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Archive for January, 2010

Tech Earnings Trouble Tilts Market Lower

Thursday, January 28th, 2010

The stock market is trading much lower today, and the NASDAQ is leading the chargeto the downside. In a market that has become much more jittery over the past week, the technology stocks have been the biggest disappointment. No doubt the expectations were high for them coming into this earnings season, and for the most part they have failed to meet those high expectations. Today the major technology names that disappointed on the corporate earnings front were Motorola and Qualcomm. Both of these companies are in the mobile handset market and both had a pretty bleak outlook. Qualcomm missed their revenue number for this quarter, and is getting crushed by about 13% today.

Apple shares are also trading lower by about 4% on big volume today as the iPad has received some less than stellar reviews from some major names. In fact, a full article of the iPad flawshas circulated today. The market is starting to wonder if the release of the iPad is a little bit less of a boost to Apple than they initially thought.

Maybe investors just had hopes that were simply too high for the tech sector, but the NASDAQ is definitely starting to correct itself, losing 4% in the last 5 days. The overall market continues to be pulled down by uncertainty in Washington as well as around the world. There is no doubt that the market hates uncertainty, and the last few days is a great example of that. Right now investors are looking to find a clearer picture of what may be in the offing for the economy as well as the market. As I have said numerous times before the biggest deal right now is making sure the jobs picture improves so that the consumer gets healthier. It doesn’t have to be a perfect outlook to help the market right now, but we do need to get some clarity.

Consumer Confidence Grows, Home Prices Fell

Tuesday, January 26th, 2010

It’s not that there is any inverse relationship between these two. Consumer confidence index increased to 55.9 in January from a revised 53.6 in December. Economists had expected a reading of 54 for January. On the other hand, U.S. home prices fell in November. Home price indexes showed prices in 10 major metropolitan areas fell 4.5% in November from a year earlier, while the index for 20 major metropolitan areas dropped 5.3% on the year.

Few days ago, Commerce Department reported that existing-home sales plunged in December after three straight months of increases lifted by a government tax credit. Last week, the department said new home construction fell far more than expected in December.

Even though there is a good news about consumer confidence, Dow closed down 2 points after moving up more than 80 points for the day. This week is a tough week to trade because of so many events taking place. Interest-rate decision is coming up from the Federal Reserve on Wednesday. There is a speculation about whether Fed Chairman Ben Bernanke would be reconfirmed or not. Traders are also waiting for State of the Union Address by President Obama. If President talks about more laws to restrict banks’ abuse of the financial system, you will see more financial stocks going down.

Keep an eye on the market, but don’t get obsessed with it if you are not a day-trader.

Tough Week Ahead

Sunday, January 24th, 2010

We have a tough week ahead. Last week was tough too, no one would have expected it. Goldman Sachs delivered great earnings, but still was killed by the market because President’s sweeping new plans. On top of it, there was a doubt about whether Fed Chairman Bernanke will be nominated for the second term. There were lots of concerns about China tightening banks’ lending rules.

The broad-based selloff pushed Dow Jones Industrial Average down 552.45 points during the past three trading days. Friday’s decline left the Dow still up 55% from its low hit on March 9 last year, but Dow is down for the current year. It appears that January effect is fading away. Dow Jones suffered its third consecutive triple-digit decline, down 216.90, to 10172.98

In the week ahead, Senate will probably vote on Bernanke’s confirmation. If he is not confirmed for second term, the market is going to fall bad. We will get data about new home sales, initial jobless claims and Chicago PMI on Friday.

As always trade wisely. Know your risk tolerance and keep those stop-losses tight.

Obama Sets Unprecedented Bank Limits

Thursday, January 21st, 2010

President Obama announced a sweeping new plan today to curb the size of banks in what he called an effort to get rid of the possibility of a bank being “t00 big to fail.” Basically the idea behind it is to limit the amount of risk a bank can take on, and leave open the possibility of government authority blocking actions they deem as too risky.

Probably those most affected by this are big investment banks like Goldman Sachs. These kind of banks will likely now have to consider letting go of their traditional commercial banking area in order to be able to keep doing things such as proprietary trading of mortgage securities. The White House believes that separating the risk takers from the general commercial banks would be a good move for the entire financial system.

This bank limit that Barack Obama announced today is part of a broader system of bank reform plan that is in the works right now. The recent announcement of a bank tax on the TARP money that is being paid back was met with skepticism and from many and the same thing is happening in this case as well.

Today the stock market is plunging, in large part because of the bank limit rules that were announced today. Investors worry that consolidation of financials will no longer be possible because of the cap that has been put on their activity and their deposit levels.

I believe that the President is seeking to avoid a financial collapse as there was last year, but I do also believe he needs to be careful about getting government too involved in the institutions. Obviously there needed to be more rules than there were a year ago, so hopefully these will help. There is a very fine line that must be walked. The government must set rules that prevent future collapses while still encouraging growth among these companies. Only time will tell how this proposal will work for the industry.

January Effect

Wednesday, January 20th, 2010

U.S. stock market is up so far in January. Usual “January Effect” theory goes something like this — if the market is up for first 5 trading days of the year, it augurs well for the whole year. If the market is up in January, the same sentiment holds true. This year, January seems to the profitable month unless some major company announces disappointing earnings in the next one week.

Market historians are fascinated by the January effect because it often sets the tone for the rest of the year. Stocks were up at the start of January last year. 2009 made of lot of investors happy. Personally, I don’t believe in these kind of theories, because anything can happen in the next 11 months. However, when many traders, investor and historians believe in this theory and hype about it when February comes, it will generate lot of enthusiasm in the market. That’s what I am looking for!

JP Morgan Outlook Sours Stock Market

Friday, January 15th, 2010

The worry for the bulls was that with one or two big name earnings that were disappointing there could be a pretty large setback in the stock market. It didn’t take very long for that to happen. In fact it was this morning, on the first week of earning season. JP Morgan Chase reported earnings that beat analyst estimates, but the outlook for the bank and the industry as a whole didn’t exactly leave investors full of cheer.

The earnings beat was called one of “low-quality” by analyst David Trone. Fixed-income was worse than expected, revenue was on the light side, and probably most concerning of all there were no signs of traditional banking turning around in any major way. Jamie Dimon, CEO of JP Morgan, tried to hint at the fact business might get better in the second half of 2010, but he had no hard data or evidence that this will be the case. JP Morgan CFO Michael Cavanagh was asked about the banking business outlook for this year and he responded simply by saying two words “cautious outlook.” Cautious outlooks are completely understandable, but that certainly isn’t what the market or investors were hoping for from this banking bellwether.

Since JP Morgan has actually done better on the whole than most in the financial industry it is fair to say that expectations for earnings for the entire banking industry probably went down quite a bit on today’s news. Needless to say banking stocks are being hit pretty hard today, and it has definitely spread to the entire market, where the Dow is down by more than 100 points on the day.

Earnings season has a long way to go, but today is an example of the possible bumps in the road for the bulls as we continue to look for signs of a full economic recovery.

Intel’s Profit Surges!

Thursday, January 14th, 2010

It’s good news for tech tomorrow. Intel reported one of the most profitable quarters in its history! Intel said its fourth-quarter profit surged nearly 10-fold from the depressed year-earlier period, as revenue jumped 28%. Intel’s gross profit margin hit an all-time record — 65%!

Intel’s results also included a 42% jump in microprocessor sales by its data center group, which means that corporate server system purchases are also going up.

“We started the year in one of the deepest recessions in our history and emerged from it with better products and technology driving new demand for computing world-wide,” said Paul Otellini, Intel’s chief executive officer, during a conference call with analysts.

For the quarter ended Dec. 26, Intel reported income of $2.28 billion, or 40 cents a share, compared with profit in the year-earlier period of $234 million, or four cents. Revenue rose to $10.57 billion from $8.23 billion. Analysts expected 30 cents per share earnings on the sales of $10.17 billion.

Related Link: Intel outlook points to PC Industry recovery

Banks hoarding cash. What does it mean for the economy?

Tuesday, January 12th, 2010

Today’s article on TheStreet.com regarding the strongest banks in the United States hoarding cash is an interesting one. It seems that many banks, especially community-based banks, are being ultra-conservative now because of the financial crisis from the recession in 2008 and 2009. It is certainly understandable since they want to play it safe, but it has to make you wonder what that means for the overall economy.

Some of the top banks in communities across the country now have a tier one leverage ratio above 20, which is four times the amount that makes them an A+ for safety according to TheStreet.com’s formula. The risk based capital ratio at many of these same banks is up above 40, also four times the necessary level to make them an A+ according to the formula.

What does all of this mean anyways? It means that banks are being extra careful with their money and not wanting to take chances on loans and the possibility of charge-offs. For banks that aren’t involved in lending in their communities this is great, but those who are heavy lenders are probably going too much to the other side. The truth is I believe banks need to find a happy medium of not being too aggressive with their balance sheet, but also not just simply buttoning it up and making it difficult for small business owners to get on their feet.

Over time it is imperative that lending get back to a normal level and the people who need loans be able to access them. At the same time the system needs to be limited so that a bank doesn’t over extend their assets and take the chance of failure. For right now hoarding cash has probably been a good idea, but we will need lending to commence again to have a full-fledged economic recovery.

Attention Turns to Quarter Four Earnings Results

Monday, January 11th, 2010

After a slightly disappointing employment number last Friday the stock market and investors turn their full attention to quarter four earnings results, which will start coming in this week. As they always are earnings will be very important to the direction of the market, since they are a good snapshot of the economy in the past and a look at the future. In times of possible recovery like we are in right now the stock market pays extra close attention to every little detail that comes out of every company, especially those that are considered blue chip stocks.

Alcoa will kick off earnings season this evening with its fourth quarter results. Later in the week there will be even more important reports from companies like Intel and JP Morgan Chase. A bellwether from the tech space and the banking industry will be a nice preview to what may be to come from both of those all important sectors. Expect the market to pay close attention to those companies who have led the recovery in stock prices, because they will want to see if the gains were actually legitimate or just a result of pure speculation.

Keep in mind that companies will have very easy comparisons during this time period since this time a year ago was when the recession was at its deepest point. Most companies will be able to do far better this year than they did last year at this time. The most important part of earnings season in a time like this is probably the forward looking statements, since the market wants to know what to make of the economy and 2010 corporate earnings.

Keep a close eye on the industry leaders and remember that the future is more important than the past right now. Look for any kind of trends in the data to see if a real recovery is beginning to take place. Earnings season is about to get under way, and the wise investor will pay close attention!

All Eyes on the Employment Data- What should you look for?

Thursday, January 7th, 2010

Today the stock market is doing exactly what I would expect, sitting back and waiting to see what comes out of the big employment number tomorrow morning. I think wise investors should do exactly what the market is telling you to do, wait and see exactly what the employment picture shows. This goes for tomorrow’s report, which will let us know about December, as well as the reports in the coming months that will show us the picture in early 2010. As I have stated to readers of this blog many times in the past, I simply do not believe in the notion of a “jobless recovery.” I truly believe that any real recovery must be accompanied by a strengthening job market so that the consumer can feel more confident about their current situation and future prospects.

What kinds of things should you look for in the employment data to see if the trends are starting to look better or not? Look at the beaten down sectors such as manufacturing and see if there are any signs of life. Also, take a look at things like average wages and see if they are beginning to pick up at all. Sometimes the top line number of 10% unemployment rate or whatever it may be gets a little too much recognition in my opinion, since that doesn’t account for those who have stopped looking for a position. The trends have gone in a solid direction with smaller job losses of late, but we will definitely need to see some sectors other than the government and healthcare adding jobs for the market to continue its recent climb.

The bottom line is every single jobs number will be vitally important to the market for the next few months. As an informed investor I strongly suggest you start parsing through the numbers and not just looking at the top line!

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