Earnings:
Economics:
Fedspeak:
The Dow Industrials fell 168.32 points, or 1.38% to 12058.02.
Joe LaVorgna of Deutsche Bank has this little squib offering his two cents on when we should really start worrying about oil prices choking off the economic recovery:
In our view, the problematic level for oil prices is above $125 per barrel, which raises the energy tax to $174B. This would account for roughly half of the rise in wage and salary income we project for the full year (+5.5%), and it would cut our PCE growth forecast by 50% and push GDP toward 2.0%. Since this is below the trend growth rate for the economy, unemployment could start to back up and economic growth would be at risk of stalling.
For all the Apple diehards out there, our Apple factoid of the day comes courtesy of a note from Scott Craig, who covers the stock at BofA Merrill:
iPhone unit sales outside of the U.S. grew 103% Y/Y in C4Q10 and 126% Y/Y for C2010. By region, Asia Pacific (ex. Japan) grew 192%, Latin America 126%, and Western Europe 66%. We believe strength has been due to deeper carrier distribution, as Apple has added 30+ international carriers in the past 6 months. We believe the available market could increase further if Apple extends iPhone availability to other CDMA vendors, similar to Verizon in the U.S.
The Dow Jones Transportation Average is on track to close below key support at the Jan. 28 low — 4967 — something it couldn’t do in two previous intraday attempts last week.
Such a slide would open up the downside for a test of the 4650-4700 level, which includes the November low and the 200-day moving average. DJTA down 137 at 4948 with 19 of the 20 components in the red, with airlines such as Delta (-4.5%), United Continental (-4.1%) and AMR (-2.7%) weighing heavily.
Dow Theorists believe the DJTA and DJIA should move in tandem, so a DJTA breakdown could foreshadow the same for the DJIA. DJIA down 130 at 12096 vs. the Jan. 28 low of 11803 and the 200-day moving average of 10975.
Morgan Stanley chip wonks are out with a couple of fresh comments on seminconductors Tuesday. They say Intel’s opportunity in the “cloud” isn’t being appreciated by investors:
We think that Intel’s Data Center / Cloud opportunity (~22% of revenues) remains under-appreciated by investors, as concerns about potential share loss in PC and Server, to ARM-based microprocessors, continues to depress INTC’s multiple. After Intel’s Kirk Skaugen’s presentation, we have incrementally higher conviction in our thesis that Intel gross margins could surprise to the upside this year based in part on the higher growth of Intel’s higher margin server business.
Despite Intel’s trouble recently — shares up 1.7%, versus 4% for the S&P and 9.4% for the Philly Semis index — analysts are still pretty bullish on the shares. About 60% of the 52 analysts covering the stock rate it “buy” or “overweight.” The consensus target price for the shares is now $25.10, some 17% higher than the price where Intel is currently trading. Whose got this right? The analysts or the market?
Old Yeller is officially back!
And that’s not the greatest news for investors focused on things non-barbarous. Gold for March delivery surged $21.40, or 1.52%, to $1430.70/oz, a new Comex record settle, according to the mandarins at the Dow Jones Market Data Group.
Old Yeller may be hated, derided and spurned by many, but in a world heaving with crises (at least in the Middle East and North Africa), investors like the seeming safety of the shiny stuff. After clipping a record on the first trading day of the year, gold wandered in the wilderness until governments started falling in North Africa.
Poor man’s gold, Hi-Yo Silver had a good day, too, rising 1.81% to $34.4160/oz. But unlike gold, silver needs a bit of work to get to its previous high of $48.70/oz reached in January 1980. That price occurred during the Hunt Brothers’ ill-fated bid to corner the silver market.
As stocks go lower, what’s working today? Bit of a mixed bag, really, with defensive names and headline makers doing decently.
One group with a surprisingly mixed day, despite surging oil prices, are the big oil companies. Marathon Oil, which has significant Libyan exposure, is up nearly 3%. But ExxonMobil and Chevron are both edging lower. Eni, the Italian energy giant that is tightly linked with events in Libya, is down more than 1%.
Among the winners: Boston Scientific. Its shares are up a cool 5.8% after getting an upgrade from RBC this morning. Biotechs are also doing well, with Biogen up 2.9% and Amgen up 1.3%.
Bigger pharma is mostly holding up. Merck is adding 0.3% and Pfizer is up 0.2%, but Johnson & Johnson is off 1.2%.
Wynn Resorts is up nearly 2%, partly due to strong gambling results out of Macau. The latest data showed a 48% jump in February gambling revenue in Macau. That hasn’t helped all who operate there. MGM is off 2% and Las Vegas Sands, which received an upgrade from Credit Suisse this morning, is down 7%. The casino operator said it has received a subpoena from the SEC related to a corruption probe. Las Vegas Sands says it is cooperating.
Drink makers are having a decent day. Coke us up 1.5% after announcing that it has completed its purchase of Honest Tea. Dr. Pepper Snapple is up nearly 1%, but PepsiCo is off 0.3%.
Utilities are also starting to draw more attention, but not universally. AES is up 3.2% and PG&E is up 1.2%, but the Dow Jones Utility Average is off 0.63%.
Newmont Mining and Barrick Gold are benefiting from surging gold prices. Newmont is up 1.4% and Barrick is up 2.1%. The SPDR Gold Trust is gaining 1.2% and the iShares Silver Trust is up 1.6%.
Middle East jitters are giving oil, gold and silver a boost as investors eschew economic data, warm cooings from Fed Chief Big Ben Bernanke and decent car sales data for February.
All of that spells trouble for the stock market, with the Dow Jones Industrial cascading more than 100 points lower and defensive stocks, such as Coke and Merck getting the most attention.
The latest batch of headlines include: Libyan rebels repelling an attack on a oil-rich town; Yemen’s embattled president blaming the U.S. for local unrest; More reports of unrest in Iran; Protests in Oman; a delay in the reopening of the Egyptian stock market; more protests in Bahrain.
West Texas Intermediate crude is creeping toward $100 a barrel in New York and Brent Crude is up over $114 a barrel. Old Yeller is up $19.50, or 1.4%, to $1429.60/oz and silver is doing even better, up 57 cents, or 1.7%, to $34.39.
Treasurys, which traded lower as Big Ben offered few hints of changing the Fed’s super-easy policy anytime soon in Congressional testimony, have rallied back to near break-even levels.
Headlines out of MENA (Middle East North Africa) continue to rattle investors who fear that a particularly prolonged and nasty crisis could lead to a sustained surge in oil prices, cutting off the nascent global economic recovery. That’s one reason Big Ben and the economic reports are getting ignored.
Despite a flurry of solid economic reports, the market still doesn’t like the economically sensitive sector.
As Matt noted earlier, the February ISM Manufacturing index rose to 61.4 from 60.8, above consensus and the best reading for the sector since May 2004. Now, the ISM tends to overlook smaller companies, so its robust nature overshadows a still ragged small-business sector. That’s one reason the jobs picture remains weaker than some indicators, such as the ISM, would indicate.
Meantime, the Morgan Stanley Cyclical index is down 1.5%, more than triple the decline for the Morgan Stanley Consumer index. This continues a trend that kicked in last week, with heavy selling of the cyclicals and a move toward more defensive, growth stocks such as Procter & Gamble, Coke, Merck and Pfizer, all of whom are up today.
Among cyclicals, Caterpillar is down 1.8%, John Deere is down 1.5%, DuPont is off more than 2% and Boeing is off 1.9%.
Carmakers are reporting sales today, and they’re not getting any love, either. Ford reported a 14% jump in sales in February, its stock down about 2%. GM’s sales jumped 46% in February and Chrysler had sales gains of more than 13%. GM’s shares are down 2.3%.
In reporting its sales figures, GM raised a concern that is affecting most cylicals and car companies in particular: rising energy prices. The U.S. Energy Information Agency says average gas prices are at $3.38 a gallon, up 68 cents from a year ago and up 19 cents in the past week.
For a long time, what’s been good for crude has been good for Dr. Copper.
But lately the metal with the Ph.D. in economics has been moving in the opposite direction as oil, amid the price surge we’ve seen for black gold. This clearly makes sense. While they’re both commodities, oil has been surging on political risk in the Middle East, something that clearly wouldn’t drive copper prices, usually seen as a barometer of global growth, higher.
Here’s a chart with the price of copper and crude in the top panel and the 21-day correlation between the two in the bottom panel.
Here’s how Goldman Sachs markets watcher Noah Weisberger explained the divergence between the two important raw materials:
The oil price spike fueled energy equities higher but damaged cyclical equities. Commodity markets tell a similar story. Oil and copper prices had enjoyed a long period of positive co-movement buoyed by strong global growth. We estimate that, since 2009, 21-day copper returns and 21-day crude oil returns has a correlation coefficient of more than 0.6. But over the last week, oil prices moved sharply higher and copper prices moved sharply lower – down about 6% (before a late-week partial rebound). This suggests that, in the market’s estimation, higher oil prices have caused cyclical optimism to be scaled back somewhat.
Translation: The market seems to think higher oil prices will hit growth. Kind of seems like jumping through hoops to prove the obvious, but still it’s somehow interesting to take a look at the breakdown between copper and oil. And it’s worth noting that this is the lowest we’ve seen the correlation between crude and copper since May of 2008, before high crude oil prices put the first cracks in the foundation of the U.S. economy. Just saying.
Just for the record, shares of Goldman Sachs seem to be hanging in their after an initial move lower on news that the U.S. Securities and Exchange Commission filed a suit saying the former head of McKinsey & Co. provided improper tips to Galleon Group founder Raj Rajaratnam about companies in which he was a board member, including a $5 billion investment in Goldman Sachs Group Inc. by Warren Buffett’s Berkshire Hathaway Inc. Goldman shares are off their lows of the day, down about 0.9%.
The short answer: Yes.
Turnarounds in ISM numbers have tended to match up with recent stock market bottoms. So should we be worried about the manufacturing ISM hitting territory normally associated peaks?
It doesn’t look like it, judging from this chart, which shows the price performance of the S&P 500 compared against the meanderings of the ISM Manufacturing index. During the most recent stock market surge that preceded the massive bust in 2008, ISM numbers peaked for the May 2004 report. The stock market continued to roll merrily along until the fall of 2007 before running into some problems caused by the early rumblings of the subprime crisis.
Of course, during those years the Fed was fueling the run-up in stocks with policy that in retrospect pretty much everyone agrees was far too loose. No one expects a Fed tightening cycle any time soon. But once the QE2 program peters out this summer, things will get interesting.
Bank of America Merrill Lynch has decided it likes the auto dealers.
Christopher Dietrich at Dow Jones: “BAML upped its view on auto-dealer stocks and ups price targets for a raft of stocks including AutoNation, Group 1 Automotive and Penske Automotive. BAML says strengthening balance sheets across the sector mean companies are likely to return value to shareholders with buybacks and higher dividends.
“BAML’s estimate for 15M light vehicle sales in 2011 are above the Street’s consensus, yet BAML asserts dealer stocks can still push higher even in a lighter sales environment on the basis of cost cutting made during the worst of the financial crisis.”
This contrasts with UBS’ recent dealer survey that found dealers fretting about a possible price war this year. UBS estimates 13 million light truck and car sales this year, well below the BAML number. UBS also has a sell rating on AutoNation.
The market likes the Swissies this morning. AutoNation is down 1.3%, Group 1 is down 2.2% and Penske is off about 1%.
The automakers are set to report February sales during the day today. UBS says its survey found dealers for GM, Chrysler and imports cheerier than Ford dealers.
MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. The Wall Street Journal’s Matt Phillips is the lead writer, with contributions from other Journal reporters and editors. Have a comment? Write to marketbeat@wsj.com or write Matt directly at matt.phillips@wsj.com.
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