September 27, 2007
Another hundred point gain on the Dow yesterday ignited a big rally in Asian markets over night, with the indexes in Hong Kong and Tokyo up almost 2 ½ percent.
We’ll be looking for a little more good news about 6 minutes from now when the final number on 2nd quarter Gross Domestic Product is released. There’s been increasing chatter about the possibility of the national economy slipping into recession, which is generally defined as two consecutive quarters of negative GDP. Maybe it’s coming, but we’re a long way from it. Second quarter GDP is expected to reflect an increase of 3.9 percent.
If the ‘R’ word IS in our future, it will be the housing market that leads us there. At 10 o’clock, expect the August New Home Sales Report to come in at 828,000 new units. Last month’s number was 870,000.
According to personal finance site Bankrate.com, the average rate for a 30 year fixed rate conventional mortgage last week was 6.49% least week, up almost 2 tenths of a percent. 15 year conventionals were up a similar amount at 6.16 percent. 30 year jumbo mortgages, which are mortgages over $417,000, averaged 7.31 percent.
September 26, 2007
The tentative labor agreement at General Motors has put stock futures into overdrive this morning. General Motors common stock is looking to open about 7 to 8 percent higher than last night’s close. That will help the Dow by almost 20 points all by itself, so pending a decent Durable Goods Report in less than 8 minutes, look for a very solid open for stocks in general.
That 2nd Quarter Durable Goods Report is expected to register a decline of about 3 ½ percent.
The other significant report this morning will be the domestic oil inventory report. Light sweet crude is hanging right around the 80 dollar level, up 55 cents overnight. Any big build-up in domestic oil supply would likely send that price back below the 80 dollar support.
Bed Bath & Beyond will report earnings today. Let’s hope that we can get through the day without the kinds of retail warnings we saw yesterday out of Target and Lowe’s.
Markets were closed in Hong Kong, South Korea and Israel overnight, but most other major markets overseas are higher by a half-percent or so.
September 25, 2007
Here come the warnings! Let’s hope that the rest of the week doesn’t keep pace with this morning’s news.
Target says that monthly Same Store Sales, which were estimated to increase somewhere between 4 and 6 percent, will be up closer to 2 percent. In a similar vein, Lowe’s says that their quarterly profit will be at the low end or below the $1.97 to $2.01 cent estimate.
With the retailers’ important Holiday season just around the corner, we’ll find out more about the mood of the consumer at 10 o’clock with the Conference Board’s September Consumer Confidence number. Traders are expecting a reading of 104.4, down from 105 last month.
Elsewhere, homebuilder Lennar wrote off a stunning 9% of its book value, reporting more than a half-billion dollars in losses in the 3rd quarter. And, the CEO of oil giant BP is calling the current quarter’s results “dreadful.”
Add to all that happy news the UAW’s strike against General Motors and you understand why stocks will likely start the day lower.
Asian markets were mixed overnight, but Europe is solidly lower, and that’s where we’re headed as well.
September 24, 2007
The UAW strike threat against General Motors will keep Michigan in national spotlight this morning, as GM shareholders hope for contract terms that will help it survive and UAW members, well, survival it exactly what they’re trying to do as well.
The big economic news of the week may well be tomorrow’s Consumer Confidence data and Friday’s U of M’s sentiment results as traders look for hints about the consumers’ willingness to spend with the holiday season just around the corner.
Outside of that, it should be a pretty quiet week for data. It is, however, the last week of the calendar quarter. Traditionally, that’s when companies that know, will announce that their quarterly results will not be up to expectations. Earnings have been so strong for the past couple of years, “earnings warnings” have been few and far between. However, the possibility of soft earnings news is always worth .
Motorola was upgraded by a major broker this morning. Light sweet crude is under 81 dollars per barrel (but not by much.)
September 21, 2007
As discussed with Paul, for an explanation of “fair value,” please visit the main menu of our website and click on the “Any Questions?” tab.
The Fed-induced rally hit a bit of a hiccup yesterday. But, not to worry, the futures are currently indicating that we may well make up yesterday’s losses in the first ten minutes this morning.
Three Fed-heads are on the speaker circuit today. However, the market focus is about to turn from interest rates back to corporate earnings. We’re in the last 6 trading days of the quarter, and traders will be on the watch for any earnings warnings.
The news on that front is good this morning. Oracle’s earnings rose 25% year-over-year. That’s a penny per share better than expected. Not to be outdone, Nike also beat estimates on a 50% profit increase.
For the first time in a week and a half, the price of oil is behaving, hanging around 81½ bucks, after topping 83 dollars per barrel at one point yesterday.
Japanese stocks were lower overnight, but Hong Kong and major European markets are up on the order of about a half-percent.
September 20, 2007
It’s been a very nice two day rally as stock prices have risen about 3 or 4 percent. But, as they say, today is another day. It will be a day filled with lots of news that could move stock prices around.
Earnings, economic data and even Ben Bernanke are in the mix.
Mr. Bernanke will be testifying on Capitol Hill about the rising delinquencies among sub-prime mortgages.
Meanwhile FedEx testified to all of us about earnings this morning. First quarter revenue and earnings were both higher than expected. However, FedEx said they are unlikely to deliver on expectations for the second quarter. Rising energy prices and softness in the economy are cutting their full year forecast by 4 percent. Fittingly, FedEx stock is looking to open about 4 percent lower this morning.
Goldman Sachs beat estimates on significantly higher revenue.
Bear Stearns, Oracle and Circuit City also report in today. And at 10 o’clock, we’ll get the Philadelphia Fed Survey and the August Leading Economic Indicators, which are expected to decline by 4 tenths of one percent.
It takes more than $1.40 to buy a euro this morning, as the dollar continues to slide. On a related note, it will take more thna 82 dollars to buy a barrel of light sweet crude oil this morning.
September 19, 2007
Yesterday’s 335 point rally on the Dow Jones Industrial Average was the best day in about 4 years on a percentage basis, and overnight, Asian markets were even stronger than that. Japanese stocks rose over 3 percent. Stocks in Hong Kong rose just about 4 percent. European markets are generally between 2 and 2½ percent higher this morning.
The conventional wisdom is “Don’t fight the Fed.” When the Federal Reserve is lowering interest rates, financial assets tend to rise. Yesterday’s half-point move from the Fed got things rolling in that direction. Although the Fed gave no indication that another rate cut is coming, the half-point move was a big one and may be an indication of how big the Fed believes the adjustable mortgage reset problem is going to be. Read it this way: unless inflation rears it’s ugly head, more cuts are on the way.
In ten minutes, we’ll find out if inflation perked up in August. The Consumer Price Index is expected to be unchanged, with the core rate matching yesterday’s core PPI rise of two tenths of a percent.
Morgan Stanley is out with disappointing earnings this morning, reporting $1.38 versus the expected $1.54. Morgan wrote down their loan portfolio by 940 million dollars.
September 18, 2007
Well, here we go. At 2:15 this afternoon, the Federal Reserve Open Market Committee is widely expected to announce a ¼ percent cut in the Fed Funds rate and a ¼ point cut in the discount rate. If the Fed does lower the rate, it will be the first rate cut in almost 5 years and will be the Fed’s first step in fending off even more damage in the housing market as boatloads of adjustable rate mortgages continue to reset.
Riding to the rescue in London this morning was the Chancellor of the Exchequer. What a great title - who wouldn’t want a job with a title like that? Anyway, the U.K. main money man promised that the government would guarantee deposits at Northern Rock. That should stop the bank run that started there late last week.
Lehman Brothers announced $1.54 in earnings this morning, versus the expected $1.47. Best Buy just reported 55 cents in earnings, That’s 25% better than expected.
Almost overlooked in all the banking news, the Producer Price Index is expected to have dropped three-tenths of percent in August. The larger the drop, the more cover the Fed will have to cut rates. We’ll find out at 8:30.
September 17, 2007
Oh, what a week it will be.
Obviously, the Federal Reserve Open Market Committee meeting has been on everyone’s radar screen for the past few weeks. That comes along tomorrow, along with the August Producer Price Index.
Everyone’s also been on pins and needles about the big investment firms’ exposure to sub-prime mortgages. We should find out more about the extent of that exposure starting tomorrow as the big brokers and investment banks start to report earnings.
This morning, our immediate problem is coming from across the Atlantic. If you remember the Russian currency crisis about nine years ago, you’ll remember that nothing unnerves stock investors quite as much as seeing bank depositors in line at the bank, trying to pull their money out. Well, that’s what’s reportedly going on in England this morning at the big mortgage lender Northern Rock.
On Friday, the Northern Rock problems in England got us off to a rough start, from which we eventually recovered by the end of the day. Well, here we go again, although the futures are a little high than they were a half hour ago.
September 14, 2007
It’s a global economy. We can’t even keep mortgage problems to ourselves. This morning, The Bank of England had to bail out a British mortgage lender. Northern Rock is a broker, that, like Countrywide Financial, relies on outside investors rather than customer deposits to fund mortgages. Well, with those sources of funds few and far between, Northern Rock had to turn to The Bank of England, and European markets took it on the nose. Most of Europe is off almost one percent, the FTSE in London is off almost 2 percent.
Intel was downgraded from buy to neutral by a major broker this morning.
At 8:30 we’ll get information on August Retail Sales, at 9:15, the August Industrial production numbers, and at 10 o’clock the University of Michigan’s September Consumer Confidence survey is expected in at a reading of 83.5.
Chinese interest rates were hiked for the fifth time this year overnight, but Asian stock rose. Our futures are in better shape than they were an hour ago, but we’re still looking at a lower open for stocks.
September 13, 2007
The weekly jobless claims number hasn’t gotten a lot of attention lately. But, in light of the ugly August Jobs numbers released last Friday, traders will be paying attention to the weekly numbers at 8:30 this morning. Expect new claims for unemployment of about 320,000.
Speaking of claims for unemployment, mortgage lender First Horizon is cutting 50 percent of its workforce, which is about 1,500 jobs. Washington Mutual is closing two mortgage units, with 1,000 jobs lost there.
Good dividend news out of a couple big time players this morning. Microsoft is raising its dividend from 10 to 11 cents per share, and McDonalds is going all the way from a buck to $1.50 per share. That gives McDonalds about a 3 percent yield. They will also be buying back 15 to 17 billion in stock.
Merck gets a broker upgrade this morning. But Alcatel-Lucent is out with its third earnings warning of the year. The third quarter is now expected to be break-even at best.
Look out for oil. Light sweet crude touched an all time high of 80 bucks per barrel yesterday.
September 12, 2007
In case your wallet feels a little bit skinnier this morning, it may just be the impact of the steadily shrinking dollar. The euro just shy of $1.39 this morning and that’s an all-time high as international investors anticipate a U.S. interest rate cut next week. Granted, you may not much notice if you’re not vacationing overseas, but don’t expect the price of any imported product, for instance the price of oil, to be going down anytime soon.
Amgen was upgraded by a major broker this morning after a favorable FDA ruling yesterday.
Texas Instruments reaffirmed their revenue and earnings for the current quarter, but in light of yesterday’s boost in guidance from Intel, the TI news is a bit of a disappointment.
September 11, 2007
There’s some good news for shareholders of Imclone (I wonder if Martha Stewart has any at this point.) Anyway, Imclone’s drug Erbitux, in combination with chemotheraphy, is reportedly showing progress in the battle against non-small cell lung cancer. As a result of that report, Imclone stock looks to open about 30 percent higher this morning.
We’re in a quiet week as far as economic data is concerned. We’re really just starting the countdown until the Fed Open Market Committee decision a week from today. In what could be our last chance to get it directly from the horse’s mouth before that meeting, Ben Bernanke will speak in Germany at 11 o’clock Eastern time this morning. Although the topic is “Global Imbalances,” there’s a chance that he may give us a clue as to which way interest rates may go next week.
There’s some good news from McDonald’s. They just announced August same store sales that increased almost double the expected percentage.
The Chinese stock market took a 4 ½ percent hit overnight, as the Chinese August Consumer Price Index checked in with a 6 ½ percent increase. Japan finished in the green and most European markets are higher to the tune of one to one and a half percent.
September 10, 2007
The Jobs Report for August was nothing short of awful on Friday, and it included downward revisions to prior month numbers. Although the productivity numbers were stronger, stocks started pricing in a real threat of recession in the U.S. Strangely the unemployment rate held steady at 4.6 percent,
We’ll see how long that lasts. After the close of trading Friday, Countrywide Financial announced that up to 20 percent of its people will be without their jobs soon, further underscoring problems in the housing market.
Three Fed Presidents and a Fed Governor are out on the stump today. Traders will be watching for clues about next week’s interest rate decision.
Overnight, stocks were 2 percent lower in Japan, but Europe is holding at only slightly lower levels.
This is one of those funny mornings, as the futures look weaker on their >
September 7, 2007
It’s the first Friday of the month. That’s means that the Labor Department will take center stage at 8:30 this morning with the August Unemployment Report. Expect a 4.6% unemployment rate, with the creation of 110,000 new non-farm jobs and an increase in average hourly earnings of 0.3 percent.
Typically, a lower unemployment rate and higher job creation would be welcomed as signs of a stronger economy. However, this time around, stock prices have already (at least partially) priced in a September interest rate cut by the Federal Reserve. A higher unemployment rate, and lower jobs creation may be viewed as factors giving the Fed more comfort in cutting the short term rate at their September 18th meeting.
Overnight, Chinese stocks were down for the first time in recent memory, losing two percent on increasing interest rates. Stocks in London are flat, but most other major overseas markets are off a half-percent or so as everyone waits on the Jobs report.
Don’t look now, but light sweet crude oil is up to $76.60 per barrel.At this point, adjusted for fair value, S&P futures are down about 5 points, the Dow futures are down 43 and the NASDAQ futures are about 8 points below fair value.
September 6, 2007
The European Central Bank, which has been pushing their short term interest rates higher of late, decided to take a little breather at their meeting this morning, holding interest rates steady at 4 percent. The Bank of England also held their benchmark rate at 5¾ percent.
Retailer’s August same store sales reports don’t look too bad this morning as WalMart, JC Penney, Saks and Nordstrom all beat expectations.
Troubled mortgage lender Countrywide is cutting 900 jobs in addition to the 500 they cut last month. Of course when it comes to jobs, tomorrow’s August Unemployment Number will be the major economic number of the week.
The ISM services index is expected to show slowing expansion at a reading of 53.3 for August. In about ten minutes we’ll get the final reading on 2nd quarter productivity. The consensus estimate is 2.5%, and the higher that number, the better.
Japanese stocks rose about a half percent overnight. Most of Europe is about a half percent lower, and absent a big surprise in the productivity number, we’ll head a touch lower at 9:30 as well.
September 5, 2007
We have a broad smattering of uniformly bad news this morning.
First off, Mattel announced a third major recall of toys made in China. This recall includes an array of accessories for Mattel’s flagship Barbie. You wonder when they’re going to start checking this stuff before it hits the shelves. Mattel stock is understandably bid lower this morning.
Costco could also be under pressure. August same-store sales came in 2 percent higher than a year ago. That’s nice, but analysts were expecting a 5.7 percent increase. Most of Costco’s growth came from overseas. Other big retailers report in tomorrow.
Later today, the Federal Reserve’s Beige Book, a survey of regional economic conditions will be released. Traders will look for signs of weakness that may push the FOMC toward a cut in the Fed Funds rate in a couple of weeks.
September 4, 2007
Summer vacation is over. The kids are back to school, and although Halloween is still a couple of months away, stocks are going into what has traditionally been the “scary season” of September and October.
There’s a good bit of economic data on the way this week, especially the August Unemployment numbers that will be announced Friday morning. But for today, the automakers will take center stage.
The August sales rate for new cars is expected to be us just a touch from July’s annualized rate of 11.6 million units. Should that rate fall below expectations, trace the blame right back to weakness in U.S. housing and shrinking amounts of home equity that consumers have available to borrow against. But don’t look now – the BMW numbers are already in. BMW’s North American sales are up 18% from a year ago.
At 10 o’clock this morning, we’ll also get the August ISM Index, a measure of manufacturing strength, which is expected to show moderate expansion at a reading of 53.
One major broker downgraded price targets on retailers this morning, while another lowered targets for the brokerage industry.
Overseas markets were mixed overnight.
Our futures have been wobbling around at lower levels this morning. They have improved a bit during the past hour, but we’re looking toward lower prices at the open. At this point, adjusted for fair value, S&P futures are down about 4 points, the Dow futures are down 36, but the NASDAQ futures are a little less than 4 points below fair value.
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