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Market Outlook
Friday, July 09, 2010

Thursday has only a couple of economic reports scheduled. They are:-

10:00… Wholesale Trade

10:30 … ECRI Leading Index

Also the following company is reporting its quarterly earnings:-

• PriceSmart Inc. (PSMT)


Friday saw U.S. stock futures are trading flat this morning. Therefore, U.S. stocks are set for a lackluster start, as investors prepared to take a breather from a 2-day run-up.

The Dow Jones Industrial Average (INDU), S&P 500 (SPX) and Nasdaq futures were little changed ahead of the opening bell.

Newfound market optimism has helped Wall Street rally for the past two sessions. Worries about a faltering global economic recovery have eased and investors have turned their attention to buying oversold shares.

On Thursday, the advance pushed the Dow higher 120 points, or 1.2%. The broader S&P 500 climbed 0.9% and the tech-heavy Nasdaq added 0.7%.

After two straight down weeks, the major indexes are poised to finish the holiday-shortened week higher. So far this week, the Dow is up 452 points, or 4.7%. The Nasdaq has rallied 4% while the S&P 500 has advanced 4.7%.

But with little in the way of economic news on tap, stocks may struggle to push higher.

"The market has a wait-and-see attitude," said Bob Tull, chief operating officer of Old Mutual Global Index Trackers. "People are making their own opinions of whether it's going to be a different world from one day to the next, and are sitting on the sidelines until we continue to see smaller positive gains and a nice gradual progression with less volatility."

Economic Concerns

Wholesale Inventories

A report on wholesale inventories is due out today, which will provide one of the last clues about the health of the economy before companies start releasing results. The government report is expected to show inventories held by wholesalers rose in May for the fifth straight month. Growth in inventories is a positive sign because it means wholesalers are increasing orders from manufacturers and expecting retailers to also start buying more goods to sell to consumers.

Economists polled by Thomson Reuters predict wholesale inventories rose 0.4 percent in May and sales also jumped by 0.4 percent. The Commerce Department report is due out at 10 a.m. EDT.

Notes of Importance

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

The Dow Jones Industrial Average’s (DJIA) triple-digit gain on Thursday has placed the blue-chip barometer on pace for a 5% gain on the week. The Dow rallied past potential short-term resistance at the 10,100 level yesterday, pushing the DJIA above its 10-day and 20-day trendlines for the first time since June 21. However, the Dow is still staring up at 10,200 and its declining 10-week moving average, which could create turmoil for the venerable average.

The S&P 500 Index (SPX) faces a similar situation, having reclaimed potential support at 1,070, but still facing a potential ceiling near 1,080 and its 10-week trend line.

Gold futures have added $1.50 to trade at $1,197.60 an ounce in London.

• The U.S. Dollar Index was up 0.02% at 83.85. The U.S. dollar is trading essentially flat versus its major foreign rivals this morning, with the yen rising and the euro declining.

Benchmark crude futures have added 22 cents to trade at $75.66 per barrel in electronic trading.

Bonds: Treasury prices fell, pushing the yield on the 10-year note up to 3.05% from 3.02% late Thursday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 1,064,789 call contracts traded on Thursday, compared to 637,720 put contracts.

• The American Association of Individual Investors sentiment poll just returned its highest bearish percentage (57.07%) and lowest bullish percentage (20.94%) since March 5, 2009. That date should sound familiar to regular market watchers, as it marked a major bottom and the end of a months-long bear market.

Overseas Markets

Overseas markets rose Friday. A surprise interest rate hike in South Korea was viewed as a sign of confidence that the global economy will continue expand. Central banks around the world, including the U.S., have kept rates at historically low rates to stimulate growth.

Equity funds worldwide suffered more than $11 billion of net outflows in the first week of July, while money market funds saw the biggest inflows in 18 months amid fears of a double-dip recession, EPFR Global said.

European Concerns

Europe's EADS (EAD.PA) put in a formal bid on Thursday to build a fleet of U.S. Air Force aerial-refuelling planes, challenging Boeing Co (BA.N) anew for a politically sensitive deal worth up to $50 billion.

European share markets got off to a positive start. Germany's DAX climbed 0.5% in the early going. The FTSE 100 in Britain and France's CAC 40 posted slimmer gains.

In Europe at midday, London +0.1%. Paris +0.4%. Frankfurt +0.4%.

The dollar was up against the euro and the Japanese yen, but down versus the British pound.

Asian Concerns

Earlier in Asia, the Shanghai Composite surged 2.3%. Major indexes in Hong Kong and Japan also finished the session with solid gains.

In Asia, Japan +0.5% to 9585. Hong Kong +1.6% to 20379. China +2.3% to 2471. India +1.0% to 17834.

Futures Trading

As of 6:55 a.m. in New York, the Dow Jones Industrial Average futures fell 17 points, or 0.17%, to 10075, the S&P 500 futures were lower by 1.2 points to 1065.80 and the Nasdaq 100 futures lost 2.75 points to 1793.50.

Futures: Dow -0.2%. S&P -0.1%. Nasdaq -0.2%. Crude +0.3% to $75.68. Gold +0.1% to $1196.80.


Company News

UAL Corp. (UAUA) reported that traffic at U.S. Airways rose 3.5% in June to 10.94 billion revenue passenger miles. The figure is up from 10.57 billion a year ago. Total capacity for the month increased 1.1% to 12.44 billion available seat miles.

Lawson Software Inc. (LWSN) reported a fiscal fourth-quarter profit of $2.6 million, or 2 cents per share. The company earned $8.6 million, or 5 cents per share, in the same quarter last year. Revenue rose to $197 million from $186 million a year ago.

Some Interesting News

Air Products raises Airgas bid. Air Products (APD) raised its bid for Airgas (ARG) late yesterday to $63.50 per share from $60. The new offer is a 46% premium to Airgas' closing price on February 4, the day before Air Products first launched its bid. Airgas, which has thus far been unimpressed with Air Products' advances, is reviewing the offer and has advised shareholders to take no action until further notice.

China avoids "currency manipulator" label. The Treasury declined to officially cite China as a currency manipulator in its semi-annual report to Congress, noting China's "significant step" of ending the yuan's dollar peg. The report said the yuan "remains undervalued" so the focus will be on "how far and how fast the renminbi appreciates."

China renews Google license. Google (GOOG) just announced this morning that China has renewed its license to operate in the country. More details to follow... Shares +1.85% premarket (7:00 ET).

Rio to swap shares for copper stake. Ending months of speculation, Rio Tinto (RTP) confirmed its plans to swap its shares in Ivanhoe Mines for a direct stake in Mongolia’s Oyu Tolgoi copper and gold project, which is 66% owned by Ivanhoe. Any deal would require the support of the Mongolian government, which owns the remaining 34% stake in Oyu Tolgoi, one of the world's largest undeveloped copper deposits. Chinalco (ACH), Rio's largest shareholder, is also considering a direct or indirect stake in the project. Premarket: RTP +1.8% (7:00 ET).

Interest is high for ING real estate unit. ING Group (ING) is fielding expressions of interest for a sale of its world-leading real estate investment management unit. Around 10 firms sent letters indicating they could fund a bid and would buy the unit as a whole, though sources added ING may have to break the unit up to conclude a sale in a timely manner. The firm is feeling out a price range around €1B ($1.27B), though some outsiders think the platform could go for as much as €2.64B.

H-P wins Navy network deal. H-P (HPQ) was awarded a contract for continued U.S. Navy information technology support that could be worth as much as $3.4B if all the options are exercised. The initial award is for $27M, and work could potentially continue until July 2015.

J&J recalls push down sales. Sales of Johnson & Johnson (JNJ) pain relievers are taking a hit as a string of recalls scares off consumers. The most recent recall, issued yesterday, includes 21 lots of over-the-counter medicine, including Benadryl and Children's Tylenol. The company said the move is a precaution, but consumers have little tolerance for the continued lapse in internal quality control, with one analyst calling the embarrassing string of recalls "pain by a thousand cuts;" sales of J&J's pain reliever pills fell 56% in the four weeks ending June 13, compared to the year before. Premarket: JNJ -0.6% (7:00 ET).

P-E groups swap MultiPlan in LBO deal. Private-equity firms BC Partners and Silver Lake Partners have reportedly agreed to purchase health-care business MultiPlan Inc. in a deal that values the company at $3.1B and marks the year's largest secondary buyout. Carlyle Group and Welsh, Carson, Anderson & Stowe are the sellers, and Carlyle is expected to make more than three times its initial investment in MultiPlan, which it acquired in 2006.

GE may sell Garanti stake in parts. General Electric (GE) is considering selling its 20.85% stake in Turkey's Garanti Bank (TKGBF.PK) in several parts, according to a Sabah newspaper report. GE had initially tried to sell the roughly $3.8B stake in a block, but the high price tag along with the fact that it's not a controlling stake, had deterred potential investors. A partial sale holds more promise, and would allow investors a rare chance to buy into Turkey's relatively resilient banking sector.

KKR turns to natgas. KKR is betting on rising energy prices, with plans to build an exploration business for unconventional energy. Details aren't yet finalized, but sources said the business would focus on prospecting for fuel such as gas trapped in shale and coal beds under parts of Appalachia and Texas. Energy prices would have to rise to make this costly energy extraction process profitable, but KKR is not alone in its bet; Exxon (XOM) and BP (BP) are also heavily invested in U.S. shale gas. The company will begin trading on the NYSE on July 15, under the ticker KKR.

Mixed bag for retailers. Retailers once again reported mixed results for June's same-store sales. Discounters continued to do well, but many retailers cut into their own profit margins by using aggressive promotions to lure wallet-conscious consumers through the door, and the weak performance raised concerns about the back-to-school shopping season. Limited (LTD), Macy's (M), JC Penney (JCP) and Nordstrom (JWN) were among the firms that reported better-than-expected numbers, while Kohl's (KSS), Gap (GPS) and Target (TGT) came up short.

Madison Square Garden (MSG) dropped nearly 4% in pre-market trading after basketball star LeBron James announced late Thursday that he will sign with the Miami Heat instead of the company-owned New York Knicks.


Traders often avoid making big bets just before earnings releases since they provide a clear picture of how strong a company is performing. Outlooks for future growth will also be closely scrutinized because disappointing economic reports in recent months have called into question the pace of a recovery.

Investors will want to know if companies are feeling the effects of that slowdown in growth and whether corporations believe the rebound will pick back up in the coming months. Stocks consistently fell over the past couple of months because data showed the economy was growing, but not nearly as fast as had been forecast.

Earnings season kicks off with Alcoa Inc. on Monday. Other companies scheduled to release results next week include banking giants JPMorgan Chase & Co. and Bank of America Corp. General Electric Co. and chipmaker Intel Corp. are also scheduled to report earnings next week.

The S&P 500 has climbed 4.7% this week, including a 0.9% advance on Thursday.

"Overall, it would probably not be a surprise to see some profit taking on Friday, the question is whether the markets are moving toward a possible reversal already," said analysts at Charles Gawlak & Associates.


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