Friday, February 8, 2008

Market Summary: Thurs. Feb. 7, 2008

When looking at the market, sometimes you need to forget about all the ups and downs of the day and just look at how we finished relative to where we started. The Dow was up 47, the Nasdaq up 14, and the S&P up 10, while treasuries fell (10-year at 3.77%).

Initial jobless claims for last week came in at 356K, better than last week’s reading of 378K, but the number was higher than what analysts’ were expecting. Consumer credit data was also released and the number was much lower than expected – meaning consumer debt was down in December. Usually this number doesn’t move markets, but because the reading was so low ($4.5B vs. $8B expected) it weighed on the markets.

Cisco was dragging down the tech stocks after they offered poor guidance during their conference call (they reported Wed. after the bell). So far the only tech stocks to please analysts have been IBM, Oracle, and Microsoft, and despite their strong performance last quarter and good guidance, they have been knocked down significantly over the last month or so because of bad earnings from Apple, Google, Intel, and Cisco.

Pepsi, one of the quintessential “recession stocks,” reported very strong earnings and investors were pleased bumping up the stock 5.5%. They beat analysts’ expectations for last quarter and they offered “in-line” guidance. Not every company is hurt by the slowing economy – these are the companies in which you want to invest.

Also, the Chicago Mercantile Exchange (CME) and the NY Mercantile Exchange (NYMEX) were up very big after analysts upgraded them. On Wednesday both stocks were hit extremely hard on news that the Dept. of Justice might rule that “futures market firms controlling or owning clearing operations impedes competition.” Just something to keep your eye on.

December pending home sales declined 1.5%, more than expected, but homebuilder stocks were up 1.5+% on the day. Everyone is forward-looking with this sector and expect things to turn around soon because of the recent Fed rate cuts (and the hope that more cuts are to come).

January retail sales numbers were released today and most came in lower than anticipated; however, the retail stocks were up big on the news. Wal-Mart, Target, Macy’s, and JC Penny all reported data that came in below what the analysts had predicted. Here is a Bloomberg.com article discussing the retailers and how they performed last month.

The dollar was up big, most likely because the Bank of England cut its rate 25 bp to 5.25%. The European Central Bank kept rates at 4%.

Was a today's move warranted? Maybe. Investors are forward-looking and a lot of today's data is backward-looking. I believe we are starting to price in another rate cut (probably a little too soon with so much data to be reported between now and the next Fed meeting).

1 comment:

  1. The consumer debt number Bellz referenced was HUGE. Absolutely enormous. There are two places our mess will go next (from residential real estate). First were going to mess with Commercial real estate, then the real question will be is everyone still paying their credit cards. To see a reduction in consumer debt like that is a huge boost that hopefully our economic crisis doesn't come to a massive increase in credit card defaults.

    An interesting note on tech. If you pull up a 5 day chart on CSCO, arguably the most important tech bellwether, and enable after hours trading, you see the huge spike downward during their conference call on Wednesday afternoon. CSCO has maintained, a continued to maintain that their long term growth rate is 13-17%. But they said for the upcoming quarter, they expect to see weakness and can only conservatively forecast 10%. The moment Chambers, CSCO's CEO said 10% the spike occurred. CSCO traded awful through afterhours and before the open thursday and then rallied to have a big day yesterday.

    What does this rambling mean. The street to CSCOs bad news, slept on it, and decided that if that's the conservative guidance, they can live with it. So what? So we have a short term bottom in for tech stocks for a week or two. Full disclosure: I am long CSCO but will be looking to move that mid-late next week.

    The Bank of England helped us out, and themselves by cutting rates a little bit. Why is Europe so reluctant to cut even though they're starting to experience a lot of the same problems we are? Part of it goes back to in between WWI and WWII when inflation crippled the continent. Bottom line: our problems in the housing market are starting to affect them as well and their Central Banks are being about as responsive as ours was this summer/fall.

    ReplyDelete

As of 02/26/08

Website Hit Counters
stats counter