If you just look at the numbers, it appeared to be a very good day, but I’m skeptical about this rally. The PPI number was reported this morning, and it came in at 1.0%, more than double what economists had predicted. The PPI is now up 7.4% over the last 12 months. The Core PPI was up 0.4% in January and the year-over-year increase is at 2.3%. Also, the Consumer Confidence number dropped to 75.0, which was well below expectations. Just last month, the Consumer Confidence number was 87.3 (Source: Bloomberg.com). Commodities also rallied today. Oil, gold, silver, copper, and wheat were all up significantly. Surprisingly, the market didn’t react too negatively to all this news, especially because it lowers the possibility the Fed will cut rates at their next meeting. I’m not sure what investors were looking at today, except for the fact that expectations might have been so low (the CPI number last week was also higher than expected) the only place to go is up from here.
The big news that turned the market around came at 9:45 am when announced a $15B stock repurchase plan and boosted their earnings forecast to $8.25 from $8.20. IBM has spent $94B buying back stock since 1995 (Source: Bloomberg.com). This was very good news for the market because it is a sign that not every company is getting squeezed by the slowing economy. IBM, along with HPQ and MSFT, is one of the few big-cap tech companies that posted impressive earnings, and this repurchase program is a sign that the company is healthy and generating enough cash to support operations and the buy-back. Even though this is very positive news, I’m not so sure it warranted a complete market reversal and subsequent rally.
MBIA was back in the news today. Moody’s reaffirmed MBIA’s AAA credit rating (just like S&P did yesterday). Also, MBIA announced they will “stop writing guarantees on asset-backed securities for six months and will separate that business from its municipal unit within five years” (Source: Bloomberg.com). MBIA will also eliminate their quarterly dividend, saving itself $174M per year (Source: CNBC.com).
Google made headlines today after an analyst announced paid clicks declined by 12% from the previous quarter. Paid clicks are the number of times users clicked on an ad-supported link. An analyst from BMO Capital Markets cut Google’s price target to $590 from $690 (Sources: CNNMoney.com, Bloomberg.com). Nielsen Online announced that Google’s January search ranking was 4.22 billion queries, which is 56.9% of the market for online searches. Yahoo! was second with 1.41 billion searches, which is 19% of the market (Source:
The Fed also auctioned $30B using their Term Auction Facility. This was the sixth auction and a total of $160B has been added to the banking system. Funds were auctioned at 3.080% (Source: CNNMoney.com).
In earnings news, Office Depot was down after its Q4 profit declined 85%, more than analysts expected. Macy’s, Nordstrom, Target, Auto Zone, and RadioShack were up after beating earnings estimates. Home Depot missed estimates, but the stock was not down too much (Source: finance.yahoo.com).
The dollar was down big, back to its all-time lows. This decline in the dollar also helped oil prices reach $101.
Tomorrow, the only major earnings reports are from McDermott and Toll Brothers. On the economic front, durable orders and new home sales data will be reported.
DJIA 12,684.92 +114.70 (+0.91%)
Nasdaq 2,344.99 +17.51 (+0.75%)
S&P 500 1,381.29 +9.49 (+0.69%)
NYSE Volume 4,039,788,000
2-Yr Bond 2.00% -0.12
10-Yr Bond 3.86% -0.04
30-Yr Bond 4.66% unch
Crude Oil (Apr) 100.88 +1.65
Gold (Apr) 948.90 +8.40
A "Bull Stocks" note on tech companies: the spread between tech companies is widening in terms of earnings production. Some are kicking it, others are getting kicked. For one flying under the radar, I would point to EMC. EMC reported phenomenal earnings but has gotten killed because of its huge ownership stake in VMW, which is one of the companies getting kicked. EMC provides data storage solutions and everything companies need to store information and make it easily and quickly accessible.
ReplyDeleteHowever, when you back out the value of the VMW shares, which by the way EMC is now allowed to start selling just this week, EMC's core business which is doing phenomenal is trading at about a 7-8x multiple. Now that is a cheap tech stock.
Also, if you can catch Microsoft on a pull back, I think we have a VERY VERY long term bottom now in that stock.