Market Outlook
Friday, December 10, 2010

Friday has a few economic reports scheduled. The following is what will occur:-

  • 8:30 …Trade Balance

  • 8:30… Import/Export Prices

  • 9:55 …Reuters/UofM Consumer Sentiment

  • 10:30 …ECRI Leading Index

  • 2:00 PM …Treasury Budget

Also the following companies are reporting their quarterly earnings:-

• There are no major earnings reports scheduled for Friday.

friday outlook

Friday sees U.S. stocks poised for a timid open, as investors digest the latest data on China's trade surplus and await the conclusion from Washington on the tax cut deal.

Stock futures hinted at slight gains when Wall Street kicks off Friday's session as the bulls attempt to nudge the Dow to fresh 2010 highs.

Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were up 0.2% to 0.3% ahead of the opening bell.

China's trade gap narrowed to $22.9 billion in November, however the country still exports far more than it brings in based on the latest data.

Earlier in the week, investors cheered as Washington appeared close to reaching a compromise deal to extend Bush-era tax cuts for another two years.

But House Democrats voted Thursday against considering the tax package, which would also extend unemployment benefits and create a payroll tax holiday.

Economic Concerns

Trade Balance

Before the opening bell, the U.S. government will issue its monthly report on the U.S. trade balance. Economists surveyed by expect the trade gap to widen to $44.5 billion in October, from $44.0 billion the previous month.

Consumer Sentiment

Wall Street is likely to be influenced later in the morning by the Reuters/University of Michigan consumer sentiment survey, which is expected to show sentiment, rose to a level of 72.5 in the first part of December, up from 71.6 last month. The data may move consumer discretionary stocks like retailer Gap (GPS) or appliance maker Whirlpool (WHR).

Tax Cuts

Wall Street will likely zero in on the latest talks in Washington about the expiring Bush tax cuts. Analysts believe stock prices will be able to build on their 2010 gains if Congress reaches a deal to prevent taxes from rising on all Americans before the end of the year.

Economic Outlook

In the afternoon, Wells Fargo (WF) will release its annual economic outlook report.

Notes of Importance

There are a few further points to the mornings trading which need to be considered:-

Benchmark crude futures for January delivery added 32 cents to $88.69 a barrel.

Gold futures for February delivery fell $2.0 to $1,390 an ounce.

Bond: The price on the benchmark 10-year U.S. Treasury edged up slightly, pushing the yield down to 3.2%.

Overseas Concerns

China's trade gap is narrowing, according to the state-controlled Xinhua news agency in China. The country announced that its trade surplus fell to $22.9 billion in November -- a 16% decrease over October's $27.2 billion surplus.

Currencies: The dollar lost ground against the euro, the Japanese yen and the British pound.

U.S. markets benefited from relative calm in Europe as the euro looked to end its slide against the greenback. The euro was up 0.05% to $1.3225, recapturing little ground from this week. The currency has been slammed by fears about its sovereign debt crisis.

European Markets

European share markets rose in morning trading. Britain's FTSE 100 edged up 0.1%, the DAX in Germany rose 0.7% and France's CAC 40 added 0.3%.

In Europe, at midday, London -0.2%. Paris flat. Frankfurt +0.5%.

Asian Markets

Earlier in Asia, markets ended the session mixed. The Shanghai Composite gained 1.1%, while the Hang Seng in Hong Kong slipped less than 0.1% and Japan's Nikkei fell 0.7%.

In Asia, Japan -0.7% to 10212. Hong Kong flat at 23163. China +1.1% to 2841. India +1.4% to 19509.

Futures Trading

• As of 6:20 a.m. ET, the Dow Jones Industrial Average futures rose 18 points to 11315, the Standard & Poor's 500 futures added 2.90 points to 1230.80 and the Nasdaq 100 futures picked up 3.5 points to 2203.25.

Futures at 7:00: Dow +0.2%. S&P +0.2%. Nasdaq +0.15%. Crude +0.5% to $88.81. Gold -0.2% to $1389.80. •


Company News

Green Mountain Coffee (GMCR) reported fourth-quarter net income of $27 million, or 20 cents per share; up from $14.1 million, or 11 cents per share, in the same period last year. Analysts had expected earnings per share of 20 cents, according to estimates from Thomson Reuters.

Green Mountain also lowered the bottom end of its forecast range by 3 cents, citing "expected volatility in coffee prices, and flexibility to support anticipated new product launches."

Some Interesting News

Community Health chases after Tenet Healthcare. Community Health Systems (CYH) made an unsolicited bid to buy rival Tenet Healthcare (THC) for about $7.3B, including $4B in debt. Community Health disclosed yesterday that it first made the offer on Nov. 12 and Tenet's board rejected it on December 6, prompting Community Health to publicize the offer in order to put pressure on Tenet's board. The $6/share offer represents a 40% premium to Tenet's closing share price yesterday, but Tenet's board called it an 'opportunistic' bid that "grossly undervalues Tenet and fails to reflect Tenets prospects for continued growth and shareholder value creation." A combination of the two companies would create the second-largest hospital chain in the country. In after-hours trading, CYH -4.4%, THC +48% TO $6.34.

Beckman Coulter considers sale. Beckman Coulter (BEC), a maker of medical diagnostic instruments, has reportedly decided to sell itself and has hired Goldman Sachs (GS) to help with the process. A sale could bring in more than $5B, and potential suitors include both rivals and large private-equity firms. Though a sale is still at least several weeks away and may not happen at all, speculation over a possible deal sent shares up 17.8% in after-hours trading.

Sinopec buys Argentinian assets. Sinopec (SNP) agreed to buy all of Occidental Petroleum's (OXY) oil and gas assets in Argentina for $2.45B, marking the Chinese company's first foray into Argentina's upstream market. The acquisition brings Chinese bids for overseas energy assets to a record $38.8B this year, as the country tries to keep pace with rapidly growing energy demand.

Senate debates tax bill. The Senate began debate last night on a broad tax bill that will cost $858B over ten years while bringing an end to two years of gridlock as to how to handle expiring tax cuts. A key test vote is scheduled for Monday, and the bill is expected to pass the Senate with bipartisan support, but House Democrats are in open revolt, saying the tax agreement shouldn't be considered in the House unless changes are made.

Diageo thirsty for Turkish growth. Diageo (DEO) is said to be in early-stage talks to buy Mey Icki in a deal that would value the Turkish spirits company at $2B-2.5B. A deal is unlikely before next year, if at all, but the talks underscore both the drive of Western countries to tap emerging markets' growth and Turkey's increasingly robust position in the global M&A game.

KKR may raise Perpetual bid. KKR (KKR) may raise its $1.7B bid for Australian fund manager Perpetual after receiving new financial data, but an increase would probably be less than 10%, sources said. Preliminary information showed Perpetual was forecasting a better-than-expected outlook, but KKR wants to hold additional talks with Perpetual's management to understand the cause of the improvement before making a final decision on its bid. Perpetual is one of the top players in Australia's wealth management sector, the world's fourth-largest at $1T.

Air Products makes final offer for Airgas. Air Products & Chemicals (APD) raised its bid for Airgas (ARG) to $70 from $65.60, calling the new bid its 'best and final' offer. The offer, which values Airgas at more than $5.8B, will almost certainly face continued resistance from Airgas' board, which last month said it thought the company was worth $78/share. In yesterday's trading, ARG -6.3% to $61.84, APF +1.9%. Airgas gained 1.3% in AH trading to $62.67.

MBIA accuses MS of fraud. Bond insurer MBIA (MBI) is suing Morgan Stanley (MS), claiming the bank "made false representations regarding the underwriting standards" of mortgage-backed securities that MBIA later insured. Morgan Stanley is the sixth financial institution to be sued by MBIA over the matter. Other bond insurers, including the now-bankrupt Ambac, are likely to watch the case quite closely while considering their own options.

FAA to increase Boeing safety checks. Sources say the FAA is poised to order stepped-up inspections of more than 600 Boeing (BA) 757 planes worldwide, after an in-flight incident in October that left a one-foot hole in a plane's fuselage. The new directives are expected to cover certain older but widely-used models, with regulators in Europe and elsewhere expected to follow the FAA's lead.

More recalls from J&J. Johnson & Johnson (JNJ) recalled some of its Rolaids antacid products because of possible metal and wood particle contamination, and suspended their manufacture. The company believes the contamination occurred during a process at a third-party manufacturer. It's the latest in a string of embarrassing recalls for the company and another blow to its public image.

New blood in the S&P 500. S&P reshuffled its S&P 500 index, promoting Netflix (NFLX), F5 Networks (FFIV) and Newfield Exploration (NFX) from the MidCap 400 into SPX, and pulling New York Times Co. (NYT), Office Depot (ODP) and Eastman Kodak (EK) to make room. Cablevision Systems (CVC) also joins the S&P 500 to replace King Pharmaceuticals (KG), which is being acquired by Pfizer (PFE). In after-hours trading: NFLX +5.5%, FFIV +5.2%, NFX +3.9%, CVC +5.9%, NYT -2.2%, ODP -1.6%, EK -1.1%.


The early cautious optimism comes after Wall Street landed in a stalemate on Thursday, with the Nasdaq Composite rallying for the seventh day in a row, but concerns about the future of the Bush tax cuts kept the Dow from following suit.

On Thursday stocks ended mixed, as a stronger dollar dragged on commodity-related companies, while financials and tech shares firmed.

On Thursday, the Dow Jones industrial average .DJI dipped 2.42 points, or 0.02 percent, to 11,370.06. The Standard & Poor's 500 Index .SPX gained 4.72 points, or 0.38 percent, to 1,233.00. The Nasdaq Composite Index .IXIC rose 7.51 points, or 0.29 percent, to 2,616.67.

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