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Market Outlook
Monday, November 08, 2010



Monday provides no market-moving economic or corporate events. The following is all that is happening:-

  • 8:00… SIFMA Conference (FDIC's Bair, SEC's Schapiro, Fed's Warsh...)

  • 12:30 PM… Fed's Bullard: Monetary Policy and Inflation Outcomes

  • 1:00 PM … Results of $32B, 3-Year Note Auction

  • 1:45 PM… AFP Conference: Treasury and Finance (Fed's Fisher)

Also the following companies are reporting their quarterly earnings:-

• Frontier Communications Corp. (FTR), Sysco Corp. (SYY), Warner Chilcott Plc (WCRX ), Clean Energy Fuels Corp. (CLNE), Clear Channel Outdoor Holdings Inc. (CCO), Convergys Corp. (CVG), Eagle Bulk Shipping Inc. (EGLE), LSK Solar Co. Ltd. (LDK), priceline.com Incorporated (PCLN), Silver Wheaton Corp. (SLW) and The Warnaco Group Inc. (WRC).



monday outlook



Monday begins a week that is light on economic and corporate news but experts say the momentum in stocks is likely to continue.

U.S. stocks were poised to open slightly lower this morning as investors prepare for a week with few major economic data points.

The Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were all lower ahead of the opening bell.

For weeks, stocks have been on the rise as investors placed their bets on improving profits, a Republican victory, and the Fed's plan to pump billions into the economy and pick up in the job market.

All of those events have played out favorably for the market, with all the major indexes logging double-digit gains since the end of August: the Dow has climbed almost 13%, the S&P is up 15%, and the Nasdaq has jumped almost 20%.

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And last week, as investors knocked out three major events, stocks posted their biggest weekly gains in about two months and hit fresh two-year highs.

"The wind is at our backs in terms of the economy, and all the building blocks are set for stocks to move higher," said Timothy Ghirskey, chief investment officer at Solaris Asset Management. "Equities seem to be the asset class of choice, given the low yields on bonds, and the Fed is also encouraging more money into the stock market."

Though there might be modest pullbacks or flat days for the market as investor reap profits, Ghirskey expects stocks to continue rising through the end of the year.

"As long as we're not hit with a surprise on the Bush tax cuts issue, there's nothing really on the horizon that could upset the market," he said. "The electorate made it pretty clear that it wants to see the Bush tax cuts extended, and it seems like that could be the outcome, which would be favorable for stocks."

Following the midterm election last week, President Obama said that he is willing to negotiate to ensure the Bush tax cuts are extended for the middle class by Jan. 1.

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) could be headed lower today, as Wall Street bulls look to catch their breath and take some profit off the table following last week's impressive run higher.

Look for the DJIA to find support in the 11,350-11,400 region, while resistance remains in the 11,450-11,500 area.

The S&P 500 Index (SPX) should trade between 1,220 and 1,230.

The U.S. Dollar Index is headed higher this morning, with the greenback showing considerable strength versus the euro in the wake of renewed worries over debt problems in Ireland and Portugal. Meanwhile, Japanese Finance Minister Yoshihiko Noda told parliament that while they must work to limit the yen's continued advance, "there are advantages of yen rises," according to Dow Jones Newswires. At last check, the U.S. Dollar Index was up 0.65% at 77.09.

Crude Oil for December delivery dropped 27 cents to $86.58 a barrel.

Gold futures for December delivery fell $6.70 to $1,391.00 an ounce. Earlier in the session, gold hit a new intraday record of $1,398.50.

Bonds:The price on the benchmark 10-year U.S. Treasury slipped, pushing the yield up to 2.63% from 2.54% late Friday.

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 2,161,609 call contracts traded on Friday, compared to 923,541 put contracts. The resultant single-session put/call ratio arrived at 0.43, while the 21-day moving average fell to 0.59.

Overseas Concerns

In currencies: The dollar strengthened against the euro and British pound, but fell against the Japanese yen.

European Markets

European share markets were mixed in morning trading. Britain's FTSE 100 was down 0.2%, while the DAX in Germany ticked higher by 0.2%, and France's CAC 40 slipped 0.1%.

Europe at midday, London -0.2%. Paris -0.1%. Frankfurt flat.

Asian Markets

Earlier, Asian markets ended the session higher across the board. The Shanghai Composite gained 1%, the Hang Seng in Hong Kong rose 0.4%, and Japan's Nikkei ticked up 0.7%.

Asia: Japan +1.1% to 9733. Hong Kong +0.3% to 24964. China +1.0% to 3160. India -0.7% to 20852.

Futures Trading

As of 8 a.m. in New York, the Dow Jones Industrial Average futures were down 26 points to 11350, the S&P 500 futures were down 4.7 points to 1217.20 and the Nasdaq 100 futures lost 7.75 points to 2177.

Futures at 7:00: Dow -0.2%. S&P -0.3%. Nasdaq -0.3%. Crude -0.5% to $86.43. Gold -0.5% to $1391.30.



futures110810



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Company News


Sysco (SYY) is set to release its quarterly earnings report Monday morning. Analysts surveyed by Thomson Reuters expect a rise in quarterly earnings to 51 cents per share.

Ashland Inc. (ASH) announced that it is selling its global distribution business to TPG Capital for $930 million. The unit employs around 2,000 people and generates annual revenue of around $3.4 billion. The deal is expected to close before the end of March 2011. "I believe the outlook for the distribution business and its employees will be much stronger as part of an organization targeting growth within the distribution marketplace," said Ashland CEO James O'Brien.

Estee Lauder Companies (EL) was upgraded to "overweight" from "equal weight" at Barclays Capital. The brokerage firm also lifted its price target to $81 per share from $69 per share. According to Barclays Capital, EL is "partnering with retailers to bring its high-service, high-touch model into specialty stores as well as beefing up its online presence."

Some Interesting News

Shell stake sale puts Woodside in play. Shell (RDS.A) announced this morning plans to sell around a third of its stake in Woodside Petroleum (WOPEY.PK) for $3.3B, and said it would hold its remaining 24.3% stake in Woodside for at least a year, though it might sell its holdings earlier in the event of a takeover. The surprise move effectively puts Australia's largest oil and gas firm in play, and follows speculation last week that Woodside might be a takeover target as its CEO prepares to step down next year. Premarket: RDS.A -1.6% (7:00 ET).

More buzz on an AOL-Yahoo tie-up. Media reports continue to buzz about a possible tie-up between AOL (AOL) and Yahoo (YHOO), with sources saying AOL has retained financial advisers to explore strategic options including a deal with Yahoo (and looking at other options as well). However, the reports may be making a mountain out of a molehill: Sources say Yahoo isn't actively eliciting or reviewing proposals, isn't in active discussions with AOL, and AOL hasn't reached out to Yahoo with a proposal. Skeptics also note that any tie-up between the two firms would be immensely complicated for many reasons, including the difficulty of spinning off Yahoo's Asian assets and the fact that AOL's $2.7B market cap is dwarfed by Yahoo's $21.9B. Premarket: YHOO -0.8% (7:00 ET).

SEC scrutinizes Citi debt funds. The SEC is reportedly investigating certain Citigroup (C) debt funds in order to determine whether the bank adequately disclosed the funds' risk levels to investors. Regulators have also subpoenaed Citigroup's former brokers for testimony. At issue are debt funds which invested in muni bonds and mortgage debt and which saw values fall as much as 77% during the credit crisis; three former brokers, who resigned in 2008 over Citi's handling of the funds, have reportedly told the SEC that the funds had been mismanaged and risks hadn't been properly disclosed. Premarket: C -0.9% (7:00 ET).

Amazon opts for bulk buying with Quidsi deal. Amazon (AMZN) is said to have reached a deal to buy Quidsi, owner of Diapers.com and Soap.com, for $540M. The purchase reflects a growing consumer trend of purchasing bulk items online, as well as Amazon's tendency to use acquisitions (like last year's Zappos buy) to significantly boost its presence in certain categories. The deal could be announced as soon as this morning. Premarket: AMZN -0.3% (7:00 ET).

Qantas extends Airbus grounding. Qantas today extended the grounding of its Airbus (EADSY.PK) A380 fleet by 72 hours, after experiencing two engine failures in the past week. CEO Alan Joyce said engineers have found “oil where oil shouldn’t be” on three Rolls-Royce (RYCEY.PK) Trent 900 engines on separate aircraft, and that "our top priority is making sure we have the continued safe operation of the aircraft. If this takes a bit longer, we'll take longer."

Reliance, GE sign power plant deal. GE (GE) signed a $750M contract with Reliance Power over the weekend to supply turbines for a 2400MW power plant project to be located in the southern Indian town of Samalkot. GE is turning to emerging markets to boost growth, and CEO Jeff Immelt said he thinks the company's India business "can now grow at 30% for several years." All told, Reliance said its deals with GE and other U.S. firms will result in more than $2B of manufacturing exports from the U.S. to India over the next two years, while Pres. Obama, who was present during the announcement, said the deals barely scratched the business potential between the two countries and dubbed India as the market of the future. Premarket: GE -0.2% (7:00 ET).

Berkshire ready for another buy? Berkshire Hathaway (BRK.A) may be ready for another major acquisition after its cash holdings jumped 23% to $34.5B in Q3, the highest level in more than two years. To put the figure in perspective, when Berkshire's cash holdings rose to $30.6B at the end of 2009, the company announced a $26.5B stock-and-cash takeover of railroad Burlington Northern around six weeks later. "Berkshire’s acquisition appetite is voracious, yet disciplined," says one analyst, so an acquisition isn't guaranteed, but given that Berkshire doesn't pay a dividend or buy back stock, an acquisition may seem preferable to a steadily growing cash pile.

World Bank chief wants revised gold standard. Robert Zoellick, president of the World Bank, believes leading economies should consider readopting a modified global gold standard to guide currency movements. In a Financial Times op-ed, Zoellick wrote gold could serve as "an international reference point of market expectations about inflation, deflation and future currency values.” Though the gold standard idea gets discussed from time to time, most policymakers and economists believe it will lead to overly tight monetary policy.

Focus shifts to eurozone debt woes. The Fed's QE2 announcement and Friday's stronger-than-expected nonfarm payrolls have put Europe back in the spotlight, as investors shift their focus back to the eurozone's debt problems. As of 7:00 ET, the euro was down 1.1% against the dollar with Irish pension issues and Greek elections adding "new elements of uncertainty in the eurozone," though the dollar's rally is unlikely to last unless there's a longer-term improvement in the U.S.' economic outlook.

Ashland sells distribution unit. Ashland (ASH) is selling its global distribution unit to TPG Capital for $930M, a move that Ashland said reflects its "strategic direction and completes a major step in our multi-year transformation into a high-performing specialty chemicals company." The deal is expected to close before the end of March.

Friday's failures. Four bank closures on Friday brought this year's failures to 143 so far, surpassing 2009's total of 140 and marking the most failures in a year since the S&L crisis. The four closures (I, II, III, IV) will cost the FDIC's insurance fund around $254M; the fund has lost around $21B so far this year, compared to $36B in 2009, as this year's failures have been smaller banks on average.

Conclusion

Stocks ended only slightly higher Friday, but it was enough for all three major indexes to close at fresh two-year highs. The Dow ended near 11,444 -- its highest close since Sept. 8, 2008. Both the Dow and S&P also logged their biggest weekly gains in more than two months.

Gains were muted Friday despite the Labor Department's monthly jobs report, which showed the economy added a better-than-expected 151,000 jobs in October.

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