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Post by Conrad Alvin Lim on Jan 5, 2007 3:50:05 GMT -4
EARNINGS OUTLOOK In Alcoa earnings, a glimpse into the slowdown? Aluminum maker should benefit from price gains, but strike may hurt By Laura Mandaro, MarketWatch Last Update: 6:15 PM ET Jan 4, 2007
SAN FRANCISCO (MarketWatch) -- The fourth-quarter earnings season starts in earnest on Tuesday, with a report from aluminum giant Alcoa Inc. that should provide insight into the length and severity of the U.S. manufacturing slowdown.
Alcoa (AA : 29.11, -0.22, -0.8% ) , which produces more aluminum than any other company in the world, is expected to post a heady 88% rise in earnings per share, to 66 cents on average, according to a poll of analysts by Thomson First Call. They see quarterly revenue for the member of the Dow Jones Industrial Average rising 14% to $7.6 billion.
Those gains come on the back of steep year-over-year price increases in the light metal that ends up in everything from soda cans to airplane bodies. By December, prices had climbed to an average $1.32 a pound, up 23% from where they stood a year ago, lifting the quarterly average above many analysts' forecasts.
Still, earnings at Alcoa, which is headquartered in New York with corporate offices in Pittsburgh, are often more scrutinized for what will come than what has been.
Alcoa's customers straddle a broad swathe of industrial America, a sector that slowed output last quarter as North American automakers scaled back production and the housing downturn reduced demand for construction materials.
"The manufacturing sector has had somewhat of an inventory overhang, partly because of autos, housing, and a stockpiling of commodities earlier in the year," said Lynn Reaser, chief economist in Bank of America's investment strategies group.
Gauging these inventory levels, plus companies' pricing power and capital spending plans, "will give us a sense of where the economy and profitability are heading in 2007," she said.
What's more, companies like Alcoa have a front-row seat on industrial China and other developing countries, whose demand for raw materials has underwritten this decade's boom in commodities.
"What a lot of investors are expecting is that growth from overseas will balance out slower U.S. growth," said Russ Koesterich, a portfolio manager with Barclays Global Investors. "You want to see (the companies') outlook for emerging market demand," he said.
Financials, raw materials to lead profits Wall Street is anticipating raw material companies like Alcoa, U.S. Steel (X : 70.64, -0.67, -0.9% ) and Freeport McMoRan Copper & Gold (FCX) will post some of the best earnings gains amid cooler growth for S&P 500 companies.
Earnings for materials companies in the S&P 500 should gain 33% from the year-ago quarter, just one point short of the 34% growth forecast for the top-performing financials sector, says Thomson First Call.
But analysts see earnings for the entire index gaining 9.9%, down from 19% growth in the third quarter and at risk of breaking the S&P 500's 13-quarter streak of double-digit earnings growth. Analysts on average expect earnings growth for large-capitalization companies to slip even further in 2007, to under 9% for the first three quarters, says Thomson.
"No doubt there is definitely an expectation for slower growth, but taken into the context of the long-term average for the S&P 500 (of 7.5%), it's more like we're getting back to the mean after a solid run for three years," said Thomson research analyst John Butters.
At the other end of the spectrum, energy companies and utilities are expected to post a drop in earnings from the year-ago quarter.
Alcoa: Restructuring, strike For Alcoa, the fourth quarter will provide a chance for it to earn back some goodwill on Wall Street.
In October, Alcoa set off the third-quarter earnings reporting season on a sour note when it reported earnings that missed expectations. A drop in metals prices and higher materials clipped year-over-year growth. The news sent shares in the company down 5%.
Since then, Alcoa announced a broad restructuring program that will cut 5% of its workforce and lead to a spin-off of its molded soft-alloy business.
Helped by news of that reorganization, shares ended up 7% for the fourth quarter and 1.5% for the year.
Meanwhile, analysts have been notching down their fourth-quarter earnings estimates, citing the impact of an eight-week strike at Alcoa's Cleveland plant and the drag a weak dollar should have on its raw aluminum operations.
Last week, a union representing 830 employees at its Cleveland Works ratified a four-year labor agreement, putting an end to a strike at the plant that makes parts for heavy trucks.
"We expect a weak dollar and downstream results to more than offset the aluminum price strength," said Morgan Stanley analyst Mark Liinamaa in a note to investors. He lowered his fourth-quarter earnings estimate to 60 cents a share from 68 cents a share.
Aluminum prices rose more than he had forecast in the quarter, to an average of $1.23 a pound in the third quarter from $1.13 in the third. But Liinamaa said speculative fund buying has driven up prices.
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Post by Conrad Alvin Lim on Jan 5, 2007 4:10:34 GMT -4
Copper, commodities sell-off may signal slowdownBy Nick Godt, MarketWatch Last Update: 3:58 PM ET Jan 4, 2007 'Copper is the metal with a Ph. D. in economics.' — Barry Ritholtz, Ritholtz Research & Analytics
NEW YORK (MarketWatch) -- A sell-off in commodities -- from copper to crude oil -- over the past few sessions is telling some veteran market watchers that a slowdown in economic growth, likely one of considerable magnitude, is already underway. In the last two days alone, commodity prices seem to have fallen off a cliff. Copper futures, which tumbled 7.7% on Wednesday, fell another 1.8% on Thursday -- and have dropped 27% from their December highs. Crude-oil prices fell nearly 5%, following a 4% drop in the previous session. The front-month futures contract was trading at its lowest level since June 2005. In fact, everything from grains to base metals to livestock to cotton has been selling off over the past few sessions, notes Dennis Gartman, editor of the Gartman Letter investment newsletter. "In all, it was an unseemly start to the year [for commodities]," he wrote Thursday. The Dow Jones AIG Commodity Index was last down 3.2% at a 3-month low. But why would this signal an economic slowdown? Most commodities are used in the production of industrial goods. When producers start demanding fewer raw materials, it becomes noticeable in commodities prices much earlier than in official economic statistics, explained Barry Ritholtz, chief market strategist at Ritholtz Research & Analytics. Copper, in particular, is often used as a reliable economic indicator because of its widespread use in production. "Copper is the metal with a Ph. D. in economics," Ritholtz said. "It's used in the wiring of homes and offices, in plumbing in construction, and it's also a key component in electronic goods. "When it softens, it means we're making fewer homes, offices and computers." A fast-falling housing market and cutbacks in automobile production took a toll on the economy in 2006. Growth as measured by gross domestic product slowed from 5.6% in the first quarter, when it was boosted by a post-Hurricane Katrina recovery, to 2.6% in the second quarter and to a yet to be finalized but estimated 2% in the third quarter. The manufacturing sector contracted in November and barely grew in December, while retail sales over the holidays have investors wondering whether consumers are starting to feel pinched. Similarly, the big drop in oil prices in recent months is raising concerns. Besides being used in the production of plastics found in many finished goods, oil is also used for the transport of goods across the globe, Ritholtz pointed out. Many market strategists look to transportation indexes, such as the American Trucking Association's Truck Tonnage Index, as additional indicators of U.S. economic health. That index plunged 3.6% in November after a 1.9% drop in October, and it's at its lowest level since 2003, the ATA reported. "November 2006 marked the single worst month for for-hire truck tonnage since the last recession," said ATA Chief Economist Bob Costello. "Both the month-to-month and year-over-year decreases indicate that the economic slowdown is in full gear. Yet, few investors have picked up on most of these signals. In fact, the Dow Jones Transportation Average ($TRAN : 4,673.07, +22.41, +0.5% ) , which is also often used as one of the economic indicators for the stock market, began to rebound in late December. That's mostly due to gains in airline stocks, such as Continental Airlines Inc. (CAL : 45.67, +1.70, +3.9% ) and AMR Corp. (AMR : 33.80, +0.94, +2.9% ) , which have risen thanks to falling crude prices, helping offset weakness elsewhere in the Dow transports, according to Ritholtz. 'One would have to admit that the recent slide in copper's price seems worrisome, yet there has been little discussion in the media about why this might be happening or its implications.' — Richard Bernstein, Merrill Lynch [/color] Shares of parcel companies such as FedEx Corp. (FDX : 108.48, -1.29, -1.2% ) and United Parcel Services Inc. (UPS : S75.09, +0.12, +0.2% ) , along with freight transporters such as C.H. Robinson Worldwide Inc. (CHRW : 43.49, +0.19, +0.4% ) and shippers such as Overseas Shipholding Group Inc. (OSG : 55.83, -0.97, -1.7% ) haven't fared as well. While the market is debating whether the Federal Reserve will cut interest rates later this year to stave off an economic slowdown, few are paying attention to the signals being sent by commodities. "One would have to admit that the recent slide in copper's price seems worrisome, yet there has been little discussion in the media about why this might be happening or its implications," said Richard Bernstein, chief investment strategist at Merrill Lynch, in a recent note. Merrill metals analyst Vicky Binns has predicted that copper could fall an additional 30% in 2007, while sector strategist Brian Belski lowered his rating on the materials sector to an underweight on Wednesday. Merrill Lynch chief economist Dave Rosenberg, meanwhile, has noted that, should the economy rebound in the first quarter, that would prevent the Federal Reserve from cutting interest rates as early as the market had been hoping. "Dave is quick to point out that such a delay by the Fed will inhibit the economy's growth path through the remainder of the year," Bernstein said. "Perhaps that is what Dr. Copper is already seeing. "Regardless, one should be concerned that observers now seem to be ignoring Dr. Copper as though he (she?) has only a bachelor's degree," the Merrill strategist wrote.
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Post by Conrad Alvin Lim on Jan 10, 2007 1:16:17 GMT -4
U.S. stocks to close global gap in 2007 BlackRock's Doll sees an even race with overseas markets By Murray Coleman, MarketWatch Last Update: 11:55 AM ET Jan 9, 2007
SAN FRANCISCO (MarketWatch) -- After years of underperformance, U.S. stock markets should climb back against their overseas counterparts in 2007, a leading market strategist is predicting.
"Our overall view is fairly constructive in 2007," said Bob Doll, chief investment officer for global equities at BlackRock Inc. (BLK : 160.65, +1.01, +0.6% ) , in his annual forecast Tuesday. "But the volatility and the uncertainties in the equity markets should be a little greater than normal." Still, Doll added: "We think a soft landing is likely in 2007."
He noted inflation, a new Fed chairman and housing were all question marks early in 2006. As a result, markets went into a tailspin by spring. "It was the deepest correction we'd had in financial markets in virtually four years," Doll said. "But equities turned out to have a very good year."
He credited that resurgence to the Fed finishing its two-year cycle of short-term rate hikes. "And better-than-expected corporate earnings helped markets take off in the summer," Doll said. "They continued up and never looked back."
He says fourth quarter 2006 U.S. corporate earnings should finish up around 10% on average. The widely anticipated transition from value to growth and small to big took longer than expected, Doll added.
He's predicting that U.S. economic growth will slow to 2% to 2.5% in 2007. "The housing situation will dent, but not derail, the U.S. economy," Doll said. But sluggish housing markets will help slow domestic growth somewhat from recent years. "Long-term trend growth in the U.S. is about 3%, and we've been trending above that for several years," Doll said. "We think housing is enough to take us down 100 basis points this year."
But real wages are going up and Americans are working, he added. "We've also had a build-up in inventories that's in the process of being worked off," Doll said. "And then the inverted yield curve certainly isn't a negative, but it's not a positive."
A warm winter in parts of the U.S. has helped drive energy demand down, he pointed out. "Demand for U.S. goods outside the United States also remains very strong," Doll said.
Positive world view He's expecting global growth to end 2007 at about 4.25%, down from this year's level of around 5%. "That's still very robust growth," Doll said.
He's also optimistic about emerging markets, though wary about developing economies matching their white-hot growth of the last several years.
"They're a leveraged play on world growth," Doll said. "With growth around the world still going up, emerging markets should be overweighed in 2007, but less so than they were in the past."
The U.S. stock market should climb at nearly the same rates as overseas markets, he predicts. "In 2007, growth between U.S. financial markets and other markets around the globe will be more of a toss-up," Doll said.
His view is that after five years of outperformance by overseas markets, in the past several months "the U.S. has become less expensive than the rest of the world."
"If you want more of a higher-quality portfolio, why wouldn't you want more of the highest-quality market in the world? In our world equity portfolios, I'm not suggesting we're overweighting the U.S. by a lot yet. But this is the sort of question that's going to need to be asked more in 2007," Doll added.
"U.S. earnings growth will fall to single digits and fall moderately below long-term trends," he added. "When they've been at these high levels, it's hard to expect them to stay this high heading into a new year."
Fed backs off Doll also predicts inflation will stay under control in 2007. "Inflation will behave itself," he said. And at midyear he expects the Fed will start to "give-back some in short-term rates."
Doll believes short-term rates will drop while long-term rates will increase in 2007. "The absence of inflation and the Fed taking its foot off the interest rates pedal will help price-earnings ratios," Doll said. "We expect to see P-E expansion."
Profit margins are expected to stay at high levels, he added. "They might not stay at record highs as they've been in recent years," Doll said. "The equity markets, different than in the last few years, should do better than corporate earnings."
He pointed out over longer periods, a minority of the companies in the S&P 500 beat the overall index. That average in the past several years has been trending down, he says.
This year, Doll expects those numbers to keep falling against the blue-chip benchmark. "While stock picking is always important, it's going to become that much more critical to your portfolio in 2007," he added.
In terms of sectors, Doll is forecasting health care and tech to outperform telecom and consumer staples in 2007. He also predicts the U.S. greenback will fall to its lowest level in a decade against other major currencies.
He predicts Japan, which underperformed in 2006, is poised to rebound in the next 12 months.
Doll projects the world's second-biggest economy to be the only major world market to experience nominal growth in the new year. "And that will lead to relative financial market outperformance," Doll said. "They're far more focused on productivity. The financial system has also improved noticeably."
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Post by Conrad Alvin Lim on Jan 14, 2007 8:55:24 GMT -4
MARK HULBERT The energizer market Commentary: Bulls have at least a short-term lease on more life By Mark Hulbert, MarketWatch Last Update: 12:01 AM ET Jan 12, 2007
ANNANDALE, Va. (MarketWatch) -- Another trading day and another record high for the Dow Jones Industrial Average.
It's almost becoming routine. In fact, Thursday's new high for the Dow ($INDU : 12,556.08, +41.10, +0.3% ) was its 23rd since October.
Yet, bullish sentiment among investment newsletter editors remains moderately below its all-time high. From the point of contrarian analysis, this suggests that the bull market has at least a short-term lease on more life.
Consider recent readings of the Hulbert Stock Newsletter Sentiment Index (HSNSI), which reflects the average stock market exposure among a subset of short-term stock market timing newsletters tracked by the Hulbert Financial Digest. As of Thursday night, the HSNSI stood at 52.0%.
This is nearly 20 percentage points lower than the level to which the HSNSI rose in late November, when the Dow was about 200 points lower than where it is today. In other words, in the face of a 2% rise, the average short-term market timer has become markedly less bullish.
That's an encouraging trend. To be sure, the HSNSI's current reading of 52% is far closer to the high end of the HSNSI's historical range, which extends from minus 81.8% to 79.7%. So contrarians would not conclude from current sentiment levels that we're at the beginning of a major market advance.
Still, the HSNSI's decline in the face of a rising market does not bespeak the kind of stubborn bullishness that is typically seen at market tops.
Just contrast the current sentiment situation with what happened in March 2000 as the Internet bubble was bursting. In the face of the first 10% correction off that month's high, the average short-term stock market timing newsletter I track actually became more bullish, not less. Now that's stubborn bullishness, and isn't what we're seeing today.
The absence of stubborn bullishness is particularly evident among those market timing newsletters that focus on the Nasdaq market. The average exposure level of this subset of newsletters is reflected in the Hulbert Nasdaq Newsletter Sentiment Index (HNNSI). The HNNSI currently is some 25 percentage points below its level from late October, despite strength in the market that has propelled the Nasdaq Composite Index ($COMPX : 2,502.82, +17.97, +0.7% ) to close at a six-year high.
The bottom line? Newsletter sentiment is not so low as to allow contrarians to declare that happy days are here again to stay. But neither is that sentiment so high as to generate contrarian sell signals.
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Post by Conrad Alvin Lim on Feb 7, 2007 21:23:59 GMT -4
I found this article very interesting as it offers an alternative (and somewhat contrarian) but common sense approach to putting together your 2007 porfolio. It goes against the common opinion of Sector Investing but is worth some investigating. Personally, I found many a ticker in Moroney's list that were common to mine. Listen to the audio file for more details. PERSONAL MARKETWATCH Looking behind the numbers Market strategist bullish on financial services, energy, defense stocksBy MarketWatch Last Update: 6:02 PM ET Feb 7, 2007BOSTON (MarketWatch) -- Rich Moroney, editor of both the Dow Theory Forecast and Upside newsletters, says consumers looking for the strongest stock sectors should be considering financial services, energy, aerospace and defense companies. In contrast, he adds, they'll have a much harder time finding good names in health care and pharmaceutical stocks, as well as consumer staples and precious metals. In a Personal MarketWatch interview with senior columnist Chuck Jaffe, Moroney pointed out that while his analysis starts with the Quadrix computer analysis system, it is important that investors look beyond the numbers. "Don't just pick a stock because it has a high number, and then hold it for that reason," Moroney said. "Look to see what's behind the numbers so that you can see which stock you really want." Click here to listen to interview with Moroney.
During his interview with Jaffe, Moroney talked about the following stocks, in order of appearance: First Cash Inc. (FCFS : S23.11, -0.28, -1.2% ) Bank of America Corp. (BAC : 53.36, +0.15, +0.3% ) Wachovia Corp. (WB : 57.40, +0.11, +0.2% ) US Bancorp (USB : 36.01, -0.01, 0.0% ) TD Ameritrade (AMTD : 17.89, +0.10, +0.6% ) Merrill Lynch & Co. Inc. (MER : 94.53, +0.54, +0.6% ) Morgan Stanley (MS : 83.24, +0.11, +0.1% ) Dominion Resources Inc. (D : 86.99, -0.15, -0.2% ) Oneok Inc. (OKE : 43.61, +0.33, +0.8% ) Southern Co. (SO : 36.50, -0.08, -0.2% ) Halliburton Co. (HAL : 29.64, -0.25, -0.8% ) Oceaneering International Inc. (OII : 40.73, +0.13, +0.3% ) ENSCO International Inc. (ESV : 50.26, -0.49, -1.0% ) Schlumberger Ltd. (SLB : 64.45, -0.42, -0.6% ) Goldcorp Inc. (GG : 27.37, -0.16, -0.6% ) Freeport-McMoRan Copper & Gold (FCX : 53.96, -0.45, -0.8% ) Sun-Times Media Group Inc. (SVN : 4.36, -0.04, -0.9% ) Multimedia Games Inc. (MGAM : 10.15, +0.12, +1.2% ) Salton/Maxim Housewares Inc. (SFP : 2.95, +0.04, +1.4% ) and Activision Inc. (ATVI : 16.84, +0.07, +0.4% ) .
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Post by Conrad Alvin Lim on Feb 15, 2007 0:15:12 GMT -4
CAPITOL REPORT Big downward revision to GDP coming By Rex Nutting, MarketWatch Last Update: 6:33 PM ET Feb 14, 2007
WASHINGTON (MarketWatch) -- The U.S. economy was growing much slower in the fourth quarter of 2006 than the government's first estimate of 3.4%, economists say.
Instead of fairly robust 3.4% annualized growth, the government's next estimate will probably be closer to 2.2%, according to median forecast of economists surveyed by MarketWatch. Instead of bouncing back, the economy would have turned in its third quarter in a row of below-trend growth.
The first quarter also looks fairly tepid, with weak retail sales, falling homebuilding and growing signs that business investment isn't picking up the slack.
Revisions to the data are common. On the first pass, the government must simply guess at some of the numbers in the report, such as trade, construction spending and inventory building for the final month of the quarter. The average revision is 0.5 percentage points. But this time, the revision will be at least twice the average. And it would be the largest downward revision in 15 years. The Commerce Department will give us its second estimate of gross domestic product on Feb. 28.
Some economists say the downward revision isn't such horrible news. The main source of the revision was in inventories, which declined much more than initially thought.
Wednesday, the Commerce Department reported U.S. businesses worked down their inventories in December after a shard buildup in previous months. It was the slowest growth in inventories since July 2005.
The faster inventories contract so they are in line with demand, the faster production will resume in the nation's factories, the theory goes. That means growth should be stronger in coming quarters.
The other source of the downward revision comes from the trade gap. And although the trade gap is larger than suspected, it's up largely because U.S. consumers demanded more imports. That signals that the economy is fundamentally sound, the argument goes.
Still, one can't help but think that the economy has really and truly slowed, just as the Federal Reserve intended.
Maybe it's a Goldilocks economy, neither too hot nor too cold. Or maybe it's the fabled soft landing, with growth slowing just enough to ease the inflationary pressures without leading to a hard landing, otherwise known as a recession.
Or maybe the economy is at its stall speed, just one shock away from a bumpy landing. The bulls scoff at the dire predictions: Even a stopped clock is right twice a day, but these guys haven't been right in four years.
The bears counter that the Fed rarely achieves a soft landing; it almost always goes too far and pushes the economy over the cliff.
On the plus side: Employment continues to grow and real wages are actually rising. Profits are also up and corporate balance sheets are in excellent shape.
On the minus side: Consumers are strapped. They're in debt to their eyeballs and their homes are losing value every month. The refinance ATM has closed. The factory sector is weakening.
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Post by Conrad Alvin Lim on Feb 28, 2007 1:30:01 GMT -4
Further U.S. stock losses seen in short term Sharper drops can be avoided if yields stay low, strategists say By Alistair Barr & Carla Mozee, MarketWatch Last Update: 7:09 PM ET Feb 27, 2007
SAN FRANCISCO (MarketWatch) -- Losses that rocked U.S. stock markets on Tuesday will probably be a short-term phenomenon as long as long-term bond yields remain low, investment strategists and traders said after the worst day for the Dow Jones Industrial Average since 2001. The Dow fell 415 points, or 3.3%, to close at 12,216, its sharpest one-day drop in points since the day the market reopened following the Sept. 11 attacks in 2001.
'This has been a significant shock to the system, so we may continue to see declines tomorrow.' — Stephen Massocca, Pacific Growth Equities
Tuesday's rout began in China, where the Shanghai Composite Index plunged 8.8%, fueled by concerns the Beijing government could intervene to control speculation in a stock market that more than doubled in 2006.
Traders and strategists were too unnerved after Wall Street closed to say with certainty that U.S. stocks would rebound or fall further on Wednesday. However, most said they felt that the correction would be short-lived, partly because long-term bond yields remain low and economic growth still seems steady.
"This has been a significant shock to the system, so we may continue to see declines tomorrow," said Stephen Massocca, president and head of trading at Pacific Growth Equities. "But that may be the extent of it."
"Another 100 points off the Dow and we will have had roughly a 5% decline," he added. "Then I think it will be time to start looking to buy again. Long-term bond yields were down today. That's good for stocks."
Treasury bonds rallied during the sell-off in equities, leaving yields at their lowest level in more than two months. The benchmark 10-year Treasury note (TNX : 45.13, -1.18, -2.5% ) closed up 30/32 at 100 29/32, with a yield of 4.515%, its weakest level since Dec. 15.
Long-term bond yields are used to set mortgage rates and also influence the cost of most other types of borrowing. If yields remain low, businesses and individuals should be able to continue borrowing at attractive rates, helping to sustain spending and economic growth.
"There's no crisis tonight, except that stocks are down quite a lot," said Jim Paulsen, chief investment strategist at Wells Capital Management. "A leading currency didn't blow out, real GDP didn't hit the wall in a major economy and a financial institution hasn't melted down."
"There's quite a bit of momentum, so stock markets could fall again tomorrow," Paulsen said. "But this is more a short-term deal rather than a long term deal and we're closer to the end of this correction than the beginning."
The main "missing link" for Paulsen is long-term bond yields. Previous financial crises have been accompanied by a big increase in yields, he said.
In 1987, the year the Dow fell by more than 20% in one day, 10-year Treasury bond yields increased to roughly 10% from 7%. In 1994, when Orange County, California, went bankrupt, yields climbed to about 8.5% from 6%, Paulson recalls.
"In order to create some pain, you have to lift long-term bond rates. And that isn't happening yet," he said. "Long bond yields are lower. The world is still flush with liquidity. And GDP is still growing around the world. It doesn't sound too bad."
China, carry trade concerns Still, Michael Malone, trading analyst at Cowen & Co., was less sanguine, citing the growing importance of China to capital markets around the global. China has been buying lots of U.S. treasury bonds, partly to keep its currency from rising too much versus the dollar. That in turn has helped keep treasury yields low, even as U.S. economic growth picked up in recent years.
"If China's economic position were to weaken, that may erode their ability to purchase our Treasuries, thus putting (upward) pressure on U.S. interest rates," Malone said. "That would be a direct concern and a longer-term phenomenon."
Another worry is the so-called carry trade, in which speculators borrow in lower-yielding currencies such as the yen and reinvest the money in higher-return currencies and assets.
The trade, which has been another big source of liquidity for capital markets, depends on interest rates in Japan remaining much lower than in other economies such as the U.S. and Europe.
It also relies on currencies not moving much and the opposite happened on Tuesday, with the yen climbing more than 2% against the dollar. See full story. "The carry trade is a big concern and today's strengthening of the yen is something I think investors are going to be paying very close attention to," Malone said. "If that trade were to be unwound, I think it could have a very negative effect on the global economy."
Still, Massocca of Pacific Growth Equities, said worries about the end of the carry trade were "absolute nonsense."
Despite a recent increase, interest rates in Japan stand at 1/2%, well below borrowing costs in the U.S. and elsewhere, he noted.
"The significant difference in interest rates remains," he said. Tuesday's yen rally "isn't great news, but it's not enough to end the carry trade. Only significant changes in interest rates will end that."
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Post by Conrad Alvin Lim on Mar 5, 2007 2:17:28 GMT -4
MARKET SNAPSHOT Shaky market looks warily to next week Jobs report, Beige Book to lead economic debate By Carla Mozee, MarketWatch Last Update: 7:00 AM ET Mar 3, 2007
SAN FRANCISCO (MarketWatch) - The shaky U.S. stock market is set for more losses in coming days in the aftermath of the past week's global financial sell-off as investors look to two major economic reports for clues about the direction of the nation's economy and the health of the four-year bull market, strategists said.
The February report on U.S. job growth Friday and Wednesday's release of the Federal Reserve's Beige Book on economic activity will highlight the market's agenda next week in the wake of its worst weekly performance in the last three years. See Friday's closing report.
"The market is going to continue to be nervous," said Jay Suskind, director of trading at Ryan, Beck & Co. "People over the weekend will be concerned that the market dropped 500 points one day this week," and the rawness of those declines will keep the market on edge.
Tuesday's bruising tumble on Wall Street and the declines in the following sessions hit the brakes on a record rally that saw eight straight months of stock gains. The advances for February by the Dow Jones Industrial Average ($INDU : 12,114.10, -120.24, -1.0% ) , the Nasdaq Composite (COMP : 2,368.00, -36.21, -1.5% ) and the S&P 500 Index ($SPX : 1,387.17, -16.00, -1.1% ) were wiped out in the last two days of the month, leaving strategists divided over whether the losses are a blip on the market's radar or the start of a larger correction.
It was the Shanghai Composite Index's nearly 9% fall Tuesday on worries that Chinese officials will begin to clamp down on speculation in the markets that kicked off the series of sharp falls in stocks in Asia, Europe and the Americas.
But what continued to fuel the declines on Wall Street was the barrage of conflicting reports about the health of the U.S. economy, said Suskind. The "lousy and recessionary" durable goods report on Tuesday, for example, contradicted the "robust" figures on manufacturing activity that came on Thursday, he said.
"The market does not like uncertainty," he said. "We need to get a string of macroeconomic reports that are consistent--one way or the other - and then the market will adjust to them."
Economic data in spotlight There will be no shortage of data for investors to examine next week, with the long list of reports leading up to the closely watched employment figures on Friday from the Labor Department. Economists are expecting 100,000 jobs to have been added to non-farm payrolls in February, down from 111,000 in January, according to a MarketWatch poll.
If the payrolls projection is met, "at best, it means that [the] unemployment [rate] may shift up to 4.5%," said Edgar Peters, chief investment officer at Pan Agora. "We're still a long way from where we need to be in order for the Fed to be comfortable."
Economists expect the unemployment rate to remain at 4.6%. The central bank will release its so-called Beige Book on Wednesday. The survey consists of anecdotal feedback from businesses about economic conditions in their respective regions.
Figures on factory orders for January, activity in the services sector in February, and revisions to productivity and unit labor costs for the fourth quarter are also due next week.
Investors may enter Monday's trading session with fresh comments from Federal Reserve Chairman Ben Bernanke on their minds. He is scheduled to speak Friday night about globalization and monetary policy in Stanford, Calif. Attention will also be paid to Federal Reserve Governor Kevin Warsh who will speak on the issue of liquidity, a heavy driver of the market in the last several sessions.
Cautious optimism, earnings Though stocks were mired in red this past week, some strategists expressed cautious optimism that the market can regain some of its losses.
"If we see some encouraging news on the economy, I think buyers will come back into the market next week," said Brent McQuiston, vice president at Wealth Trust Arizona.
He expects the reports to largely reflect what he considers to be core fundamentals of the market: a stable economy and growth in corporate profits, albeit at a slower pace.
The economic slowdown was reflected in Wednesday's downward revision of fourth-quarter gross domestic product to 2.2% from 3.5% reported in January.
Expectations for first-quarter earnings growth have also dropped, and now stand at 3.9% according to Thomson Financial. Earnings growth of 8.9% was expected at the start of the quarter. However, fourth-quarter earnings growth is currently 11.9%, continuing the string of double-digit corporate earnings growth to a record 14 consecutive quarters.
Costco Wholesale (COST : 55.75, -0.25, -0.4% ) on Tuesday and Big Lots (BIG : 24.07, -0.41, -1.7% ) on Friday will add information about conditions in the retailing sector with their quarterly financial results.
Dow records triple-digit decline; gold futures dull The exit out of equities continued Friday, pulling the Dow down 120 points, or nearly 1%, to 12,114.10. The S&P 500 fell 16 points to 1,387.17 and the Nasdaq Composite lost 36 points to 2,368.
For the week, the blue-chip average finished down 4.3%, its largest weekly percentage drop since March 2003.
The Nasdaq suffered a 5.8% fall, its worst performance since August 2004 and the broad index lost 4.4%, its worst performance since January 2003.
The dollar fell 0.8% against the Japanese yen, whose sharp rise against its rivals on Friday spooked the stock market.
Gold futures slumped $21 to close at $644.10 an ounce on the New York Mercantile Exchange to log a weekly loss of more $42 an ounce.
Crude-oil futures closed down 36 cents at $61.64 a barrel, their first loss in eight sessions.
Treasury yields were pushed lower during the week as investors moved money out of stocks and into lower-risk investment vehicles. Prices and yields move in opposite direction.
The yield on the 30-year Treasury bond closed on Friday at 4.653%, down from 4.681% on Thursday. The benchmark 10-year Treasury note closed at 4.516% from 4.557% on Thursday.
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Post by Conrad Alvin Lim on Mar 10, 2007 11:54:21 GMT -4
MARKET SNAPSHOTStocks set to extend rebound Pile of economic data on its way for next week[/b][/size][/color] By Carla Mozee, MarketWatch Last Update: 12:01 AM ET Mar 10, 2007SAN FRANCISCO (MarketWatch) -- U.S. stocks are set to extend their rebound from the global sell-off next week on a series of economic reports expected to show steady growth and little inflation, as well as on positive financial updates from companies such as Texas Instruments Inc. and broker Goldman Sachs Group, strategists said. Figures on closely watched producer and consumer prices, industrial production and retail sales for February will anchor the pile of economic data on its way. Market experts and economists largely expect incremental shifts in key data, which would show that the economy is on track to grow at a sustainable rate and keep the Federal Reserve from finding reasons to raise rates. "There's going to be recovery ...we had a little bit of a washout in speculation. The big macroeconomic numbers are benign, and I think we'll have strength in the market [in the] short term," said Thomas Winmill, portfolio manager at the Midas Fund (MIDSX) . Leading into the next week's round of data was Friday's in-line jobs report for February. Nonfarm payrolls rose by 97,000; expectations were for an increase of 100,000 jobs. The unemployment rate moved down to 4.5% from 4.6%. Investors looking for bright spots in the market will look to Texas Instruments (TXN : 32.46, +0.76, +2.4% ) , which will issue its midquarter update Monday evening. 'People are quick to panic when it looks like the market is falling through the floor, but it takes more time for that fear to dissipate.' — Ken Kam, Marketocracy Masters 100 Fund The world's largest maker of phone chips was upgraded Friday at Stifel Nicolaus to buy from neutral on expectations that orders will improve, as large customers such as Motorola Inc. (MOT : 18.47, -0.16, -0.9% ) and Nokia Corp. (NOK : 21.66, -0.08, -0.4% ) whittle down their inventories. Brokerage firms Goldman Sachs (GS : 201.70, +1.76, +0.9% ) on Tuesday and Lehman Brothers Holdings Inc. (LEH : 75.83, +0.08, +0.1% ) on Wednesday will release their quarterly results, as will Bear Stearns Cos. (BSC : 151.98, -0.08, -0.1% ) on Thursday. A week after U.S. stocks had their worst weekly performance in the last three years, Wall Street's fragile optimism was piqued by rallies in markets worldwide to leave the benchmark indexes higher for the week. Investors have been "picking through everything that has been sold off and putting money to work," said Ken Kam, portfolio manager of the Marketocracy Masters 100 Fund. Kam added that the road to recovery will be lengthy for investors, whose confidence in equities was rocked by the rampant selling that erased $3.1 trillion on the world's markets, according to the Dow Jones Wilshire Global Total Market Index. "People are quick to panic when it looks like the market is falling through the floor, but it takes more time for that fear to dissipate. You're not going to have a 400-[point] pop and the [sell-off] will just be forgotten." Data to comeInvestors will see the Labor Department's reports on producer and consumer prices in February on Thursday and Friday. The Fed -- which will hold its rate meeting on March 20 and 21 -- wants to see contained inflation in concert with steady economic demand, according to Barry Ritholtz, chief market strategist at Ritholtz Research & Analytics. Economists surveyed by MarketWatch expect the core PPI, which excludes prices for energy and food, to remain unchanged at 0.2%. The core CPI is expected to edge down to 0.2% from 0.3%. Including food and energy, the PPI is expected to show a rise of 0.6% compared with a 0.6% decline in January. The CPI is expected to come in at 0.3% from 0.2%. "[The Fed is] really hoping to see a stay exactly in the sweet spot, which is a tough thing to do," said Ritholtz. The markets will search for signs of recovery in the manufacturing sector in the Fed's industrial production report on Friday. Economists expect an increase of 0.4% compared with January's sharp drop of 0.5%. The industrial production report will contain figures on capacity utilization, which is expected to tick up to 81.3% from 81.2% in January. Kam said that the utilization numbers are a good gauge of how much slack there is in the economy. "When you start growing beyond the nation's ability to add capacity, that's inflationary," he added. A reading below the estimate may provide reason for the Fed to ease rates, "but I don't see that in the cards." Retail sales are also expected move higher, by 0.2% compared with an unchanged reading in January. The report arrives on the heels of dismal February sales results by retailers, who blamed frigid winter weather for their shortfalls. Midas Funds' Winmill said that he'll watch for Tuesday's report on the fourth-quarter current account deficit, which measures international flows of goods, services and capital in and out of the United States. The current account deficit is expected to narrow to $204.5 billion from $225.6 billion in the third quarter. If that projection is met, he reasoned, "that means that things are going right for the dollar. It would be relieved and that would be positive for equities." He also said that narrowing would signal to him that "U.S. exporters are doing a better job at getting more competitive." Quarterly results from grocer and S&P 500 Index ($SPX) constituent Kroger Co. (KR : 25.29, -0.28, -1.1% ) will be delivered Tuesday. Analysts surveyed by Thomson Financial expect 14% growth in both per-share earnings and sales, to 45 cents a share and revenue of $16.8 billion. Stocks log weekly gainsA volatile trading session on Wall Street Friday ended with the Dow Jones Industrial Average ($INDU : 12,276.32, +15.62, +0.1% ) higher by 15 points at 12,276 -- with gains coming early but then slipping, followed by a late-session bounce. The S&P 500 ticked up 1 point to 1,402, but the Nasdaq Composite Index (COMP) slipped 0.2 points to 2,387. However, the tech-rich index rose 0.8% for the week. For the week, the Dow rose 1.3%, just a slice of the index's 4.3% tumble last week. The S&P 500 closed up 1.1%. Treasury prices fell sharply lower, pushing up yields. The yield ($TNX) on the benchmark 10-year note closed at 4.587%, up from 4.51% on Thursday. Crude-oil futures ended Friday at their lowest level in about three weeks. The contract for April delivery ended the week with a roughly 3% loss ahead of Thursday's meeting of the Organization of the Petroleum Exporting Countries. Gold futures ended Friday down $3.50 at $652 an ounce, but higher by more than 1% for the week. The dollar rallied to a one-week high against the yen and rose vs. the euro Friday. For the week, the greenback rose 0.6% against the euro and 1.2% vs. the yen. Carla Mozee is a reporter for MarketWatch in San Francisco.
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Post by Conrad Alvin Lim on Mar 11, 2007 2:58:31 GMT -4
Broker outlook to set sector's tone next weekBy Greg Morcroft, MarketWatch Last Update: 6:37 PM ET Mar 9, 2007NEW YORK (MarketWatch) -- Investors looking to wager on short term volatility and hoping for news of the near term economic outlook would do well to watch the earnings reports from firms like Goldman Sachs and Lehman Brothers next week -- they could get both in one shot. Brokerage stocks, which have been at the forefront of a multiyear bull market, pulled back sharply in recent weeks as jitters about emerging market stability and the financial health of subprime U.S. home borrowers caused the biggest share declines in several years. "We believe management's outlook will be the most important aspect of this reporting season. We expect a slightly softer tone given recent market weakness but in general, a positive posture," analysts at Wachovia Securities wrote in a recent research report. Investors and analysts expect managements to be generally optimistic about the stock market going ahead, because in fact the recent pullback is the first dramatic rough spot in the market in several years. "We haven't seen something like this (steep decline) in 5 years," said Dan Yu, a Senior Manager in the personal wealth advisors group at Eisner LLC. Yu, who is also a certified financial planner said, "The discussion of sub prime will be a bit trickier, (than the market sell off) I am much more frightened of that sector. I think that discussion is going to be more bearish." Analysts are mixed about the outlook for brokers longer term, with some upgrading shares and urging clients to buy on weakness, and others urging more caution until a clearer picture emerges. That's why three normally low profile industry chief financial officers, David Viniar, of Goldman Sachs (GS : 201.70, +1.76, +0.9% ) , Chris O'Meara of Lehman Bros. and Sam Molinaro of Bear Stearns (BSC : 151.98, -0.08, -0.1% ) will offer their outlook and fill in some blanks about the likely short-term effects of recent market turmoil. "They get the pulse of things faster than others," said Yu. "They have resources the general public doesn't, they have a better sense of where this trend is going to go." Yu said he has discussed the pullback as a buying opportunity with some clients. But not all analysts are as sanguine. Merrill Lynch's Guy Moszkowski recently downgraded Goldman Sachs, Lehman Bros. (LEH : 75.83, +0.08, +0.1% ) and Bear Stearns, saying that a decline in customers' risk appetites could slow earnings growth. But he reiterated that he is very optimistic about the industry's long-term outlook. LEH v GS v BSCHe argued that had investor worries been limited to the weakening of the subprime mortgage area, their risk appetites would likely have remained healthy. But recurring talk about a possible recession and slowing growth, combined with the recent share selloffs, has sapped enthusiasm, he argued. "A recession, if it happened, would drive declining M&A and the related financing, as well as most aspects of public and private equity business -- all areas that have contributed meaningfully to improved industry profitability," Moszkowski wrote. Yu is also interested to see what managements have to say about a recession. He's not predicting one, but said if the mortgage crisis gets too out of hand, it's a possibility. David Trone at Fox-Pitt Kelton Wednesday raised his rating on the brokerage group to overweight from market weight based on the recent market corrections. "The five full-service securities firms are collectively down 10% year to date and 16% from their recent highs. Meanwhile, the earnings outlook is largely unchanged," Trone, said. Merrill Lynch, which reports earnings on a calendar quarter basis, is the fifth full service firm. Market wisdom dictates that financial stocks, and brokers in general, are a good bellwether for overall market health. On one hand, their business allows them to get an earlier picture of economic sentiment than others have, as the amount of merger and acquisitions, corporate borrowing and securities underwriting reflects the confidence of the broader business world. Yu said he's like to know what changes are in place in the industry so it does not revisit this issue of risky mortgages. He and others are more interested in what the executives have to say about the subprime mortgage market. "Obviously Lehman had a dramatic sell off," said Sophia Collier, chief executive of Citizens Advisers, a socially responsible investment firm. Collier "That was indicating some general fears, how volatility (in the mortgage market) might impact their portfolios. Investors will want to make sure there are no blowups." She said if corporate chiefs make clear the mortgage issue hasn't caused any blowups, the brokers' shares could rally. Collier also manages the Citizens Value Fund (MYPVX : 14.18, +0.01, +0.1% ) , which counts Lehman Bros. among its top 10 holdings. Analysts polled by Thomson Financial currently have an average estimate of $4.90 and a revenue estimate of $10.69 billion. The estimate for Bear Stearns is earnings per share of $3.80 on revenue of $2.49 billion. The average analyst estimate for Lehman Bros. is $1.95 a share on revenue of $4.97 billion. Morgan Stanley is expected to earn $1.87 a share on revenue of $9.42 billion. Goldman reports Tuesday, Lehman Bros. on Wednesday and Bear Stearns on Thursday. Morgan Stanley (MS : 76.00, +0.59, +0.8% ) reports the following week. Among other issues likely to be discussed next week, Lehman, and Bear are all likely to report that their debt and stock underwriting business grew, as did M&A advisory. The firms were also involved in several private equity deals as investors, and are expected to give a bit more detail about that business. Morgan Stanley, Goldman and Lehman all participated the a buyout of Texas utility TXU, a deal interesting for its record-breaking value, as well as its high profile environmentally friendly structure which will end plans to build several coal-fired plants in Texas.
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