Is There a Correction Coming?
Bloomberg is reports that holiday retail sales jumped 5.5%, the biggest gain in 5 years. Macy's (NYSE:M) and Abercrombie & Fitch (NYSE:ANF) were among the big winners, but it seems as though all the upside has already been had in the retail stocks. My favorite, Kohl's (NYSE:KSS), has done anything since its mid-November jump.
It should be clear from the retail sales numbers that Americans have gotten more comfortable with the U.S. economic recovery. While we certainly can't say the economy is hitting on all cylinders, it has stabilized and growth forecasts are on the rise.
Buyers Will Have A Chance To Steal The Trend
Stocks Retreat Mid-Session
WIND, COWN, FR, APL Lead Small Cap Trading
Software developer Wind River (Nasdaq:WIND) is the small cap leader today posting a 44% gain as of press time, 1:15 P.M. Eastern, on news of its acquisition by industry giant Intel (Nasdaq:INTC).
With the deal expected to close during the summer, Intel has committed to a price of $11.50 per share. As of this writing, shares of Wind River are going for $11.53. This certainly follows my thesis of technology, in addition to healthcare and energy, leading small caps for the foreseeable future.
Another big small cap gainer for today includes investment banker Cowen Group (Nasdaq:COWN) up 28.5% on news of its impending merger with Ramius, LLC, a privately held asset management firm. The new company will retain the Cowen name and is expected to continue trading on the Nasdaq.
Other small cap gainers include First Industrial Realty Trust (NYSE:FR) up 37.9% on news of closing three secured financial transactions for $154 million; Atlas Pipeline (NYSE:APL) up 16.1% to $7.57 (you'll recall Atlas was a big winner yesterday after announcing it's joint venture with Williams (NYSE:WMB). Since Friday's close, Atlas has rewarded investors with a 44% gain.
Small cap decliners include Abercrombie (NYSE:ANF), maker of popular clothing directed to the youth market, posting a loss of 10.6% in today's trading after reporting same store sales had fallen 28%; Northeast Bancorp (Nasdaq:NBN) of Lewiston, Maine, down 14.7%; and The Gap (NYSE:GPS) down 7.9% on reporting that sales fell 6% versus one year ago.
All major indices are reporting positive gains as of press time with the Russell 2000 Index up 1.12% to 528.56, the Dow up 0.70% to 8,735.80, the S&P 500 up 0.96% to 940.74, and the Nasdaq up 1.07% to 1,845.37. Analysts attribute much of this to reports showing that the number of unemployed still receiving benefits dropped unexpectedly for the first time in nearly five months.
Also big in today's news was crude oil hitting another high for 2009. New York Mercantile Exchange oil hit $69.56 in earlier trading today, meaning that crude oil is now nearly twice as expensive as it was in February.
Note: I've recently released a report on three small cap oil plays that will take advantage of crude oil's drive to even higher prices this year. In fact, one of these stocks has already given investors a nice 148% gain since we added it on March 30th. And there's still more action with this and the other two stocks. You can request your copy of the report HERE.
*****Yesterday, Ben Bernanke told the House Budget Committee:
"In recent weeks, yields on longer-term Treasury securities and fixed-rate mortgages have risen…[t]hese increases appear to reflect concerns about large federal deficits…"
Hmmm. I would swear that Treasury Secretary Geithner just told China that rising interest rates were a sign of optimism for the U.S. economy. Can rising rates be both good and bad? All I know is that if you listen to government long enough, anything and everything is possible.
Rising interest rates on Treasury bonds mean that prices are falling. Whether you're talking dollars or doughnuts, prices tend to fall when there's oversupply. And right now, with the Federal government raising trillions to fund stimulus spending and budget deficits, there's a more-than-adequate supply of T-bills.
Competition also affects interest rates, or yields, on T-bills. If the arcane valuation formulas running on server banks in the basement of some hedge fund say that the stock market is likely to post an 8% gain, few managers will get too excited about the 5% return on long bonds. That 5% yield must rise (with the price of the bond falling) to entice buyers.
So when Geithner says that rising yields indicate optimism, he's telling the truth to a degree. Yes, now that the economy is recovering a bit, investors believe that stocks are a better investment than bonds. And that's good. But one reason stocks are attractive is because bonds are so unattractive.
*****I suspect the Chinese know all this. They probably also know that they benefit by lending us money. Heck, if Chinese money delays the hard choices long enough, they may ascend to the throne of world's largest economy sooner than expected.
*****Bernanke also took the opportunity to warn Congress about rising deficits. He said "Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth."
Let's not forget Bernanke has supported the policies that got us where we are. Now let's see what he proposes to help get us out of this mess.
*****The last time I made the observation that the news cycle was turning negative, we saw stocks consolidate their recent gains, instead of turning lower.
Well, it seems to me that the news cycle is starting to turn negative again.
Bernanke repeated his belief that the recession is ending, but the financial media chose to latch on to his statement that recovery will be slow. Improving manufacturing data was deemed "not-as-good-as-expected."
Will this lead to a sell-off, another period of consolidation, or will more positive data emerge to keep the markets moving higher? I don't know, but I am on alert…
That's it for today.
P.S. One way to help insulate your portfolio (particularly if you're retired or even if it's a few years off) from the government's loose monetary policy is by holding dividend stocks. These stocks give you a regular payout and have tremendous upside. Be sure to check out my new research report with five such winning stocks right now. You can get it HERE.
Higher start; overseas markets rise
Looking at overseas action, European shares were up about 1.8%, while Asian markets gained nearly 1% to generate the first winning day in Asia this week. Japan was up 0.9%, South Korea up 1%, India up 1.7%, China up 3.4%, Hong Kong up 2.4%, Singapore up 1.2% and Australia climbed 1.2% after pushing through its own stimulus program despite running into obstacles earlier this week.
Some stocks making noise overnight include General Motors Corp. (NYSE:GM), rising some 3.5% after gaining a provision in the stimulus package that will erase a tax liability of $10 billion. Wells Fargo & Co. (NYSE:WFC) was active on the downside after saying it will have hefty write downs. Small-cap apparel firm Abercrombie & Fitch Co. (NYSE:ANF) posted a big drop in quarterly profits ahead of the opening and said they would not issue a forecast for 2009, but the stock was up solidly in pre-market trading, which shows just how low expectations have already been made for . . .
Quiet rise; retail jitters vs. stimulus
Small-cap stocks pushed higher in a relatively tame session, with morning pressure from concerns about sloppy sales at Wal-Mart countered by optimism for massive infrastructure spending projects in the months ahead. Perhaps the story lines simply balanced out each other, or perhaps the market was taking a little “breather” ahead of Friday’s big jobs report. The Russell 2000 (NYSE:IWM) closed up 4.91, or 0.99% at 502.01 and is now up 0.5% for the year; meanwhile the Dow is off 0.3% for 2009 and the S&P 500 is up 0.7%.
The day started off with a thud as the Wal-Mart worries ignited fears that if consumer spending is slack at discounters, then how bad might it be for higher-end fare? Wal-Mart Stores Inc. (NYSE:WMT) reported same-store sales were up 1.7% in December, which missed the forecast for a rise of 2.8%. WMT was a drag on large-cap index products throughout the day, and eventually lost more than 7%.
There actually was plenty of movement today in the retail arena, with most stores now coming out with monthly same-store results. However, for every Wal-Mart, Limited Brands Inc. (NYSE:LTD) and Abercrombie & Fitch Co. (NYSE:ANF), all of which fell on weak numbers, there was a Sears Holdings Corp. (Nasdaq:SHLD), which jumped 23%. If you owned stock in any retailers, chances are you experienced ...
Stimulus glee offsets retailer woes
Small-cap stocks hovered near steady levels into mid-session trading, up from the morning lows amid optimism over the fiscal stimulus plans that were put into greater detail today by President-elect Obama. The stimulus cheer helped offset gloom over sloppy retail sales from discount giant Wal-Mart, which put an early pall on the morning activity. At 12:23 p.m. ET, the Russell 2000 (NYSE:IWM) was up 0.27, or 0.05% at 497.36, outperforming the Dow and S&P 500.
Wal-Mart’s same-store sales were up in December, but short of expectations, which rekindled worries about consumer spending in the recession. Wal-Mart Stores Inc. (NYSE:WMT) was one of the few bright spots during 2008, but if discounters start to struggle, does that mean rising unemployment is forcing consumers to close their wallets altogether right now?
Speaking of unemployment, today’s weekly claims data served up a bullish surprise for the second consecutive week, with the headline figure coming in at 467,000, some 75,000 below the forecast. However, continuing claims were at 26-year highs, which took some of the bullish edge off the number. The market is still bracing for a potential ...
Small caps build on FOMC rally; large caps stall
Small-cap stocks rejected a morning pullback to close higher on the day, backing up the euphoric FOMC rate cut rally with an impressive showing given early weakness. Tuesday’s FOMC rise was powered by financial and homebuilder stocks, while today’s climb branched out to retailer, selected commodity and telecom names. The Russell 2000 (NYSE:IWM) closed up 3.75, or 0.78%, at 486.59 and is now down 36% for 2008. Meanwhile, the Dow was down 1.12% on the day, and is down 33% for the year, while the S&P 500 was down 0.96% Wednesday and down 38% for 2008.
Action today was noticeably calm after the big rate cut rally Tuesday. Investors were likely pondering just how the Federal Reserve would bolster the economy now that interest rates for short-term loans from the government are basically at zero. One clear path would seem to be buying longer-dated instruments, and Treasury markets were higher throughout the day, although down quite a bit from the morning rise when equities were on thinner ice to start the session.
On the retailer front, Macy’s Inc. (NYSE:M) jumped some 18%, leading the S&P Retail Index to a decent 1.8% gain on the day. Small-cap firms such as Abercrombie & Fitch Co. (NYSE:ANF) rose 3.9%. Retail sales reports have been spotty through this difficult holiday season, but Best Buy Co. Inc. (NYSE:BBY) shot higher Tuesday ahead of the FOMC news on a solid earnings report.
Selected commodity areas provided support to the stock market today, with metals, mining, gold and steel companies counted among the top performing sectors. Some of the bullish edge may have been taken off commodities however as crude oil prices plunged this afternoon, sinking some 8% to the lowest level in more than four years. The sell-off in crude took place right in the face of an announced production cut by OPEC leaders. Perhaps the sting of OPEC’s proposed cut was limited by the fact that non-members Russia and Mexico did not weigh in to support a pullback in production. Interestingly, even though crude oil prices slumped to four-year lows, . . .
Small-cap stocks open low; ARYX, ATAI, and EVTC lead gainers
Other Market Watch highlights today included:
• Energy shares were a big positive factor for the market during Thursday’s rally, but were a drag this morning.
• Libor rates edged up again overnight for the second consecutive session, which raises some caution flags among investors about the lending mentality around the world.
• Bernanke: Bank liquidity measures are generating tentative improvements in credit markets; central banks remain ready to act if needed.
• There is also a chance that traders don’t want to be caught short over the weekend just in case the G-20 comes out with some stunning stimulus package.
Small Cap Gainers:
• ARYx Therapeutics Inc. announces $21.6 million private placement; shares pop 41%. See (Nasdaq:ARYX).
• Computer-based testing services provider ATA up 27% after revealing a $5 million share buyback program. See (Nasdaq:ATAI).
• Evotec up 19% as Q3 loss narrows, it lifts FY08 revenue outlook. See (Nasdaq:EVTC). • MYR Group, a specialty contractor serving the electrical infrastructure market in the U.S., is up 18% after reporting Q3 results. See (Nasdaq:MYRG).
• Human Genome Sciences up 4.2% in pre-market despite being downgraded to "neutral" on Tuesday. See (Nasdaq:HGSB).
Small Cap Losers:
• MedCath Corp. tumbled 33% as the health care services provider reported quarterly results. See (Nasdaq:MDTH).
• Ardea Biosciences Inc. fell 27% as the biotech firm also fell on earnings news. See (Nasdaq:RDEA).
• Lasalle Hotel Properties fell 17% as the luxury hotel operator rescinded their previous outlook as results are falling well short of expectations. See (NYSE:LHO).
• Abercrombie & Fitch Co. beats the estimate, but slashes its forecast as well. Shares down over 5%. See (NYSE:ANF).
Record retail sales slump, money flow to credit pulls down stocks
Small-cap stocks opened lower, pressured by bleak retail sales data, soft earnings news, a pullback in energy prices, money flow into credit markets and a “breather” mentality after Thursday afternoon’s humongous recovery rally. At 9:57 a.m. ET, the Russell 2000 (NYSE:IWM) was down 5.85, or 1.19%, at 485.39.
Today’s “big event” -- the retail sales report, came in below expectations with a record October drop of 2.8%, far off the projection for a 1.5% decline, but closer to the whisper numbers making the round late this week. Stock index futures were down about 1.5% before the awful retail sales release and they remained down about 1.5% in the 60 minutes following the report, which suggests that other factors were at play. This morning’s Michigan sentiment survey came in at 57.9, which was slightly better than the forecast of 56.5, and which appeared to have little impact on trading.
The pullback this morning could simply be the market taking a break after a stunning bullish reversal off bear market lows Thursday. There is also a chance that traders don’t want to be caught short over the weekend just in case the G-20 comes out with some stunning stimulus package. G-20 leaders started an economic summit today in Washington to discuss the ongoing global financial crisis. And while G-20 leaders are in Washington working on ways to fix the world’s financial problems, central bankers are over in Europe, where the latest news overnight is that the eurozone economy slipped into recession for the first time in 15 years. Bernanke said that bank liquidity measures were generating tentative improvements in credit markets and that central banks remain ready to act if needed. His comments came into the teeth of the retail sales release but seemed to have limited initial market reaction.
Libor rates edged up again overnight for the second consecutive session, which raises some caution flags among investors about the lending mentality around the world. Within the credit spectrum this morning, money seemed to moving into Treasury products, with the yield on benchmark 10-year notes tumbling more than 3%. Since yields move inverse to price the big slide on rates reflects demand for Treasury products. Energy shares were a big positive factor for the market during Thursday’s rally, but were a drag this morning as crude oil prices slipped about $0.70 . . .
Lower open seen after brutal retail sales, Libor bump
Retail sales came in at minus 2.8%, which marked the largest October decline on record (the data series started 16 years ago). The consensus forecast called for a decline of 1.5%, but the “whisper” numbers were steadily getting worse this week, so it’s reasonable to think that a decline of at least 2% was already priced into the market. Investors were able to shrug off Thursday’s jolting weekly unemployment numbers, and there remains a sense from many market watchers that negative economic data right now just isn’t a surprise.
Ahead of the retail sales release this morning, there were already headwinds on the individual retailer front. JC Penney Company Inc. (NYSE:JCP) slightly topped the forecast but cautioned that economic conditions will remain difficult well into the New Year. Also, shares of Kohl’s Corp. (NYSE:KSS) and Nordstrom Inc. (NYSE:JWN) tumbled in extended hours trading Thursday afternoon after the firms reported weak profits and downgraded the outlook. Abercrombie & Fitch Co. (NYSE:ANF) beat the . . .
Small-cap stocks open low; VTIV, GLBC, and COBK lead gainers
Other Market Watch highlights today included:
• The latest batch of monthly same-store sales reports are coming out could influence the retail sector in general throughout the day.
• The sobering weekly claims report that was released today shows that Americans aren’t just losing jobs, they are struggling to find new ones too.
• At 9:51 a.m. ET, the Russell 2000 (NYSE:IWM) was down 0.74, or 3.83%, at 510.81.
• The Bank of England stunned the market with a very aggressive rate cut of 150 basis points, pushing benchmark rates there to the lowest point in 53 years.
• The most numbing stat from this morning’s data was that the number of continuing claims rose 122,000 last week to 3.84 million, the highest level in more than 25 years.
Small Cap Gainers:
• inVentiv Health Q3 profit declines; reaffirms FY08 revenue guidance. Shares are soaring 43%. See (Nasdaq:VTIV).
• Shares of Global Crossing up over 18% as the company maintains outlook, sees Q3 sales rise 12%. See (Nasdaq:GLBC).
• Colonial Bankshares up 18% on higher-than-average volume. See (Nasdaq:COBK).
• H&E Equipment Services Inc. jumped 14% on solid earnings news. See (Nasdaq:HEES).
• Small-cap retailer Hot Topic reported same-stores sales rose 8.3% and raised guidance. Shares were up 8.6% this morning. See (Nasdaq:HOTT).
Small Cap Losers:
• Lakes Entertainment Inc. slumped 29%, plunging a day after earnings and also as a casino referendum in Ohio was defeated. See (Nasdaq:LACO).
• Entertainment software company THQ posts big 2Q loss, plans 250 layoffs. Shares down 25% in pre-market. See (Nasdaq:THQI).
• Shares of Citi Trends down 9% in pre-market after the company announces Q3 sales. See (Nasdaq:CTRN).
• Abercrombie & Fitch's Oct. comparable store sales decline 20%; shares trade over 7% lower in pre-market. See (NYSE:ANF).
Small caps fall in the red on gloomy consumer survey
After a brief rise after the opening, small-cap stocks headed lower after a gloomy consumer sentiment encouraged sellers. At 12:25 p.m. ET, the Russell 2000 (NYSE:IWM) was down 7.12, or 0.96%, at 736.26.
The University of Michigan consumer sentiment survey came in at 59.5, which was below the projection of 62. The figure was the lowest May reading in 28 years, and underscores consumer trepidation about lofty gas and food prices.
April housing starts came in at an annualized rate of 1.032 million units, which was well above the forecast of 940,000. In addition, permits were up 4.9%. These numbers, however, are still weak numbers since the number was fueled by multi-family units — not single-family homes.
Oil prices touched new highs, propelled by an increase in Goldman Sachs’ oil price estimate to $141 a barrel in late 2008. In midday Friday action, crude futures were up $2.63 to $126.75 a barrel in New York.
Russell in the red as consumer sentiment at 28-year lows
Small-cap stocks edged lower, unable to sustain a pre-opening upside pop tied to housing starts data. In addition, the latest consumer sentiment survey from the University of Michigan was below expectations, which tugged down stock prices. At 10:07 a.m. ET, the Russell 2000 (NYSE:IWM) was down 5.80, or 0.78%, at 737.58.
The University of Michigan consumer sentiment survey came in at 59.5, which was below the projection of 62. The figure was the lowest May reading in 28 years, and underscores consumer trepidation about lofty gas and food prices.
April housing starts came in at an annualized rate of 1.032 million units, which was well above the forecast of 940,000. In addition, permits were up 4.9%. It should be noted that these are still weak numbers, especially since the number was fueled by multi-family units — not single-family homes.
Today serves up a double witching expiration for stocks, with equity and cash index options for May on the expiration block. With the SPX climbing well past the concentrated strike at 1,400, it might have taken some of the punch out of expirations, but there could be added volatility in play from the expiry.
Action in crude oil futures will likely be on the radar screen for stock market traders today following another jump in crude values overnight back above $127 dollars a barrel. Although energy stocks might get a lift from higher crude, the . . .
Sector Watch: On-demand software
Small and medium-sized businesses are increasingly turning to on-demand software downloaded from the Internet as an effective way to reduce IT spending; Salary.com, Inc. (Nasdaq: SLRY) and Taleo Corporation (Nasdaq: TLEO) are two leading providers that are reaping the benefits of the growing software need.
Gartner, a research firm, expects sales of on-demand software to grow to $11.5 billion by 2011 from $5.1 billion this year. That growth outlook is three to four times higher than projections for conventional business software. The advantages of on-demand software are that it is relatively inexpensive to implement and easily integrated with packaged software already in place. On-demand software is widely deployed in payroll, merchant services, human resources and customer relationship management applications.
Salary.com provides on-demand compensation software that helps small businesses manage payroll and reduce employee turnover while avoiding significant investments in hardware and IT staffing.
Salary.com software is integrated with a proprietary compensation database that lists market pricing for over 3,000 positions across numerous industries.
