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Another rally led by the banks. Citi (NYSE:C) was up 4% on better than
average volume after an analysts raised his earnings estimates for the
bank for 2012 and 2013.
Why?
Because last week, Citi said it would keep its retail credit card partner
business. This business allows other companies to issue cards with their
logo on it. And it’s very profitable, adding $2.2 billion in pre-tax
profits so far this year.
Of course, there’s always a counter-point. This business is also risky,
as it exposes Citi to higher default rates that accompany retail credit
cards.
Still, the move for financial stocks was widespread, and I have to
suspect that the rally is related to the government’s latest mortgage
relief initiative that will allow homeowner’s to refinance underwater
loans. There’s no principal reduction, but even supporting refi’s at the
current rate can put several hundred extra dollars in people’s pockets.
It’s easy to see how extra cash will help credit card companies. And
overall, this is a very good move.
I came across an interesting note from Citi yesterday. Apparently, the
number of homes listed for sale in September was the lowest it’s been
since 2005. And over the last 5 years, only 4 months have seen fewer
homes for sale than September.
I’m not ready to say the housing market has turned. After all, we know
there is still substantial shadow housing inventory. Still, this is a
good sign, and another bullish catalyst for stocks.
Are we seeing the death high-flyer Netflix (Nasdaq:NFLX)? Maybe not as a
company, but as an investment worthy stock, it sure looks that way.
Netflix lost 800,000 customers in a quarter. And while the Netflix name
carries some goodwill, at the end of the day, it’s just a content
delivery system. There’s no barrier to entry in this space.
I would not be eager to bottom fish this one.
Oil prices ramped hard yesterday and are up again today. That’s a stark
counterpoint for the weak global growth story. Oil is an ideal indicator
for growth expectations, and now that it’s back above $90 a barrel, it’s
clear that investors are looking for better growth.
As I wrote yesterday, estimates for U.S. GDP
growth are increasing. We may get a reading of 2.5% for the third quarter
when the number comes out Thursday. We have a very good chance of a
strong end of year rally, once the European situation is sorted
out.
For a rally, look for oil and basic materials.
Copper has been trading higher and Freeport McMoran (NYSE:FCX) has been looking good. There could be solid gains for
this stock to come after its fall from the $60 level.
Any rally will also take tech stocks higher,
and there are some bargains in the space right now.
Tomorrow is the big day for Europe. The latest
summit is due to end tomorrow, and the market is expecting come concrete
steps to end the Greek debt problem and recapitalize Euro-banks.
And yes, this situation is ripe for
disappointment. Stocks are off today in anticipation, and I don’t expect
any upside until Europe lays out its latest plans. It could be ugly if
there is no important news.
Even though I think a rally is coming, it is
prudent to wait for Europe before getting positioned. Whatever measures
come out of Europe, I expect there to be selling that could be steep. But
that sell-off should provide attractive entry points.
Write me anytime:
[email protected]
Until tomorrow,
Ian Wyatt
Editor
Daily Profit