Monday, February 1, 2010

Look Back at the Market


· Levels: SP500 up 1.4%/15 points to 1089; Nazz up 1.11%; Russell 2K up 1.1%. Stocks end the day at their highs (YTD the SP500 is still off 2.3%).

· Market Update – very consistent trading trends throughout the entire session; morning/mid-day comments very applicable to the afternoon. Equities enjoy ~1.4% rally (largest % increase since1/4 for SP500), helped by pos. eco #s (esp. the US Jan ISM), earnings (XOM rallies 2.6% after earnings), and Washington (no major surprises in today’s budget; some good news when it comes to taxing overseas corporate profits). However, room has been very quiet most session and there hasn’t been anywhere near the same levels of conviction behind today’s buying as we saw from sellers last week. Volumes have been much lighter compared to last week’s sell-off (we did ~7B consolidated shares vs. ~9.8B average over the last 5 days). A lot of the most impressive rallies today coming on back of short covering (this is esp. the case in the energy/materials sectors, which are up ~2.5-3% each in aggregate) while larger vanillas are not doing much for the most part (last week this cohort were heavy sellers; on Mon they were absent, both on the sell and buy side). While many acknowledged the oversold conditions of the market, there is a lot of skepticism behind today’s rally. Big event on Tues will be P Volcker’s testimony before the Senate Banking Committee at 2:30pmET to discuss his “Volcker Rule”.

· Equity Sectors – some of the groups that saw the steepest sell-offs last week are experiencing the sharpest rallies today (metals, coal, semis, etc). No major group is in the red today. The sp500 materials is the best performing major group, rallying >3% on the day (huge moves in some metals –CLF +7%, ATI +7%, FCX +6.8%, X +6%, AKS +6%, etc); the ISM #s sparking some aggressive covering following last week’s weakness (X was down ~20% last week). Energy stocks also strong, up >2% (XOM up 2.8% and giving a boost to the group but the largest % moves coming from coal stocks – MEE and CNX both up ~7%). Financials, tech, industrials all up >1% (the SOX is the best performing sub-sector of tech – NVDA, AMD, MU up 5-7% each). Retailers are among the weakest performing groups, although this is mostly due to 2 stocks (AMZN, which is off on pricing worries, and M, which was d/g @ Deutsche). Some of the relative safe haven groups also underperforming – utilities, telecom services, and health care (re telecoms, note that late in trading the WSJ reported that LEAP has hired advisors to explore a sale/merger).

· Best Performing SP500 stocks (from Bloomberg): MEE, CLF, NVDA, ATI, FCX, CNX, AMD, DNR, X, AKS

· Weakest performing sp500 stocks (from Bloomberg): GCI, AMZN, NYT, DFS, PBCT, BSX, FHN, CB, AIG, GILD

· Commodities: Commodities were higher across the board today, driven by a better than expected ISM manufacturing number this morning and some short covering. Oil was up $2 to $74.90. Natural gas was up close to 30c at $5.40. Gold was up over 2%, nearing $1110 and bouncing off a two-month low. Copper also bounced off a two month low, gaining 1.4 pct.

· FX: USD (DXY) was off 0.3% today, near its lows of the day as investors took some profits from its 4 day rally. The dollar was off 0.5% to the Euro, up 0.15% on the Pound, and up 0.4% against the Yen. The Euro was also up 0.9% against the Yen today.

· Corp Credit: Corp credit was mixed today as IG spreads were in line with the tape, narrowing 2 bps, but HY lagged as it lost 1/16 of a pt.

· Treasuries: Treasuries sold off today as investors put more money into equities following last week’s selloff. Yields on 2s moved up 4 bps to 86 bps while yields on 10s are now 3.65 pct. The 2-10 year spread saw a modest steepening to 280 bps, 8 bps below the all time high on Jan 11th.

Economics Headlines

· The January ISM manufacturing survey jumped another 3-1/2 points to 58.4, beating expectations and rising to the highest level since mid-2004. Virtually all of the details looked strong: new orders consolidated and added onto last month's gain, rising about another point to 65.9, and production increased another 6-1/2 points to 66.2. The manufacturing sector of the economy has outperformed most other sectors of the economy since the recovery began last Summer. That improvement has occurred with little benefit to households as higher production has mostly occurred through higher productivity, however, the 3 point increase in the employment index, to 53.3, is a hopeful sign that the increase in industrial output may soon start translating into more jobs. M Feroli.

· The personal income and outlays report for December showed a small 0.1%m/m gain in real consumption, a low-side 0.1%m/m (1.5%oya) rise in the core PCE deflator, and a 0.3%m/m rise in real personal disposable income. Note that all the information in this report was already incorporated into last week’s 4Q GDP report; the new information here is simply about how monthly series evolved during the quarter. A Reinhart

· Construction spending declined 1.2%m/m in December, with the greatest weakness coming in public construction and home improvements. The important private nonresidential construction category actually increased 0.2%, implying a slight upward revision to 4Q nonresidential structures investment, although on net this category is still very weak. New residential construction spending edged down 0.2% because of ongoing declines in multifamily construction; single-family spending continued to increase, albeit at a slower pace than in earlier months. A Reinhart

· Fed senior loan officer survey – hit at 2pmET - The January survey indicated that commercial banks generally ceased tightening standards on many loan types in the fourth quarter of last year but have yet to unwind the considerable tightening that has occurred over the past two years. Banks continued to tighten standards on residential real estate loans over the past three months. Banks reported that loan demand from both businesses and households weakened further, on net, over the survey period. (see link for the full survey:

Catalysts to Watch

· Sales - Most retailers don’t report earnings until later in Feb/early Mar, but we will get same-store-sales this Thurs morning (and we will get auto sales Tues morning).

· Central Banks - In Europe, both the BoE and ECB will hold meetings with interest rate decisions.

· The Senate Banking Committee will be hosting 2 hearings to discuss bank prop trading (Paul Volcker will be testifying at the first hearing on 2/2 and execs from GS, JPM, and others, will be speaking at a separate hearing on 2/4).

· The Treasury will announce quarterly sales of long-term debt Feb. 3.

· There is a G7 Finance Ministers meeting Feb 5-6 in Canada (according to DJ: “In a departure from past practice, no communique will be issued and there are only press conferences at the end, and this, some observers say, underscores the declining importance of the group”).

· Greece - The European Commission expects to give an assessment of the Greek budget plan on Feb. 3.

· IPO activity will pick up – this is going to be the busiest week for U.S. initial public offerings in two months – Bloomberg

· NY Fed will hold a meeting this week to discuss efforts to improve trading in the tri-party repo market. DJ

Corporate Events

· Mon Feb 1: Earnings after the close (PCL, RCII, EXTR, DST, CCK, SIMO, TUP, MNKD, VRTU, HOLX, ADVS, RGA).

· Tues Feb 2: earnings before the open (HSY, AMSC, COCO, MPEL, UPS, LXK, AMB, CPO, ADM, TNB, PNR, GRA, MAN, AXE, BEAV, ADP, EMR, SMG, ARM, DHI, DOW, CMI, PBG, TDW, NVO, MRO, Munich Re, BP, ARMH, SU, WHR). Earnings after the close (DHX, WBSN, ADS, FISV, RVBD, ACE, MET, VRSN, TSO, BRE, MYGN, AJG, MEE, AFL, MTW, MWA, PXD, SGI, JDSU, QSFT, AMX, UMC, UNM, NWS, CHRW, RVBD, IRF). Auto sales for the month of Jan will be reported.

· Wed Feb 3: earnings before the open (CMCSA, DBD, HW, WU, ITG, HNT, OIIM, IP, TWX, CVLT, SVVS, LAZ, SSTI, TMO, R, SLAB, MKTX, SPIL, Electrolux, Autonomy, CKSW, NOV, ARW, PFE, BDK, Toyota, Roche, AOL, RL). Earnings after the close (AKAM, MHO, WFR, NVLS, CDNS, IEX, BRCM, V, YUM, RNOW, ONNN, CBG, STLD, DLB, THQI, EFX, FNF, AVB, OPNT, INSP, DCP, CSCO, THG, WSH, KIM, Lenovo). Analyst meetings (AXP).

· Thurs Feb 4: earnings before the open (CI, SLE, UFS, CINF, BG, AGN, LZ, MKSI, POWI, NCR, HOT, HSP, CME, BKC, TEN, MGI, UIS, MCO, SNA, SBH, BCE, BR, Deutsche Bank, Santander, GSK, VOD, BR, BHE, MA, DO, CLX, NOC, RAI, BDC, RDS, UN/UL, MF, PENN, KLIC, K). Earnings after the close (PBI, SUN, MCHP, IN, CNW, HLIT, SIMG, PWAV, N, VRTX, FIS, DNB, SNCR, BLKB, MFLX, MCRS, SRCL, EW, SFLY, SFSF). Retailers will report their Jan sales on Thurs 2/4. Analyst meetings (EK, WFR).

· Fri Feb 5: earnings before the open (AET, AIV, WY, YRCW, AON, SPG, BPO, PPL, LEA, BZH, BRKS, G, TSN, Panasonic, AXL). Analyst meetings (EMR, STJ, GLW). Shareholder meetings (TSN, XRX, ACS).

Economics Calendar

· Tuesday, Feb. 2nd: US (Pending Home Sales, ABC Consumer Confidence, Auto Sales); Eurozone (UK PMI Construction); Other (Reserve Bank of Australia Interest Rate Decision, Business Confidence, PMI Services).

· Wednesday, Feb. 3rd: US (Challenger Job Cuts, MBA Mortgage Applications, ISM Non-Manufacturing); Eurozone (UK Consumer Credit, German PMI Services, Eurozone PMI Services, Eurozone Retail Sales); Other (New Zealand Unemployment Rate).

· Thursday, Feb. 4th: US (Non-Farm Productivity, Jobless Claims, Factory Orders, Retail Sales); Eurozone (BoE Interest Rate Decision, ECB Rate Decision, German Factory Orders); Other (Australia Retail Sales, Reserve Bank of Australia Quarterly Monetary Policy Statement, Canada Building Permits, Swiss Trade Balance, Canada PMI).

· Friday, Feb. 5th: US (Monthly Jobs #, Unemployment Rate, Consumer Credit); Eurozone (UK PPI, German IP); Other (Japan Leading Index, Canada Employment figures).



· Financials – the group enjoys a nice across-the-board rally today, similar to the whole market; some relief on the Washington front (reports that the “Volcker Rule” is having a tough time in the Senate and the lack of anything too incremental in today’s budget) helping sentiment in the group. The Senate Senior Loan Officer survey (out @ 2pmET) didn’t seem to impact the space all that much.

· Asset managers – strong move the group following last week’s steep sell-off; AMG up 5% after earnings and helping give a bid to the group. Other major names up 1-2%. The alternative managers outperforming – BX up 5% (pos. initiation from Morgan Stanley).

· Brokers – strong rallies in MS and GS (each up 2-3%).

· Banks – the regionals had a nice bid to them this morning, although weakened a bit into the close. Some cautious comments from S&P intra-day (S&P said it was revising higher the loss assumptions it would be using to rate certain banks and also aid that the outlook for the industry remains negative for ’10). In regional land, RF, CMA, and ZION are outperforming while BXS, TCB, PBCT are among the weaker names. STI was hit in the morning on back of an S&P downgrade although recovered from its worst levels. Trust banks strong, led by NTRS (up 3%). WFC outperforms among the money centers, up 1%.

· Credit cards – DFS shares are off ~2% and have been under pressure all session.

· FNM, FRE – the White House’s budget on Mon said both companies would tape ~$153B in gov’t funds by late next year; however, the White House didn’t deliver its vision for the GSEs, saying such a report would come soon in the future. DJ

· Best Performing SP500 Financials (from Bloomberg): ETFC, ZION, RF, AMP, IVZ, CBG, NTRS, GNW, LUK, GS

· Weakest performing sp500 financials (from Bloomberg): DFS, PBCT, FHN, CB, AIG, MI, AOC, CINF, COF, HCBK


· Semis – the SOX climbs close to 3% on the day; bounce back following last week’s steep sell-off (note that as of Fri the SOX was the market’s weakest group) on back of pos. sell-side comments (Broadpoint’s upgrade of the space). Strength across the board (comm. ICs, equipment, analogs, etc). AMD, MRVL, MU, NVDA are some of the best acting semis. TSM one of the only semis in the red.

· Wireless – the group is higher across the board – MOT, NOK, RFMD, SWKS, TXN, ERIC all up ~2-4%.

· Drives – big rally in the group – STX is up ~7% and WDC is up 4.5%.

· Hardware – the group enjoying a nice rally today; not a whole lot going on; DELL, NTAP, EMC, HPQ, IBM, AAPL all up ~1-3%.

· G – shares up 5% after an upgrade this morning; G reports earnings on Friday

· Software – the group is mostly in the green although lagging the rallies seen in semis, hardware, networking; software is viewed as relatively more defensive and usually lags in a market rally. CA and BMC both off on the day. MSFT, QSFT, CPWR, ORCL all up less than 1%.

· Networking/telecom equipment – biggest strength in European firms (ERIC and ALU). ADCT, CTV, CIEN, APKT all up 1-2%.

· AMZN – stock remains very weak – off ~5-7% amid worries about book pricing; the stock ends off its worst levels.

· Best Performing SP500 tech stocks (from Bloomberg): NVDA, AMD, AKAM, JBL, MU, WDC, HRS, RHT, LXK, LSI

· Weakest performing sp500 tech stocks (from Bloomberg): BMC, CA, ADSK, WU, YHOO, CPWR, GLW, TDC

Consumer & Retail

· Consumer traded up but underperformed the tape with Retail lagging Staples. Jan SSS previews hit across the street this morning and are generally positive with estimates moving higher. Group will see a number of catalysts Thursday as a few quarterly reporters will reports sales (i.e. DLTR, BIG, URBN, CTRN) and we’ll receive some eps updates/guidance adjustments (GPS, ROST, PLCE, etc.). Macy’s underperformed on a sell-side downgrade (off 0.4%) and URBN (+2.8%) outperformed on news it will be added to the S&P500. On Hardlines front, Electronics Retailers and Office Suppliers underperform Home Improvement and Home Furnishing names. Grocers got a lift early following positive comments re food deflation in SYY earnings report but ended up just slightly.

· Restaurants outperformed with Casual Dining and QSRs making gains. Few items helping – 1) MCD CEO on Reuters this morning making pos comments re SSS (“increase in US SSS was a sustainable result”), 2) SYY commented on conf. call that case volume remained positive in Jan, 3) Upcoming catalysts in YUM and BKC earnings this week. Autos – Group trading higher as 1) TM catches a relief rally on announcement of a fix for recall issue, 2) catalyst tomorrow in Jan Auto Sales and Supplier earnings throughout the week, 3) Sell-side upgrades (i.e. ALV upgraded today) and 4) positive sell-side comments ahead of Q4 earnings for Suppliers this week.

· Consumer Staples – ACV selling off after mgmt warned on conf. call it could miss its +MSD% organic growth sales target. PEP outperforming KO in beverage space after CEO commented on Bloomberg TV that ‘Bottler Integration Going Swimmingly’ and ahead of PBG earnings tomorrow.

· Trading Flows – Relatively light today without many clear trends. Desk started off better to buy but has shifted to a more balanced buy/sell mix closer to midday. In Staples we’ve seen sellers in Food and HPC whereas in Retail we’ve been two-ways in Specialty and Discounters.


· Industrials: Industrials were better to buy today as the ISM data came in better than expected this morning New order component still improving (now 65.9 vs. last month's 64.8). Seems the sellers were exhausted after a heavy selloff late in the day Friday, but we wouldn’t stamp this as a rally until we see a few straight days of positive closes. We saw institutions sell Mutlis as they were once safe harbors during the selloff. Hedge funds bought comm.. aero names (GD, LMT, NOC) ahead of expected budget commentary, but the group moved off their highs amid late day profit taking. We saw HFs flip longs in the builders ahead of DHI reporting tomorrow (also coming off a strong prior week). In addition, there was a general trend of investors moving out of the names that were relative outperformers for the last few weeks (ie – builders, multis, education) and into the higher beta names.

· Transports: Transports were stronger with the tape as it appears the sellers are on hold temporarily. We saw buyers in rails and truckers following their sharp selloff following weak earnings releases. We also have vanillas trimming positions and taking profits in parcels. Airlines were stronger with the tape with LCC continuing to outperform after last week’s strong earnings.

· Materials: Materials were all better to buy today, the strongest space in the market as the strong ISM number lifted commodities and a wave of short covering occurred. The rally was much needed as many names in the materials space fell dangerously close to their 200-day moving averages. Chemicals reversed their slide amid a few upgrades and price target revisions. Fertilizers outperformed today following renewed reports from Globe and Mail that POT and other fertilizers could be taken over by BHP. Paper and packaging stocks were higher with the tape thanks to an in line to positive report on December box shipments.

· Energy: Energy was the second strongest space in the market today, finishing near their highs, as XOM’s earnings propelled the space higher on top of strong moves higher in oil and natural gas. Integrateds outperformed today, led by XOM’s strong earnings report. Servicers, drillers, and refiners were all higher in accord with XOM’s earnings as well as higher commodity prices. E&Ps were up 2-4% as natural gas jumps nearly 30c to $5.40. Coal stocks are up 3-6% today thanks to a higher natural gas price and following Friday’s sharp drop. Investors also looked to take positions ahead of MEE’s earnings release tomorrow. Shipping and tanker stocks are also outperforming today.

Industrials/Materials/Energy Outliers

· Builders lagged a bit after outperforming last week and as investors trim positions a bit ahead of DHI’s earnings tomorrow.

· TXT was up around 5% as it appears most of the bad news is behind the company and investors bought with momentum on their side after overshooting a bit last Thursday.

· MMM, TYC, HON, UTX lagged a bit as money came out of the low-beta (defensive) names and moved into the higher beta underperformers of the last few weeks(Materials, Machinery, Rails, etc).

· Machinery stocks were up 1-3% after lagging most of last week, this is a result of sellers being a little exhausted as most of these have extreme oversold conditions heading into today.

· UPS lagged a bit tape as it is off slightly while other parcels move higher. Seems UPS was the defensive name that helped all last week. UPS is set to report earnings tomorrow (recall they already preannounced so Q1 guidance will be the main focus.

· ABFS lagged after its price target was cut at Barclays.

· Metals outperformed today, up 3-5% after last week’s sharp selloff and after a strong ISM number out this morning.

· EMN was up over 5.5% after being upgraded to Buy at JP Morgan.

· AVY was up just under 2%, but off its highs after Friday’s sharp drop due to a weak earnings report. The company was also upgraded to N from Sell at UBS.

· CNX and MEE were both up around 7% as natural gas gained 30c. Investors will be focused on MEE tomorrow as it is set to report earnings.


· With the tape finally being able to sustain a morning rally, we saw many of the media content names outperform, notably TWX, LCAPA & LSTZA. The group was not without its share of underperformers as DIS, AOL, and NWSA all finished in the red. Cable stocks & advertisers finished the day trading mostly in line.

· Newspapers stayed negative, as GCI/NYT were sold since the open with no traders looking to buy on weakness. Both were able to bounce off of their lows, with GCI finishing down ~ 6.81%, and with NYT down ~3.65%

· Within telecom, prepaids traded higher than VZ/T/S, as a story broke late in trading that LEAP had hired an adviser to consider a sale [WSJ] the stock surged on the news and finished up ~13%. Towers started the day weak in the face of the tape’s rally, but more buyers moved into these stocks during the afternoon.

· Within leisure, the demand for the casino stocks grew in the afternoon – as virtually all the LV/Macau stocks ticked higher. LVS finished up ~9%, WYNN up ~ 4.8%, MGM up ~6% and MPEL up ~ 6.15%. Regional gamers posted more modest gains with most traders looking to chase the high beta large cap casinos as the tape crossed 1085. For the most part, gaming equipment held their gains to outperform the broader sp500.

· The cruise lines outperformed, with both RCL & CCL gaining about 2% each.

· Lodging stocks ticked higher in the afternoon, led by WMS, which finished up ~3.7%, and HOT (up 3%) as the rally held in the afternoon caused buyers to move funds into the consumer discretionary names.

No comments:

Post a Comment