Wednesday, February 3, 2010



· Levels – SP500 ends dwn 6 points/0.5% to 1097 (off the lows of 0.93). The Nazz actually ends in the green (up less than 1 point) thanks to strength in a few large cap tech stocks. The R2K was down 0.5%.

· Market Update – market trends at 4pm pretty similar to 9:40am. Equities dip ~0.5% on the day, giving back some of the powerful rally from Mon/Tues. The main difference from Tues is the absence of aggressive short covering. In terms of the larger vanillas, they were sellers late last week but haven’t done much all this week so far (either buy or sell). For Mon and Tues was a sellers strike (w/some covering); today it was really a buyers and sellers strike. Some sector trends (like HC coming for sale) but the room was very quiet for much of the session.

· Equity Sectors – financials and health care lag for much of the session today. Within the financials, regional banks very weak (off >2%) as capital raising worries weigh (although the group is still up >7% on a YTD basis). Life insurance stocks also heavy (MET hurting the group post its earnings). In health care, the disappointing PFE #s hit the space (HC on the whole falls 1% w/PFEdown 2%; some of the HMOs also come for sale, like UNH and HUM). The SP500 tech index is in the green and one of the best acting groups, although this isn’t across the board strength by any means (a few super-caps are doing well today – BIDU, RIMM, AAPL, GOOG, YHOO, MSFT; the average tech stock is weaker). Media has been the best performing group for much of the day (w/NWSa helping the most – that stock climbs 7%; CBS up >4%, DIS up 2%, etc; TWX falls 2% coming away from its report and underperforms). The transports dip 1% on the day after a couple earnings releases disappoint (R and CHRW fall 6-7%).

· Best Performing SP500 stocks (from Bloomberg): LXK, NWS, CBS, ROP, JDSU, SWK, BDK, NOV, PCS, MWW

· Weakest performing sp500 stocks (from Bloomberg): WU, RL, R, MI, CHRW, ZION, WAG, TSO, IP, HBAN

· Commodities: Commodities were mostly weaker today as the dollar moved higher and equities sold off. Oil was off 30c, moving back below $77 as inventories rose a bit more than expected. Natural gas fell 5c to $5.40. Gold lost $6 to $1112, but finished off its lows. Copper plunged today, falling 3.5% amid more worries that tightening in China will hurt demand for the metal.

· FX: USD (DXY) was up 0.45% today, finished at its highs of the session. The dollar rose 0.45% against the Euro the “PIIGS” (Portugal, Italy, Ireland, Greece, and Spain) continued to widen. The dollar was up 0.45% on the Pound and 0.65% on the Yen. The Euro gained 0.2% against the Yen as well.

· Corp Credit: Corp credit outperformed the tape today as IG spreads narrowed ¼ of a bp and Hy gained 3/8 of a pt. bank CDS was flat to actually tighter in some instances; life insurance CDS was slightly wider on the day.

· Treasuries: Treasuries sold off today as equities moved lower. Yields on 2s climbed to 88 bps while 10s now yield 3.70 pct. The 2-10 year spread saw a moderate steepening to 282 bps, now just 6 bps below its all time high

ADP - The Macroeconomic Adivsers/ADP employment report showed a 22,000 decline in private nonfarm payrolls in January. We see balanced risks around our forecast for a 10,000 gain in private payrolls and a 20,000 gain in total payrolls in Friday’s employment report. Although the ADP report still shows declines in employment, the size of declines is steadily shrinking. The report showed a 178,000 fall in October, a 121,000 fall in November, and a 61,000 fall in December. Abiel Reinhart

ISM Non-manufacturing - The ISM nonmanufacturing index edged up to 50.5 in January from 49.8 in December, suggesting that growth in services GDP remains fairly soft. The index is now technically at its highest level since May 2008, although the improvement over recent months is not that substantial. The nonmanufacturing index continues to substantially underperform relative to the manufacturing index, which surged to 58.4 in January. A Reinhart


· Credit cards – the group is seeing some profit taking today after a strong rally on Tues (recall they rallied on Tues on back of the BoA/Merrill upgrade. AXP, COF, DFS all off 1-3%. ADS drops 9% after earnings – this could be weighing on the cards. AXP’s analyst meeting started @ 2:30pmET – repeats that seeing improvement in credit and that billings so far in Jan ahead of forecast although says it will be reinvesting the credit upside in ’10 back into the business.

· Brokers – RJF shares are outperforming following an upgrade. GS has been an outperformer for much of the session. LAZ dips after earnings (reported EPS was a big miss due to a compensation-related charge) although climbs off its lows. AMTD sinks further on continued pricing worries.

· ITG – the stock dips ~10%+ after earnings. Other equity-related names not getting crush as ITG’s biggest problem w/earnings was the cost side, not revs (NITE is up 1% while NDAQ falls 1%).

· Life insurance – the group is off across the board; MET the big highlight – the stock sinks more than 3% (although off lows). Earnings hit last night and book value disappointed; also – the co confirmed it was in talks to buy a business unit from AIG, which is now an overhang. S&P mid-day put the company on watch w/neg. implications. The rest of life is for sale today – HIG, LNC, PNX, PFG, etc. AFL shares rally 2.6% as earnings come in better.

· Banks – a lot of selling in the group, esp. the regionals; worries about further capital raising hurting. While the regionals have been very heavy for the last couple days, keep in mind the space is up >7% on a YTD basis. RF, ZION, KEY, MTB, BBT, CMA are some of the weakest regionals. The larger money centers are outperforming although they gave up their gains of earlier in the session.

· Non-life insurance – ACE has been eking out small gains for most of the session today after earnings came in strong. In the brokers, AJG is up 4% on back of its report.

· MI/financial guarantors – the group is weak across the board today; MTG, PMI, MBI, ABK are all off a few %.

· REITs – JLL shares climb 7% after earnings; CBG has been rallying in sympathy (CBG reports earnings after the close tonight).

· Best Performing SP500 Financials (from Bloomberg): AFL, NDAQ, CBG, ICE, GS, BEN, CINF, JNS, ETFC, AON

· Weakest performing sp500 financials (from Bloomberg): MI, ZION, HBAN, STI, MET, MTB, DFS, FITB, UNM, FII

Consumer & Retail

· Consumer stock lower on the session but trading relatively inline with the tape. Retail flows picked up in the afternoon ahead of Jan SSS tomorrow morning. Big story of the morning was RL’s earnings beat which fell short of expectations sending the stock dn ~9%. In Hardlines, Home Improvement stocks are lower, led down by LOW on a competitor downgrade. Equity desk has seen MF buyers on the pullback.….Broadlines holding in better than Specialty on the whole….In Restaurants, equity desk is seeing rotation within QSRs out of BKC ahead of earnings into MCD (competitor upgraded today) while YUM trades off 1%+ ahead of earnings tonight. In Autos, group is mostly lower with the exception of BWA/LEA ahead of their earnings reports and JCI on positive news that it will become WMT's exclusive auto battery supplier. In RVs, THO preannounced Q4 revs ahead of St. intraday sending shares rallying over 6% (WGO traded +6.5% as well on pos read-through). Staples - In tobacco, LO underperformed on a neg sell-side note, PM gave back some of yesterday's gains on USD strength, RAI rose 0.5% into earnings tomorrow and MO continues to drift lower following recent earnings miss. On HPC front, CLX is up~1% into earnings and AVP is up ~0.5%.

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