End of Market February 6, 2012 DAD99: 12/31/2003=100.00
Morning Market Comment:
Overview: Stocks consolidated recent gains on Monday. The market held up despite some modestly disappointing European news. Greece still has not agreed to accept the European Union (EU)/European Central Bank (ECB) budgetary restraint terms that are required before it can receive the next tranche of bailout funds from the EU. By all accounts, Greece’s population and political structure are struggling with the severe fiscal spending restraints already in place. Reports of a violent national strike are hitting the news wires. There were no economic data releases yesterday and the corporate news calendar was light. The euro closed lower versus the dollar at $1.307. Crude oil futures prices dipped, with the near-term West Texas Intermediate closing at $97.22/barrel. Gold closed at $1,722/ounce. Market Recap: The stock market was lethargic yesterday with traders possibly suffering from a post-Super Bowl hangover. After opening lower, the major market indices drifted aimlessly for the remainder of the trading session on Wall Street. Trading volume on the NYSE and the NASDAQ was light with only 2.4 billion shares hitting the tape. Market breadth on the NYSE was negative with declining issues outnumbering advancing issues 1,770 to 1,234. The bond market closed at session high prices. The yield on the 10-year Treasury note dipped slightly, closing at 1.896%. Sector Overview: Seven of the ten equity market sectors closed Monday with a loss. Materials (-0.55%), health Care (-0.55%), and Financials (-0.48%) saw the heaviest selling pressure. Energy rallied, closing with a 1.20% gain. Technology and Telecom posted tiny 0.05% gains. Traders sold small cap issues, as small cap value dropped 0.44% while small cap growth was off 0.34%. Large cap value rose 0.05% and large cap growth rose 0.01%. Monday's Leading Industry Groups:Wireless Telecommunications Services (+4.83%), Commercial Printing (+3.35%), Household Appliances (+3.03%), Computer & Electronics Retail (+2.01%), Oil & Gas Equipment & Services (+1.58%) Monday's Lagging Industry Groups: Health Care Services (-4.53%), Food Distributors (-3.59%), Airlines (-2.89%), Electronic Equipment Manufacturers (-1.92%), Internet Retail (-1.91%) Companies in the News Today: Fourth quarter earnings reports continue to dominate the morning corporate news headlines as summarized below. In addition, the following companies are in the news this morning: Bank of America (BAC) shareholders won class action status in their lawsuit against the company for fraudulently misleading them regarding the 2008 Merrill Lynch takeover. Oracle (ORCL) rejected a $272 million award against SAP (SAP) over copyright patent infringement issues, opting for a new trial after a judge slashed more than $1 billion from a previous verdict. Wal-Mart’s (WMT) Canadian unit plans to add 73 units with 4.6 million square feet of retail space to its operations during the next 12 months. Companies reporting earnings above forecasts: ALLT, BDX, BP, BR, CNC, CHD, KO, DST, GTIV, LFUS, OHI, PTRY, PIKE, SMG, SSYS, TM, TDG Companies reporting earnings in line with forecasts:MLI Companies reporting earnings below forecasts: MT, CFX, EMR, IT, GSK, RTI, UBS, VSHCompanies raising earnings or revenue guidance:PRGO, TDG Companies maintaining earnings or revenue guidance:GTIV, NJR, EMR, LFUS, OTTR, RBC Companies lowering earnings or revenue guidance:BDX, IEXAnalyst Upgrades (from Thomson, Briefing.com, Marketwatch.com):AMD, SCSS, BKD, HCP, SCHW, MAA, LUFK, DBD, BAMXF, HBI Analyst Downgrades (from Thomson, Briefing.com, Marketwatch.com):LTC, RATE, AMD, USAK, PBY, DRIV, ZOLT, WAG, ACHN, CYOU, RATE, SNH, NFX, SOHU, SLG, HSIC, SOHU, AUY, URBN, FOSL, WRC, GSM, REPYY,POAHY, AON, SSW, CRRFY Looking Ahead: International tensions including the Greek debt refinancing issue and Iran appear to be hanging over equity markets this morning. Investors are disturbed by reports of national strikes in Greece by unions objecting to the government adopting even more stringent fiscal spending restraints in order to receive further EU bailout funds. The Iranian situation appears to be heating up as European and U.S. sanctions take hold against the country. Iran continues to threaten military action in response. Both of these situations have been ongoing, but generally ignored for the last six weeks by global investors. Given the global equity market rally that has lifted stock prices by more than 20 percent over the last six months, international tensions appear to be giving traders a reason to take profits and trim positions. While we do not believe the U.S. and global stock markets stand near a cyclical peak, both appear ripe for a 2% to 4% pullback. Thus, we remain cautious near-term and suggest clients review equity holdings with the idea of trimming back over weighted positions in overvalued names. Looking at the market sectors, Health Care, Materials, Technology, and Consumer Discretionary appear most extended and possibly most vulnerable to a modest near-term price correction, as each sector has rallied more than 25 percent off their respective recent 26-week low. The Consumer Discretionary sector, trading at 17.2x projected 2012 earnings, appears overvalued relative to the S&P 500 that is currently trading around 13x projected 2012 earnings. Market Outlook: We expect stock prices in New York to open lower as stock futures are trading below fair value. Stock prices closed mostly lower overnight in the Asian markets. The Tokyo Nikkei 225 fell 0.13%. The Hong Kong Hang Seng Index fell 0.05%. The Chinese CSI fell 1.68%. Stock prices in the European stock exchanges are trading lower at mid-session. The London FTSE is off 0.58%. The Euro STOXX 50 index is off 0.65%. The near-term contract of light sweet crude is trading at $95.96/barrel. Natural gas futures are at $2.566/mcf. Gold is trading at $1718.20/ounce. The euro is trading at $1.3109. The 10-year Treasury note is yielding 1.907%. The 2-year Treasury note is trading to yield 0.242%. 3-month Treasury bills are trading to yield 0.079%. The Fed Funds Target range remains 0% to ¼%. Today’s Earnings Releases: 120 companies reporting, includingBBCN Bancorp (BBCN), Becton Dickinson & Co. (BDX), Buffalo Wild Wings (BWLD), CBRE Group (CBG), Cerner (CERN), Coca-Cola Co. (KO), Emerson Electric Co. (EMR), Harman International Industries (HAR), Hartford Financial Services Group (HIG), Life Technologies (LIFE), Lincoln National (LNC), Louisiana-Pacific (LPX), Martin Marietta Materials (MLM), Panera Bread Co. (PNRA), Perrigo Co. (PRGO), Powell Industries (POWL), RTI International Metals (RTI), Toyota Motor (TM), TransDigm Group (TDG), USANA Health Sciences (USNA), Walt Disney Co. (DIS), and Western Union Co. (WU)Today’s Economic Releases/Events: Consumer Credit, 3-Year Treasury Note auction Corporate Analyst Meetings, Conference Calls, and Investor Meetings: PMTC Analyst Meeting, SB Analyst/Investor DayThis Week’s Institutional Investor Conferences: Canaccord Genuity Musculoskeletal Conference, Cowen & Co. Aerospace/Defense Conference, Credit Suisse Financial Services Forum, Dahlman Rose Transportation ConFab Conference, FIG Partners West Coast Bank CEO Forum, Stifel Nicolaus Technology & Telecom Conference, UBS Global Health Care Services Conference
Technical Overview (updated 2/7/12):
Short-Term Trend
Intermediate Trend
Long-Term Trend
DJ Industrial Average
Up
Up
Up
NASDAQ Composite
Up-Extended
Up
Up
MSCI EAFE (EFA)
Up
Up
In Transition
Gold (GLD)
Up
Up
Up
Euro (FXE)
Up
Down
Down
Near-Term Support
Near-Term Resistance
Current Price
DJ Industrial Average
12,400
12,900
12,845.13
S&P 500
1,280
1,340
1,344.33
NASDAQ Composite
2,675
2,900
2,901.99
50-day Moving Avg.
200-day Moving Avg.
DJ Industrial Average
12,327 (up)
11,964 (up)
S&P 500
1,274 (up)
1,255 (flat)
NASDAQ Composite
2,682 (up)
2,655 (flat)
Upcoming Office Visits and Client Event Appearances/Speeches:
Feb. 8:
West Linn, OR – Chamber of Commerce/Rotary Club Dinner Speech
Feb. 13-14:
Boston, MA – Institutional Client Meetings
Feb. 15-16:
New York City, NY – Institutional Client Meetings
Feb. 17:
Return to Lake Oswego
March 4-9:
Philadelphia, PA – SIFMA/Wharton Institute & Trustee Meetings
March 12:
Beaverton, OR – Pacific Power Retiree Forum Economic Presentation/Speech
March 13:
Eugene, OR – Office Visit / Client Meetings
March 14:
Roseburg, OR – Office Visit/Client Event (Lunch?)
March 15-16:
Medford, OR – Client Events
March 20-21:
Great Falls, MT – Corporate Meetings
March 22:
Helena, MT – Montana CPA Association Conference Speech
April 11-12:
Burlington, WA – Client Event
April 17:
Pendleton, OR – Client Event (Evening)
April 18:
Kennewick, WA – Client Event/Kennewick Rotary Club Speech (Noon)
April 23-24:
Great Falls, MT – Corporate Meetings
April 25-26:
Bozeman, MT – Client Events
April 27:
Return to Lake Oswego
May 4-5:
Bellevue, WA – Davidson Institute
May 7-8:
Great Falls, MT – Corporate Meetings/Intern Training Meeting
May 9-10:
Seattle, WA – Davidson Banking/Financial Services Conference
May 11:
Seattle, WA – Davidson Trust Board Meeting Presentation
May 16-18:
New York, NY – Wharton/SII Trustee Meetings
May 19:
Seattle, WA – Keynote Speech American Association of Women’s CPAs
Sept. 12:
Kennewick, WA – Client Appreciation Event
Sept. 13:
Lewiston, ID – Client Appreciation Event
Sept. 17-20:
East Coast media tour – SIFMA/Wharton Board Meeting
Oct. 25-26:
Boise – Client Events/Idaho Women’s Investment Forum Speech
Nov. 8-9:
Omaha/Lincoln, NE – Client Events
Nov. 15:
Redmond, WA – Client Event
Fred H. Dickson, CMT Senior Vice President, Chief Investment Strategist Davidson Companies 503.603.3059 fdickson@dadco.com
