Daily State of the Markets
Thursday Morning – November 3, 2011
Good morning. Here’s a question. If you absolutely had to (meaning that there might be money or pain avoidance on the line), could you list off three reasons to be negative about the stock market in the next 30 seconds? How about five reasons? 10? Do I hear twelve? How about fifteen? OK, coming up with fifteen reasons to hate the stock market might be a challenge for even our most dedicated friends in fur. However, my guess is that just about everyone reading this little missive could come up with three to five good reasons to be a nattering nabob of negativity when it comes to the future outlook for equities.
Frankly, if someone was offering me cash for my market-clunkers here, I think I’d probably clean up in a hurry. Let’s see, we’ve got Greece, Ireland, Portugal, Italy and maybe even France. We’ve got debt, debt, and more debt, and of course, too little income to pay for the debt. Oh, and on that note, there is no quick fix to this problem – can you say downward spiral? There is the idea that governments around the world are trying to legislate (and tax) anything and everything as well as trying to outlaw all bad things (CDS, short selling, etc.). There are the oncoming recessions in Germany and the rest of Europe. And speaking of recessions, if you believe ECRI (and you should because they’ve yet to be wrong), the U.S. will also join the double-dip club early next year. Then there is unemployment, growing civil unrest due to political class warfare being waged, and of course, the housing market. Hmmm… If I was collecting $10 a pop here, I might be in business.
The point is that it is SOOOO easy to be negative right now. But here’s a thought… In this business, how often is it easy to “be right” – especially when everyone else is thinking the same thing? So, in order to try and open up our minds a little, let’s up the ante on our game. I challenge you to take the other side of the trade here. Let’s see if we can find anything positive to say about the outlook for the stock market in the coming six months. You’ve got 30 seconds. Ready, go.
OK, how’d you do? How many positives could you come up with relating to the upside for stocks? Although I can be accused of cheating because, well, I did kinda make up the rules of the game (oh, and I am also a card carrying member of the glass-is-half-full club), I was able come up with a baker’s dozen. I know, impressive, right?
Given that a healthy level of scepticism is important in this business, I’m guessing that you probably aren’t just going to take my word for it. So here goes. Here’s my hit parade of reasons to get out of the bitter barn and look on the bright side for a change.
- Valuations (they really aren’t bad)
- Seasonality (November – February, need I say more?)
- The election cycle (stocks are rarely down in the year prior to an election year)
- Corporate Cash (yea, it’s abundant because cash doesn’t ask for raises or need health care)
- Earnings (looks like yet another decent quarter)
- Don’t Fight the Fed (rates will stay low for at least another 18 months)
- Don’t Fight the Tape (72% of industry groups are technically healthy)
- Trust the Thrust (the stats on breath thrusts are impressive)
- Go Global Young Man (93% of global markets are above their 10-week moving averages)
- Low Inflation (I know, but there is no sign of inflation outside of commodity prices)
- China (a bad growth rate is 8% per year)
- No Recession Here (well, not yet anyway – slow growth is not a recession)
- No Disaster in Europe (you heard it here first!)
So there you have it; thirteen reasons to be optimistic about the outlook for the stock market. Or, at the very least, thirteen reasons not to be overly negative. Oh, and one more thing that I almost forgot; Ned Davis Research says we’ve likely entered a new cyclical bull market (within the context of the secular bear market that began in 2000). And NDR’s computers say that the average cyclical bull sees gains of more than 60% over a period of about a year. So, given that this bull may have begun on October 4 with “the great save,” we could (the key word here) be in for some good times between now and next fall.
I know what you’re thinking. Should you forget your fears and just bomb in here? No, that would be irresponsible. The point this morning is that when everybody is negative and they are completely, 100% sold on their conviction, it usually pays to start thinking about going the other way. But with Mr. Papandreou’s latest move, it might just be a while before any of that newfound optimism is needed.
Turning to this morning… The political situation in Greece has turned chaotic with nothing short of a revolt from within the PM’s own party. To the markets, this means that the feared referendum is unlikely to happen. Stock futures in the U.S., which have been very volatile in reaction to each headline are currently pointing to an up open on Wall Street.
On the Economic Front… Initial Claims for Unemployment Insurance for the week ending 10/29 fell by 9,000 to 397K. The reported total was below the consensus estimate for 400K and better than last week’s revised total of 406k (from 402K). Continuing Claims for the week ending 10/22 came in at 3.683M vs. 3.645M and last week’s 3.698M.
Next up, the government reported U.S. Nonfarm Productivity in the third quarter rose by +3.1%, which was above the estimates for reading of +2.9% and Q2’s -0.1%. On the inflation front, Unit labour Costs were reported to have fallen -2.4% versus the expectations for -0.96% and Q2’s revised +2.8%.
Thought for the day… Remember that happiness is a choice. What will you choose today?
Here are the Pre-Market indicators we review each morning before the opening bell…
- Major Foreign Markets: Australia: -0.32% Shanghai: +0.16% Hong Kong: -2.49% Japan: -2.04% France: +2.21% Germany: +2.26% Italy: +2.72% Spain: +1.44% London: +1.19%
- Australia: -0.32%
- Shanghai: +0.16%
- Hong Kong: -2.49%
- Japan: -2.04%
- France: +2.21%
- Germany: +2.26%
- Italy: +2.72%
- Spain: +1.44%
- London: +1.19%
- Crude Oil Futures: +$1.08 to $93.59
- Gold: +$29.10 to $1758.70
- Dollar: higher against the Yen, lower vs. Euro and Pound
- 10-Year Bond Yield: Currently trading at 2.056%
- Stock Futures Ahead of Open in U.S. (relative to fair value): S&P 500: +17.00 Dow Jones Industrial Average: +144 NASDAQ Composite: +17.53
- S&P 500: +17.00
- Dow Jones Industrial Average: +144
- NASDAQ Composite: +17.53
Wall Street Research Summary
- OpenTable (OPEN) – Barclays
- Invesco (IVZ) – Added to Top Picks Live at Citi
- Fortinet (FTNT) – Morgan Stanley
- Teva Pharmaceutical (TEVA) – Morgan Stanley
- Annaly Capital (NLY) – Wells Fargo
- Hexcel (HXL) – BofA/Merrill
- Rockwell Collins (COL) – BofA/Merrill
- Randgold Resources (GOLD) – BMO Capital
- ON Semiconductor (ONNN) – Citi
- Health Net (HNT) – Goldman Sachs
- Community Health (CYH) – Goldman Sachs
- Dendreon (DNDN) – Goldman Sachs
- Entertainment Properties Trust (EPR) – Janney
- Cheesecake Factory (CAKE) – Janney
- Darden Restaurants (DRI) – Janney
- Sony (SNE) – JPMorgan
- Check Point Software (CHKP) – Morgan Stanley
- WebMD Health (WBMD) – Stifel Nicolaus
Yesterday’s Earnings After The Bell
Estimate CenturyLink CTL $0.37 $0.34 Covance CVD $0.71 $0.70 Corrections Corp CXW $0.37 $0.36 Dresser-Rand DRC $0.51 $0.44 Essex Property ESS $1.42 $1.42 Goodrich Petroleum GDP ($0.16) ($0.05) Hanesbrands HBI $0.91 $0.82 Hartford Financial HIG $0.05 $0.23 j2 Global JCOM $0.64 $0.63 Jones Lang LaSalle JLL $1.12 $1.09 Kraft Foods KFT $0.58 $0.55 Kinross Gold KGC $0.24 $0.22 Kimco Realty KIM $0.30 $0.30 Lincoln National LNC $1.00 $0.93 Murphy Oil MUR $1.73 * $1.20 News Corp NWSA $0.32 $0.29 ON Semiconductor ONNN $0.24 $0.23 Onyx Pharmaceuticals ONXX ($0.31) ($0.21) Prudential Financial PRU $1.07 $1.54 Qualcomm QCOM $0.80 $0.78 Transocean RIG ($0.22) * $0.80 Hanover Insurance Group THG ($0.41) ($0.21) Tesoro TSO $2.39 $1.94 Vulcan Materials VMC $0.13 $0.06 WebMD Health WBMD $0.20 $0.17 Whole Foods WFM $0.42 $0.41 MEMC Electronic Materials WFR $0.03 $0.12 Walter Energy WLT $1.21 $1.11
Today’s Earnings Before The Bell
Estimate Alpha Natural Resources ANR $0.35 $0.04 Beam BEAM $0.53 $0.50 CVS Caremark CVS $0.70 $0.67 Denbury Resources DNR $0.37 $0.29 DIRECTV DTV $0.70 $0.73 Duke Energy DUK $0.50 $0.46 Eastman Kodak EK ($0.83) ($0.44) Estee Lauder EL $1.41 $1.18 Energizer ENR $1.10 $1.25 Frontier Communications FTR $0.05 $0.06 Health Care REIT HCN $0.89 $0.88 Hornbeck Offshore HOS ($0.05) ($0.22) InterActiveCorp IACI $0.56 $0.49 Kellogg K $0.80 $0.89 NRG Energy NRG ($0.24) $0.37 PG&E PCG $1.08 $1.06 PPL Corp PPL $0.76 $0.66 Spectra Energy SE $0.38 $0.39 Swift Energy SFY $0.39 $0.37 Scripps Networks Interactive SNI $0.66 $0.65 Strayer Education STRA $1.20 $1.08 Teradata TDC $0.59 $0.55 Western Refining WNR $1.37 * $1.31 Cimarex XEC $1.45 $1.46
* Report includes items that make comparisons to the consensus estimate questionable
Long positions in stocks mentioned: none
For more of Mr. Moenning’s thoughts and research, visit StateoftheMarkets.com
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