s positive DOW. Cramer positive GSM. MDR announces split into two companies. GSCO cuts NLC. DBAB cuts STO. BERN
Brightpoint PreMarket (yest close/premkt/% change/volume):
S&P 500 PreMarket (last/% change prior close/volume):
NVIDIA CORP 6.25 +13.96% 1733670
AKAMAI TECH 6.29 +5.24% 7620
SPRINT NEXTEL CO 3.86 +4.61% 354611
ADV MICRO DEVICE 8.20 +4.33% 91885
PROLOGIS 3.35 -3.96% 00
QWEST COMMUNICAT 3.77 -3.58% 800
DISCOVER FINANCI 15.68 +3.29% 6400
CUMMINS INC 5.10 +3.2 % 268
Today’s Trivia: What nation has the highest unemployment rate for those under 25 years old? And what rate?
has won the World Cup a record five times; 1958, 1962, 1970, 1994, and 2002. Brazil
By Jeff Kearns and Lynn Thomasson
Dec. 7 (Bloomberg) -- Forecasts for the fastest
earnings growth in 15 years are failing to convince options traders that the Standard & Poor’s 500 Index will extend its biggest rally since the 1930s.
S&P 500 options to protect against declines in stocks over the next year cost 22 percent more than one-month contracts, the highest since 1999, data compiled by London-based Barclays Plc and Bloomberg show. The gap shows concern that analyst estimates for record earnings by 2011 may prove exaggerated, endangering an advance that pushed the S&P 500 up 63 percent since March.
“It’s telling you that there’s severe anxiety about the future,” said Paul Britton, chief executive officer of New York-based Capstone Holdings Group LLC, which oversees about $1 billion. “People want to protect next year, and there’s a sense of urgency.”
The last time the average gap between one-year insurance and 30-day contracts was higher was five months before the S&P 500 began a 49 percent plunge in March 2000 during the collapse of the Internet bubble. More than $5 trillion has been restored to
shares this year after the government lent, spent or guaranteed $11.6 trillion to end the worst recession in seven decades. U.S.
There’s an 80 percent chance stocks will plunge next year, John P. Hussman, whose $5.5 billion Hussman Strategic Growth Fund beat 99 percent of peers in 2008, wrote in a posting on his Web site Nov. 30. Albert Edwards, Societe Generale SA’s London-based global strategist, wrote in a Dec. 1 research note that
equities will fall below their March lows as the global economy weakens. U.S.
One-year implied volatility, which measures the price of options, on the S&P 500 has jumped to 24.16, or 4.42 points higher than the level for one-month contracts, Barclays data using 10-day moving averages show.
Option prices are rising on speculation the Federal Reserve will lift interest rates in 2010 or risk stoking inflation. Fed funds futures show chances the central bank will boost interest rates by its June meeting rose to 54 percent on Dec. 4 from 31 percent a week ago after
unemployment unexpectedly fell in November, according to data compiled by Bloomberg. U.S.
Fed Chairman Ben S. Bernanke said at a Senate Banking Committee hearing on Dec. 3 that he doesn’t rule out using monetary policy to pop asset-price bubbles.
‘Worrisome and Threatening’
“Supervision, regulation of the financial system is the strongest, most effective” way to deal with bubbles, Bernanke said in response to a question at the hearing considering his nomination to a second four-year term. “I do not rule out using monetary policy if necessary, if that situation does become worrisome and threatening.”
Futures on the S&P 500 slipped 0.3 percent to 1,104.4 as of 10:03 a.m. in
Investors are buying stocks on speculation the worst is over for the
economy and rebounding consumer spending will help companies meet growth estimates. Gross domestic product increased by 2.8 percent in the third quarter after contracting for a year and is forecast to grow an average of 2.8 percent a quarter through March 2011, data compiled by Bloomberg show. U.S.
The S&P 500 has erased almost half of its loss after sinking 57 percent to a 12-year low in March from its record of
1,565.15 in October 2007.
Five Wall Street strategists surveyed by Bloomberg project an additional 9.6 percent climb to 1,212 by the end of 2010, according to data compiled by Bloomberg.
Analyst predictions for S&P 500 earnings growth of more than 20 percent in each of the next two years, the fastest since 1994, are attracting money to equities. Combined profits for companies in the index will rise to $78.61 a share in 2010 and
$95.32 in 2011, compared with $62.82 in 2009, according to the mean forecast in a Bloomberg survey.
“Mutual funds, hedge funds, pensions and endowments were scared stiff, but now they’ve regained their appetite for risk,” said Jean-Marie Eveillard, senior adviser to the $8.6 billion First Eagle Global Fund in
and a finalist for Chicago-based Morningstar Inc.’s fund manager of the decade award for non-U.S. stocks. “It’s a warning sign because everyone who wants to be invested already is.” New York
Earnings growth among S&P 500 companies may be hindered in 2010 by appreciation in the dollar, options trading shows.
corporations generate about 33 percent of their sales abroad, compared with 20 percent for the smallest, according to data compiled by Charlotte, North Carolina-based Bank of America Corp. A declining dollar makes overseas sales more valuable when translated back into the U.S. currency. U.S.
Traders in the $3.2 trillion-a-day foreign exchange market are paying the highest prices in more than a year to protect against a sudden rebound in the dollar after the worst year since 2003, data compiled by Bloomberg show.
While the Dollar Index fell to a 16-month low last month, implied volatility on three-month call options that grant the right to buy the dollar versus the euro exceeded options to sell by 1.61 percentage points last week.
In the stock market, “people are getting more skittish and afraid and have the sense that there could be a correction coming,” said Wasif Latif, vice president of equity investments at USAA Investment Management Co., which oversees
$74 billion in
. “You’re seeing that now in the forward implied volatility numbers and the spread between the shorter-dated and longer-dated options in the S&P 500.” San Antonio
The gap in equity options prices comes as the Chicago Board Options Exchange Volatility Index heads for the steepest yearly drop in its two-decade history. The VIX, as the equity derivatives benchmark is known, has declined 74 percent to
21.25 from its record high of 80.86 in November 2008, two months after Lehman Brothers Holdings Inc. filed for bankruptcy and world credit markets froze.
Lower readings in the measure of the cost of one- and two- month S&P 500 contracts indicate more confidence among investors because the VIX rises more than 80 percent of the time when stocks fall, Bloomberg data show.
The higher price of one-year S&P 500 options means the VIX, a gauge of expected price swings over the next 30 days, is giving an incomplete view of investor concern, according to Carl Mason, the New York-based head of U.S. equity-derivatives strategy at BNP Paribas SA, France’s largest bank. VIX futures also show bets that risk will increase, with March contracts closing at 27.80 last week.
“We’ve seen a lot of interest in hedging strategies, and there’s an awful lot of uncertainty through next year,” Mason said. “People have got a queasy feeling.”
Money managers are also buying options to lock in gains this year after the S&P 500 lost 38 percent in 2008, its steepest decline since 1937. The index’s 22 percent increase since December is its biggest annual advance since 2003.
Investors who bought shares of companies with rising earnings estimates have been rewarded. The average analyst forecast for next year’s profit at American Express Co., the biggest credit-card issuer by purchases, has more than doubled since April to $2.28 a share. The New York-based firm has surged 112 percent this year for the steepest rally in the Dow Jones Industrial Average.
Estimates for 2010 profit at Caterpillar, the world’s largest maker of construction equipment, have risen 81 percent since July. The Peoria, Illinois-based company has rallied 144 percent since the March low.
Increasing debt delinquencies at lenders may end the stock market rally, according to Hussman. The Federal Deposit Insurance Corp. said 4.94 percent of loans and leases were overdue at the end of the third quarter, the highest proportion in 26 years that insured institutions have reported data.
“There is still close to an 80 percent probability that a second market plunge and economic downturn will unfold during the coming year,” Hussman wrote.
Worldwide losses at financial institutions from the collapse of the subprime-mortgage market have exceeded $1.7 trillion, helping cause the worst global recession since the 1930s.
The recession will worsen as businesses and consumers reduce debt and deflation remains a “key threat” for the world in the next one to two years, said Societe Generale’s Edwards in his note to clients. The S&P 500 fell to a 12-year low of 676.53 on March 9, according to data compiled by Bloomberg.
“I can understand why, longer term, people might have more concerns,” said David Kelly, who helps oversee $480 billion as chief market strategist at JPMorgan Funds in
. “You’re just not going to feel comfortable again. It’s like how people act after an earthquake: Any rumble in the ground and they run for the hills.” New York