Wall Street Wrap

Financials Weak and Dow 10,000 No More

By Robert Perrego, at 5:06 pm on February 8th, 2010

The Dow Jones Industrial Average slid steadily all afternoon closing down 103.84 points today (-1.03%, 9,908.39) and closed below 10,000 for the first time since November 4th of last year.  All but 2 of the 30 components were losers today with the three weakest stocks all being finance related companies.  Bank of America Corp. (NYSE: BAC) dropped 3.46% (-$0.52, $14.48), American Express Co. (NYSE: AXP) lost 2.80% (-$1.06, $36.79) and the Travelers Companies Inc. (NYSE: TRV) finished lower in the red by 2.44% (-$1.23, $49.05).  Home Depot Inc. (NYSE: HD) was the strongest of the Dow components gaining 2.18% and also up were home builders Lennar Corp. (NYSE: LEN) +4.62%, Beazer Homes USA Inc. (NYSE: BZH) +3.64% and Pulte Homes Inc. (NYSE: PHM) +2.29%.

The S&P 500 dropped 9.45 points (-0.89%, 1,056.74) and the Nasdaq 100 was down 11.24 points (-0.64%, 1,734.88) and was the leader by being the smallest loser.

I guess the sky stopped falling over in Europe as the euro stabilized against the dollar and Greece was mentioned by the talking heads on CNBC slightly less than the babbling about former Merrill Lynch & Co. chief John Thain getting a new job over at CIT Group Inc.  Various cures for what ails Greece have been proposed from applying for loans from the International Monetary Fund to getting more on their credit card from other EU members.  I vote the EU members bail the EU members out as we pay into the IMF and the chances of Greece paying that money back anytime soon with a strike or protest every other day does not look to good to me.  The Greeks are proud of the fact they invented democracy and the rest of the world is pretty happy they gave it to us, but constantly striking, protesting and having your voice heard pays less taxes than actually going to work.

The dollar slipped marginally, but stayed up at level it has not seen since August of last year.  With the dollar at this relatively high level and basically scared up a tree by the crisis in Greece (and other countries), commodities are looking like a bargain if you think the dollar will come back down when (if) Europe stabilizes.

New York spot gold lost $2.70 an ounce and last traded at $1,062.30 (-0.25%, 4:24 p.m.) as this percentage loss outperforms the 1%+ the DJIA lost.  CNBC has had gold up all day over $10 an ounce and I am guessing the futures contract they are watching is longer dated than the spot market.  If you are invested in or trading the gold ETF’s you will find that they correlate more closely with the spot market than whatever CNBC decides to display.

Oil gained $0.48 to $71.65 a barrel (+0.65%, 4:27 p.m.) as the steep slide down from last Wednesday’s peak is halted.  Oil reversed in this general neighborhood last December with the United States Oil Fund (NYSE: USO) bottoming at $35.48 on December 11th before running up to $41.17 on January 8th (+16%).  For all you channel and range traders out there, today’s close at $35.09 does hit short term bottoms from last December, September and August.

We have a relatively light economic calendar this week with no speeches or testifying for Timothy Geithner.  Fed Chairman Ben Bernanke testifies in front of the house Financial Services Committee on Wednesday about how he is going to let all the air out of the liquidity balloon without crushing job creation (like that is happening now anyway).  As long as I don’t hear ‘then we pray’, it sounds like a plan to me.  Ben is a pretty smart guy and the fact that our economically challenged politicians are going to quiz him on whatever he decides to do and then possibly even understand his answer is comical.

Tomorrow at 7:45 a.m. we have the ICSC-Goldman Store Sales, at 8:55 a.m. we get the Redbook and Wholesale Trade numbers come out at 10.

Selected earnings estimates for Tuesday, February 9th:

AGU 0.24, AFG 0.98 after the close, BIDU 1.68 atc, BJS 0.04, CAM 0.53, CHD 0.80 before market open, CVH 0.56 bmo, EOG 0.98 atc, IT 0.26 bmo, IFF 0.62 bmo, LGF -0.23 atc, MLM 0.33, TAP 1.10, NYX 0.48 bmo, PCH 0.04 bmo, PHM -0.19 bmo, RNR 2.50 atc, TIN 0.03 bmo, KO 0.67 bmo, VSH 0.12 bmo, VMC -0.01, DIS 0.39 atc, XL 0.70 atc

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Wall Street Wrap

Slow Day on the Street

By Robert Perrego, at 4:36 pm on December 23rd, 2009

Two of the four economic releases today showed a weak housing market after yesterday’s market experienced a modest rally off of the Existing Home Sales report.  A confirmation of the Existing Home report with strong numbers from the MBA Purchase Applications or the New Homes report would have been very bullish for the market, but as it is, the lone solid number from yesterday looks like an outlier.  The question is, was yesterday’s number the outlier or today’s?  Reading the reaction of the home-builder stocks, the rise yesterday was more than the drop today, so we can say the market thinks the positive trend illustrated by yesterdays number to be the path.  Over two days Pulte Homes Inc. (NYSE: PHM) is up 64 cents (+6.8%, $10.06), Ryland Group Inc. is up 80 cents (+4.05%, $20.54), D R Horton Inc. (NYSE: DHI) is up 38 cents (+3.54%, $11.12), Toll Brothers Inc. (NYSE: TOL) is up 77 cents (+4.19%, $19.15), Lennar Corp. (NYSE: LEN) is up 41 cents (+3.19%, $13.27) and Beazer Homes USA Inc. (NYSE: BZH) is up 3 cents (+0.60%, $4.99).

The market was very slow today with the biggest action coming at 10 a.m. when the New Home Sales number was released.  That number came out below expectations and the market sold off immediately with the Dow Jones Industrial Average dropping 30 points within the next 24 minutes.    The DJIA has dropped faster and farther many times so even this action, though it was the quickest move today, was not much.  The DJIA finished up 1.51 points (+0.01%, 10,466.44) on a day that probably drove day traders crazy and cost them money.  The S&P 500 added 2.89 points (+0.25%, 1,120.76) and the still outperforming Nasdaq 100 gained a decent 12.48 points (+0.67%, 1,851.99).

The New York Spot price for gold gained $3.80 an ounce ($1,087) after being up more than $12 during the day.  The SPDR Gold Trust (NYSE: GLD) was strong most the day, trading as high as $107.45 before gradually declining into the close at $106.55.  There was a sale of about a half-million shares in the last minute of trading that dropped the stock almost 30 cents.

Nymex crude jumped $2.20 a barrel (+2.96%, $76.60, 4:11 p.m.) on inventory supply data and dollar weakness.  The dollar opened lower today lending to the strength in gold and oil.  The dollar-euro relationship has traded to within 25 cents of its 200 day moving average and some say this may mark the end of the recent dollar rally.

Tomorrow we get Durable Goods Orders (0.5% expected) and Jobless Claims (470,000) at 8:30 a.m. and Natural Gas inventory levels at 10:30 a.m.

Friday the markets are closed for Christmas.

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Wall Street Wrap

Home Sales Boost Market

By Robert Perrego, at 4:44 pm on December 22nd, 2009

Seeing as this debt and economic meltdown started with home values, it might be fitting that the signals that a recovery is coming would come from home sales.  The Existing Home Sales report this morning beat expectations by 290,000 sales, were up 44% year-over-year and up 7.4% from last month.  This is the second month of strong growth as October hit a record rate of 9.9% and today’s report sent home builders and the market higher.  Pulte Homes Inc. (NYSE: PHM) was up 4.67% (+$0.44, $9.86) and even though S&P downgraded mortgage insurers this morning, the sales data sent MGIC Invest Corp. (NYSE: MTG) up 24.70% (+$1.26, $6.36) and Radian Group Inc. (NYSE: RDN) up 25.69% (+$1.66, $8.12).  You could say S&P blew that call.

The Dow Jones Industrial Average closed up 50.79 points (+0.48, 10,464.93) and the S&P 500 added 3.97 points (0.35%, 1,118.02).  The S&P 500 broke out to new 2009 highs today, from a sideways trading range the index has been in for six weeks.  The Nasdaq 100 was once again the strongest index up 10.72 points (+0.58%, 1,839.51) and closed at another high for 2009.

American International Group Inc. (NYSE: AIG) jumped 10.65% (+$2.99, $31.05) by backing off their plans to spin off their Chartis property casualty division in a public offering.  Analysts think that the property casualty sector is undervalued right now and by spinning off Chartis, AIG would not get as much as if they wait for another year or two.

Price targets on the airlines were upped by UBS today sending UAL Corp. (NSDQ: UAUA) higher by 12.23% (+$1.41, $12.93) while Jabil Circuit Inc. (NYSE: JBL) did their own heavy lifting and reported earnings yesterday after the close and swung to a gain of 13 cents a share versus last years loss of $1.34 a share.  JBL gapped up 99 cents on the open and traded up all day long (+$2.16, +14.38%, $17.18).

Microsoft Corp. (NSDQ: MSFT) lost an appeal involving one of its most famous pieces of software.  A U.S. Court of Appeals ruled that MS Word used technology patented by a small Canadian firm, l4i.  The ruling awards $290 million to l4i for infringement on the patent.  Microsoft has stated they will remove that part of the program, but will keep their legal options open as well.  Microsoft was up 30 cents on the day (+0.98%, $30.82).

Nymex crude rose on the positive economic expectations sparked by the housing number, gaining 31 cents (+0.42%, $74.03, 4:02 p.m.) even in the face of a stronger dollar.  The U.S. dollar index future spot price added 22 cents or 0.29% to 78.26.  The strength in the dollar did take gold lower, with the New York spot price trading as low as $1,073.30 an ounce before regaining to trade $1,083.00 (-$8.30, -0.76%, 4:08 p.m.).

Tomorrow we get The Mortgage Bankers Association Purchase Applications at 7 a.m. followed by Personal Income and Outlays (0.5%, 0.6%, 0.1%, expected) at 8:30 a.m.  At 9:55 a.m. Consumer Sentiment is announced, and right after that at 10 a.m. New Home Sales is released (440k).  Analysts will be looking for the MBA applications and New Home Sales to confirm the positive number we got this morning.  At 10:30 the EIA Petroleum Status Report is released.

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Wall Street Wrap

Wall Street Wrap – The Fed Stands Still, Gold Trades $1,099

By Robert Perrego, at 5:25 pm on November 4th, 2009

As widely expected, The Federal Reserve Open Market Committee maintained its target for the federal funds interest rate at 0 to 0.25% today stating that it “continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”  This caused the dollar, which had been selling off before the announcement, to drop even farther with the PowerShares DB US Dollar Bullish Fund (NYSE: UUP) dropping 0.88% on the day (-$0.20, $22.48) and propelling New York Spot Gold to trade as high as $1,099.  This maintenance of low interest rates caused a rally in the home builders with Pulte Homes Inc. (NYSE: PHM) +3.46%, Lennar Corp. (NYSE: LEN) +3.43% and D. R. Horton Inc. (NYSE: DHI) +3.12%, all gaining on continued low mortgage rates.

Click here to read the full FOMC Statement

The Dow Jones Industrial Average, which had been up all day and traded its highest level a half hour after the announcement at 9928, got sold off into the close dropping 113 points within the last hour of trading.  The Dow 30 closed up 30.23 points at 9,802.14 (+0.30%) with the S&P holding onto gain of 1.09 points (+0.10%, 1,046.50).  The Nasdaq 100 also barely managed to finish positive 1.47 points (+0.08%, 1,680.67).

With the low interest rates and the dollar getting hit left and right, the commodity space has been red hot.  Looking at various commodities and the dollar exchange traded fund, the vehicles the common investor can use to most easily invest in, we find the following returns for 2009 thus far;

  • Market Vectors Coal ETF (NYSE: KOL) +114.5%
  • iPath DJ AIG Copper ETN (NYSE: JJC) + 109.6%
  • United States Gasoline (NYSE: UGA) +88.8%
  • Market Vectors Steel ETF (NYSE: SLX) +79.6%
  • SPDR Gold ETF (NYSE: GLD) + 23.8%
  • United States Oil Fund (NYSE: USO) +22.8%
  • Dow Jones Industrial Average +11.7%
  • PowerShares DB MS Agriculture ETF (NYSE: DBA) +0.2%
  • PowerShares DB USD Dollar ETF (NYSE: UUP) -8.83%
  • Unites States Natural Gas (NYSE: UNG) -57.8%

The Dow Jones Industrial Average is included here as lately it has traded much like a commodity.  With the current U.S. interest rates so low, the dollar is being used to fund the carry trade and is shorted to provide funds to invest in other ‘risky’ assets (for more on this see my Wraps from 11/1, 10/31, 10/30).  This use of the dollar in the carry trade has established an inverse relationship between the dollar and the stock market, much like commodities.

Looking at these returns we can see that the good news is food is not seeing much inflation and if you heat your home with natural gas this may be a cheap winter.  The bad news is gasoline has almost doubled so you will have to stay home and eat in.

Much speculation has been running around the financial community about whether or not a commodity bubble is forming.  Just looking at absolute returns does not give enough information to define a bubble, as these different commodities are influenced not only by a diving dollar, but by things such as economic activity (coal, copper, steel, oil), inflation expectations and currency diversification needs (gold), consumer income and purchasing patterns (gasoline, food) and the simple supply of the commodity (natural gas).

I do not think we are into a commodity bubble as there have been a series of positive economic numbers out of China (remembering commodities are a global situation) which directly influences the demand for, and price of oil, copper, coal and steel.  The United States economy has also improved as evidenced by the 3.5% GDP report from last week.  Judging from the Fed’s statement today, interest rates will be kept very low for awhile in order to juice job creation and this will keep the dollar weak and the commodity run up will continue.  Also, the overall market; commodities, stocks and bonds, all dropped for a ways before the start of 2009 so rising from a lower starting point makes the run up percentage numbers look larger.  With the specter of a trillion dollar health care reform and cap and trade costs looming in the United States political future, along with the current budget deficit, I do not see the dollar strengthening appreciably anytime soon.  There longer term outlook for commodities remains positive.

Nymex crude rose 80 cents today (+1.01%, $80.18, 4:50 p.m.) regaining the $80 level.  Gold has been the market darling lately trading an all time high of $1,099 an ounce today and was last seen at $1,091.80 (+0.69%, 5:00 p.m.).  Yesterday’s move by the Reserve Bank of India of buying 200 tonnes of gold from the IMF shows the argument why gold may be nowhere near a top.  The inflation/deflation arguments about gold will mean nothing if the offshore assets denominated in dollars start to diversify into gold.  Of all the major currencies of the world gold has the smallest market by far.  Were Russia, China, Japan, India and the Middle East dollars to all diversify to just 5% of foreign reserves into gold, the price could top $2,000 easily.

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