Tuesday, June 29, 2010

Industrials/Materials/Energy Rails are off 3-4% Machinery names are off sharply, falling some 4-5%


· Industrials: Industrials are the worst group in the market as negative data points out of China, liquidity worries in Spain, and a very weak consumer confidence number sends the market lower. Multis are sharply lower, falling 3-4% or more, although MMM outperforms (still off 1.75%) after updating its revenue guidance last night. Machinery names are off sharply, falling some 4-5% with the higher beta and more Euro-exposed names off even more. Aero/def names are off with the group, although aero names are clearly lagging. Leading aero names lower is BA on news that a $29B order from Dubai Aerospace Enterprises is in jeopardy due to the company’s financial woes. Waste is outperforming E&Cs on a safety bid, while oily E&Cs are off 3-5% on a plunge in crude. Building products are off sharply, falling 3-5% on general market weakness. Education names are down, but outperforming the group a bit.

· Transports: Transports are underperforming the tape on weakness across the board. Rails are off 3-4%, led lower by CSX and NSC as some negative coal comments out of China hit the group. Freight is lagging, led lower by FDX. Truckers are weak across the board, although ODFL is outperforming. Airlines are off 2-3%, pretty much in line with the tape as the group gets a little support due to a sharp slide in crude.

· Homebuilders: Homebuilders are off around 2%, outperforming the tape given they are all high-beta names. The group saw one of the first “in line” data points in a few weeks this morning after the Case Shiller came out, so that could be giving the space a floor. Within builders, RYL is just below the flatline after being upgraded at UBS. KBH is also acting well, and LEN is outperforming after being upgraded by KBW.

· Materials: Materials are lagging the tape a bit as worries of China growth take a hit on the group. Base metals are all off sharply, falling 3-5% as their respective commodities take a leg lower. Steel and iron ore names continue to get pummeled on worries out of China, although WOR is outperforming after earnings this morning. Gold stocks are acting well as the metal rallies back towards the flatline on the safe haven trade. Chemicals are off with the group, although fertilizers continue to weigh on the space ahead of tomorrow’s acreage report. Packaging stocks are off slightly, outperforming on a defensive bid. Paper/pulp stocks are lagging the group on general macro worries.

· Energy: Energy is mostly in line with the tape, as a slide in crude and natural gas weighs on pretty much every name in the space. Integrateds are off 2-3%, although Bpi sup 1% as investors try to pick the bottom in the stock. Services and drillers are off 2-4% on general market weakness and continued Gulf spill worries. Refiners are off around 3-4% and lagging as crack spreads move lower. E&Ps and coals are off sharply as a drop in natural gas under $4.60 sends the stocks down some 3-6%. Coals are also weak on pricing worries in China after China’s Nat’l Development and Reform Commission directed coal producers to abide by contract prices agreed to at the beginning of the year and return any extra income from price increases before the end of June. Shipping/tankers are off 4-6% as the Baltic Dry

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