Investors will look for U.S. stock gains to continue for a second consecutive week, but the market faces high hurdles from the ongoing credit crisis and recession fears that continue to hang over the market. Market players will turn their attention to results from retailing giant Wal-Mart Stores Inc. (WMT) and a consumer-price inflation report that will shed more light on consumer activity in a sluggish economy. A close eye will also be paid to action in the bond-insurance market, after New York Governor Eliot Spitzer warned Thursday that bond insurers have to move quickly to recapitalize themselves to keep their AAA ratings. Fresh off the central bank's downgrade of the U.S. economy, investors will return from Monday's holiday to reports from the beleaguered housing sector and results from J.C. Penney Co. (JCP) and tech heavyweight Hewlett-Packard Co. (HPQ) A three-day snapback rally, interrupted by a sell-off on Thursday, was enough to pull the major stock indexes higher this week, but it wasn't enough to convince Joe Liro, equity strategist at Stone & McCarthy Research Associates, that the market is ready to extend gains. "As soon as you got some upside, people came in to sell. When you're selling bounces rather than buying dips, that's a clear indication that the overall trend is lower," he said. Wall Street also will watch for results from European banking firms, many of which have been hit by the U.S. mortgage meltdown. While concerns about recession loom large on Wall Street, Liro said that he considers the weak performance of the financial sector as the most "debilitating" factor for the market. If the constant "litany of admissions of bigger write-downs and charges continues, it's has to be a negative next week," he added. Britain's Barclays PLC (BCS) will report on Tuesday and France's BNP Paribas , which has warned of lower fourth-quarter profit, will report Wednesday. This week, Swiss banking giant UBS AG (UBS) recorded a $13.7 billion write-down in the fourth quarter related to its extensive exposure to the U.S. mortgage market. Results are also due from Societe Generale , the French bank in the middle of a rogue-trading scandal that is expected to result in more than $7 billion of losses at the company. Steven Sachs, head of trading at Rydex Investments, foresees little chance that stocks will move higher next week, particularly if Wednesday's consumer-price index report shows that consumers shelled out more money for goods and services in January. A miss in expectations for CPI readings to remain steady "given Federal Reserve Chairman Ben Bernanke's testimony on the Hill and [Treasury Secretary Henry] Paulson's claim that inflation is not a concern and it will moderate" would hit stocks, said Sachs, who met the monetary officials' view about inflation with skepticism. Economists polled by MarketWatch forecast the CPI to remain unchanged at 0.3%. Stripping out volatile prices for food and energy, core consumer prices are expected to stay at 0.2%. As investors prepped for the upcoming inflation report and highly anticipated results from Wal-Mart, the world's largest retailer, signs abounded that consumers (whose spending drives about 70% of the U.S. economy) are becoming increasingly reluctant to part from their cash. Consumer-electronics retailer Best Buy Co. (BBY) cut its full-year earnings forecast Friday because of lackluster sales after the holiday season, then consumer sentiment tumbled to its lowest level since 1992, according to a survey by the University of Michigan and Reuters. Those developments followed Bernanke's congressional testimony Thursday said that the central bank is projecting slower growth for 2008 than in previous forecasts. Investors will hear more from the Fed on Wednesday when minutes from its most recent meeting will be released. Investors also will get a look on Friday at the Philadelphia Federal Reserve's manufacturing survey, whose poor showing last month set off alarm bells to many on Wall Street that recession was on its way. "Bad news is we are probably going to be in a recession. The good news is that while rate cuts cannot stop a recession, they can help to reduce the severity," said Al Goldman, chief market strategist at A.G. Edwards. "But after the rally, the dominant trend is still down, and I think that's probably going to be the direction on balance next week." Earnings, reports Following the Presidents Day holiday on Monday, investors on Tuesday will receive results from Wal-Mart and look for further insight into how consumers are holding up during the current economic slowdown. Wal-Mart is expected to report a 10% rise in profit to $1.02 a share on sales of $107 billion, according to analysts polled by Thomson Financial. But in its most recent sales release, the company posted a soft 0.5% gain in same-store sales for January, below expectations of 2% growth. Chipmaker Analog Devices Inc. (ADI) will post results Wednesday. Utility firm PG&E Corp. (PCG) and financial-software provider Intuit Inc. (INTU) will report on Thursday. Fourth-quarter earnings growth for companies in the S&P 500 continued to weaken this past week, and now stands at negative 21.1%. "That was down mostly due to estimate cuts to American International Group Inc. (AIG)," said John Butters, senior research analyst at Thomson Financial. The insurer reported that its auditor questioned how the company values some of its derivatives. AIG, however, said that it has appropriate controls and procedures in place to value such exposures. Earnings growth is on track for the worst year-over-year decline since 2001. Of the 480 companies that already have reported results, 27% of them have missed Wall Street's estimates. That's above the long-term average of 20% of companies that post below than expected figures. The National Association of Home Builders will release its home-builder sentiment index on Wednesday, and the Commerce Department will release its January report on building permits and housing starts. Housing starts are expected remain steady, with 1.01 million homes slated for construction. Friday's market The Dow Jones Industrial Average (DJI) ended down 26 points at 12,348.21, but posted a 1.4% rise for the week. The S&P 500 Index (SPX) rose 1 point to 1,349.99 for a 1.4% weekly gain. The Nasdaq Composite Index (RIXF) fell Friday by 11 points to 2,321.80 but rose 0.7% for the week. Treasury bonds mostly rose, putting yields under pressure, as investors fled to the safety of government debt on rekindled worries about the U.S. economy and the credit markets. Crude-oil ended nearly flat at $95.50 a barrel on the New York Mercantile Exchange. Gold for April delivery fell $4.70 to end at $906.10 an ounce, while platinum futures extended their record-breaking run Friday on persistent worries about supply disruptions in South Africa. Platinum for April delivery soared as high as $2,079.90 an ounce.
samedi 16 février 2008
Treasurys higher on weak manufacturing
NEW YORK (AP) - Long-term Treasury prices rose Friday after the New York Federal Reserve reported that manufacturing in its region contracted this month. Another gauge showed that nationwide consumer confidence skidded to a 16-year low.
The news sent the yield on the rate-sensitive two year note briefly down to its weakest level in four years. Prices and yields move in opposite directions.
The New York Fed's Empire State index of factory activity plunged almost 21 points to a negative 11.7 reading, the weakest level in almost three years. Readings below zero show shrinkage. February also marked the fourth straight decline for the index. Economists had expected a much healthier reading of 5.75, according to Thomson/IFR.
The report helps build a case that the economy is on the brink of recession, although a recession requires two consecutive quarters of contraction and can only be declared in hindsight.
Separately, the Reuters/University of Michigan's consumer sentiment index dropped to 69.6 this month, its worst level since 1992 and down sharply from 78.4 in January. Although the news triggered a strong reaction in the bond market, some economists caution that consumer cash flow is a more tangible metric than sentiment readings.
Although the data has negative portents for the economy, it is helpful to the Treasury market, as investors generally turn to government-backed bonds when they are worried about the economy.
In addition, the report puts extra pressure on the Fed to continue cutting interest rates. The central bank cut the overnight Fed funds rate by 1.25 percentage points in January. Fixed-income investors want to see more rate cuts to rejuvenate ailing debt markets.
The benchmark 10-year Treasury note rose 9/32 to 97 24/32 with a yield of 3.77 percent, down from 3.82 percent late Thursday, according to BGCantor Market Data.
The 30-year long bond gained 25/32 to 96 24/32 with a yield of 4.58 percent, down from 4.65 percent the day before.
However, there was some selling pressure on short-term notes.
The 2-year note fell 3/32 to 100 12/32 with a 1.92 percent yield, up from 1.90 percent late Thursday. Immediately after the sentiment report the 2-year yield touched 1.82 percent, its worst level since 2004.
After hours trade had no impact on yields. At 5:30 p.m. Eastern the 10-year yield remained 3.77 percent, the 30-year yield was still 4.58 percent and the 2-year yield stood at 1.92 percent.
The yield on the 3-month note fell to 2.21 percent from 2.27 percent on Thursday, as the discount rate dropped to 2.16 percent from 2.24 percent.
In other data news, the Fed said industrial output rose modestly last month, due to strength in the utility sector. Industrial production increased 0.1 percent in January, in line with December's rise and analysts' expectations.
Separately, the Labor Department reported that U.S. import prices rose 1.7 percent in January, as oil prices jumped. In December, prices slipped 0.2 percent.
Demand for Treasurys Thursday also was stoked by a complex barrage of negative developments elsewhere in the credit markets. Since the subprime issue first surfaced last summer, Treasurys have been the asset of choice for investors spooked by the unraveling of normally stalwart forms of debt assets.
This week saw turmoil in the market for short-term auction-rate munis when bidders could not be found for weekly notes offered by a number of top-rated local government issuers. There also are mounting problems in the leveraged loan market, as well as some ongoing weakness in corporate short-term commercial paper.
"In 25 years of working in this business, I don't believe I have seen more market disruption from so many different sources," said Kevin Giddis, managing director of fixed-income trading at Morgan Keegan.
The unusual degree of queasiness about debt issued by highly reliable companies and municipalities is linked to worries about bond insurers that unwisely backed subprime debt. There are concerns that they may not be able to shore up enough capital to withstand an expected avalanche of defaults.
One of the wobbly bond insurers, FGIC Co., agreed to be split into two separate entities. One would house its structured finance business where its troubled subprime assets are sheltered. The other would contain the municipal bonds that FGIC backs which normally are considered desirable.
The news sent the yield on the rate-sensitive two year note briefly down to its weakest level in four years. Prices and yields move in opposite directions.
The New York Fed's Empire State index of factory activity plunged almost 21 points to a negative 11.7 reading, the weakest level in almost three years. Readings below zero show shrinkage. February also marked the fourth straight decline for the index. Economists had expected a much healthier reading of 5.75, according to Thomson/IFR.
The report helps build a case that the economy is on the brink of recession, although a recession requires two consecutive quarters of contraction and can only be declared in hindsight.
Separately, the Reuters/University of Michigan's consumer sentiment index dropped to 69.6 this month, its worst level since 1992 and down sharply from 78.4 in January. Although the news triggered a strong reaction in the bond market, some economists caution that consumer cash flow is a more tangible metric than sentiment readings.
Although the data has negative portents for the economy, it is helpful to the Treasury market, as investors generally turn to government-backed bonds when they are worried about the economy.
In addition, the report puts extra pressure on the Fed to continue cutting interest rates. The central bank cut the overnight Fed funds rate by 1.25 percentage points in January. Fixed-income investors want to see more rate cuts to rejuvenate ailing debt markets.
The benchmark 10-year Treasury note rose 9/32 to 97 24/32 with a yield of 3.77 percent, down from 3.82 percent late Thursday, according to BGCantor Market Data.
The 30-year long bond gained 25/32 to 96 24/32 with a yield of 4.58 percent, down from 4.65 percent the day before.
However, there was some selling pressure on short-term notes.
The 2-year note fell 3/32 to 100 12/32 with a 1.92 percent yield, up from 1.90 percent late Thursday. Immediately after the sentiment report the 2-year yield touched 1.82 percent, its worst level since 2004.
After hours trade had no impact on yields. At 5:30 p.m. Eastern the 10-year yield remained 3.77 percent, the 30-year yield was still 4.58 percent and the 2-year yield stood at 1.92 percent.
The yield on the 3-month note fell to 2.21 percent from 2.27 percent on Thursday, as the discount rate dropped to 2.16 percent from 2.24 percent.
In other data news, the Fed said industrial output rose modestly last month, due to strength in the utility sector. Industrial production increased 0.1 percent in January, in line with December's rise and analysts' expectations.
Separately, the Labor Department reported that U.S. import prices rose 1.7 percent in January, as oil prices jumped. In December, prices slipped 0.2 percent.
Demand for Treasurys Thursday also was stoked by a complex barrage of negative developments elsewhere in the credit markets. Since the subprime issue first surfaced last summer, Treasurys have been the asset of choice for investors spooked by the unraveling of normally stalwart forms of debt assets.
This week saw turmoil in the market for short-term auction-rate munis when bidders could not be found for weekly notes offered by a number of top-rated local government issuers. There also are mounting problems in the leveraged loan market, as well as some ongoing weakness in corporate short-term commercial paper.
"In 25 years of working in this business, I don't believe I have seen more market disruption from so many different sources," said Kevin Giddis, managing director of fixed-income trading at Morgan Keegan.
The unusual degree of queasiness about debt issued by highly reliable companies and municipalities is linked to worries about bond insurers that unwisely backed subprime debt. There are concerns that they may not be able to shore up enough capital to withstand an expected avalanche of defaults.
One of the wobbly bond insurers, FGIC Co., agreed to be split into two separate entities. One would house its structured finance business where its troubled subprime assets are sheltered. The other would contain the municipal bonds that FGIC backs which normally are considered desirable.
Bear market looms, but will it linger?
NEW YORK (AP) - Bear markets are a bit like recessions: Investors don't know they're in one until it's almost over. But they can feel the pain.
Although a bear market can't be officially declared yet, traders are certainly pessimistic. The Standard & Poor's 500 index posted another lackluster week as Wall Street's three main stock gauges hovered at their lowest levels of the year.
The four-year bull run had catapulted equities markets to all-time highs, with the Dow Jones industrial average smashing through the 14,000 mark in October. A growing number of analysts believe a bear market is now under way, but that doesn't mean shrewd investors can't make money.
"I do think we are going to end up being in a bear market because the problems with financial stocks are continuing to drag out," said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. "Money will flow from one thing to the next, one week investors will go bottom-fishing and then they'll sell off on bad news."
Dunay said "it is all about the fast money" these days as big institutional investors -- such as hedge funds -- lay down bets and cash out quick. That offers some explanation for how stocks have behaved during the past three weeks -- and clues about what to expect.
This past week, major indexes finished slightly higher. The previous week, the indexes gave up more than 4 percent; and, before that, two days of stunning gains were enough to give the Dow its first weekly advance of 2008.
Behind these gyrations are fears that the economy continues to slow, and is even sinking into recession. Analysts are worried that the subprime crisis that roiled markets since the summer are working their way deeper into the economy.
Banks have racked up about $150 billion in write-offs from bad bets on asset-backed securities. And there's continued evidence the pain is spreading: This past week bond insurer Financial Guaranty Insurance Co. said it wanted to separate into two companies, splitting its municipal bond business from its insurance on riskier financial instruments.
Meanwhile, recent data indicates that consumer spending -- the biggest driver of the U.S. economy -- is slowing. The full effects of this would be widespread, hurting everything from profit at retailers to employment.
All of that could easily tip major market indexes into the technical definition of a bear market, which is when stocks are down 20 percent from a recent high. The Dow, S&P 500 and Nasdaq composite are all on the verge of hitting that mark.
The S&P 500, considered the broadest market indicator, was down 13.75 percent from its Oct. 9 high as of Friday. The Dow was down 12.82 percent and the tech-heavy Nasdaq was off 18.79 percent, both from their October highs.
However, experts warn that the bear market label might give investors a false impression that they're locked into losses.
"There's an old adage that fortunes are made in bear markets, but you just don't know it at the time," said Quincy Krosby, chief investment strategist at The Hartford. "There are trading opportunities because there are some strong spikes. ... Emblematic of a bear market is that you sell into strength and buy on the dip."
Krosby said that investors should look for solid companies that are "beaten down for no apparent reason" that will provide long-term opportunity. Even more specifically, she said, at some point, financial companies like banks and brokerages will truly be the sector to watch.
Investment banks like Bear Stearns Cos. and Merrill Lynch & Co. have plunged in the past year on credit concerns. This past week analysts who cover the financial sector warned that even Goldman Sachs Group Inc. -- which has so far escaped the brunt of the crisis -- will begin to show strain when it reports first-quarter results next month.
Dunay agrees that the financial sector will be a crucial one for a turnaround. In the meantime, he said there are different strategies short-term and long-term investors should take.
"The idea is if you're longer term, the investing style will be to preserve your capital," he said. "For short-term traders, you're just waiting around for the next big wave."
Although a bear market can't be officially declared yet, traders are certainly pessimistic. The Standard & Poor's 500 index posted another lackluster week as Wall Street's three main stock gauges hovered at their lowest levels of the year.
The four-year bull run had catapulted equities markets to all-time highs, with the Dow Jones industrial average smashing through the 14,000 mark in October. A growing number of analysts believe a bear market is now under way, but that doesn't mean shrewd investors can't make money.
"I do think we are going to end up being in a bear market because the problems with financial stocks are continuing to drag out," said Peter Dunay, chief investment strategist for New York-based Meridian Equity Partners. "Money will flow from one thing to the next, one week investors will go bottom-fishing and then they'll sell off on bad news."
Dunay said "it is all about the fast money" these days as big institutional investors -- such as hedge funds -- lay down bets and cash out quick. That offers some explanation for how stocks have behaved during the past three weeks -- and clues about what to expect.
This past week, major indexes finished slightly higher. The previous week, the indexes gave up more than 4 percent; and, before that, two days of stunning gains were enough to give the Dow its first weekly advance of 2008.
Behind these gyrations are fears that the economy continues to slow, and is even sinking into recession. Analysts are worried that the subprime crisis that roiled markets since the summer are working their way deeper into the economy.
Banks have racked up about $150 billion in write-offs from bad bets on asset-backed securities. And there's continued evidence the pain is spreading: This past week bond insurer Financial Guaranty Insurance Co. said it wanted to separate into two companies, splitting its municipal bond business from its insurance on riskier financial instruments.
Meanwhile, recent data indicates that consumer spending -- the biggest driver of the U.S. economy -- is slowing. The full effects of this would be widespread, hurting everything from profit at retailers to employment.
All of that could easily tip major market indexes into the technical definition of a bear market, which is when stocks are down 20 percent from a recent high. The Dow, S&P 500 and Nasdaq composite are all on the verge of hitting that mark.
The S&P 500, considered the broadest market indicator, was down 13.75 percent from its Oct. 9 high as of Friday. The Dow was down 12.82 percent and the tech-heavy Nasdaq was off 18.79 percent, both from their October highs.
However, experts warn that the bear market label might give investors a false impression that they're locked into losses.
"There's an old adage that fortunes are made in bear markets, but you just don't know it at the time," said Quincy Krosby, chief investment strategist at The Hartford. "There are trading opportunities because there are some strong spikes. ... Emblematic of a bear market is that you sell into strength and buy on the dip."
Krosby said that investors should look for solid companies that are "beaten down for no apparent reason" that will provide long-term opportunity. Even more specifically, she said, at some point, financial companies like banks and brokerages will truly be the sector to watch.
Investment banks like Bear Stearns Cos. and Merrill Lynch & Co. have plunged in the past year on credit concerns. This past week analysts who cover the financial sector warned that even Goldman Sachs Group Inc. -- which has so far escaped the brunt of the crisis -- will begin to show strain when it reports first-quarter results next month.
Dunay agrees that the financial sector will be a crucial one for a turnaround. In the meantime, he said there are different strategies short-term and long-term investors should take.
"The idea is if you're longer term, the investing style will be to preserve your capital," he said. "For short-term traders, you're just waiting around for the next big wave."
Nebraska home sales fall
OMAHA, Neb. (AP) - Sales of existing homes dropped last year in Nebraska, but the figures still painted a brighter picture than national trends.
The latest figures from the National Association of Realtors show that Nebraska sales of used single-family homes, town homes, condos and co-ops plummeted 17.6 percent for the fourth quarter of 2007 and 4.9 percent for the year.
That compares favorably with national sales figures: a plunge of 20.9 percent in the fourth quarter and 12.8 percent for the year, compared with 2006 figures.
Sales of existing homes fell in 45 states during the October-December quarter, the association said.
Nebraska's figures also were not as bad as those for the Midwest as a whole.
Midwest sales dropped 18.1 percent in the fourth quarter and 10.6 percent for the year.
The figures reflect adjusted annual rates, not actual sales records, in order to factor out season variations for resales. The association said the rate for any quarter "represents what the total number of actual sales for a year would be if the relative sales pace for that quarter was maintained for four consecutive quarters."
Prices are another measure of the housing industry's well-being, suggesting good news for Omaha and Lincoln.
Lincoln's median price for the quarter rose to $138,800 from $137,700, an increase of 0.7 percent. Omaha's rose 2.1 percent, to $142,800 from $136,200.
Median home prices fell in more than half of the 150 metropolitan areas surveyed by the association.
Walter Molony, a spokesman for National Association of Realtors, said the two regions' "price performance would indicate a little bit better balance between buyers and sellers" than many other parts of the country, where buyers are having their financial way with sellers.
Doug Rotthaus, executive vice president of Realtors Association of Lincoln, said he thinks the relatively good numbers relate "to the overall stability of the market."
"We have a history of slower growth but more steady growth," Rotthaus said. "Our numbers indicate that we didn't go up as rapidly, but we're not seeing that correction in the overall proportion as some areas of the country."
In fact, more existing homes were sold in Lincoln last year, 2,922, than in 2006, 2,874. The record was 3,030 in 2005, Rotthaus said.
"The demand for existing homes is somewhat steady," he said, but there are more homes on the market than usual. The latest figure he had 2,083 on Dec. 31, which was about 1.5 percent more single-family homes, including new ones, than the same date a year earlier.
He also said Lincoln had fewer new home starts last year: 843 permits issued in 2007, versus 1,021 in 2006.
Molony with the national realtors group said the states and metropolitan areas that are doing better are the ones "that preserve good affordability conditions."
Lawrence Yun, the Realtors Association's chief economist, said the healthiest housing markets "generally are moderately priced and are experiencing job growth."
Nebraska has long been among the most affordable states for housing. A 2006 U.S. Census report listed Nebraska No. 39 for the median price of owner-occupied housing units, $119,200, versus the U.S. median of $185,200 and No. 1 California, at $535,700.
The Nebraska unemployment rate remains low as well: 3.2 percent in December, compared with 5 percent nationally.
The state Labor Department says Nebraska has added 13,571 jobs since December 2006, a growth rate of 1.4 percent.
The latest figures from the National Association of Realtors show that Nebraska sales of used single-family homes, town homes, condos and co-ops plummeted 17.6 percent for the fourth quarter of 2007 and 4.9 percent for the year.
That compares favorably with national sales figures: a plunge of 20.9 percent in the fourth quarter and 12.8 percent for the year, compared with 2006 figures.
Sales of existing homes fell in 45 states during the October-December quarter, the association said.
Nebraska's figures also were not as bad as those for the Midwest as a whole.
Midwest sales dropped 18.1 percent in the fourth quarter and 10.6 percent for the year.
The figures reflect adjusted annual rates, not actual sales records, in order to factor out season variations for resales. The association said the rate for any quarter "represents what the total number of actual sales for a year would be if the relative sales pace for that quarter was maintained for four consecutive quarters."
Prices are another measure of the housing industry's well-being, suggesting good news for Omaha and Lincoln.
Lincoln's median price for the quarter rose to $138,800 from $137,700, an increase of 0.7 percent. Omaha's rose 2.1 percent, to $142,800 from $136,200.
Median home prices fell in more than half of the 150 metropolitan areas surveyed by the association.
Walter Molony, a spokesman for National Association of Realtors, said the two regions' "price performance would indicate a little bit better balance between buyers and sellers" than many other parts of the country, where buyers are having their financial way with sellers.
Doug Rotthaus, executive vice president of Realtors Association of Lincoln, said he thinks the relatively good numbers relate "to the overall stability of the market."
"We have a history of slower growth but more steady growth," Rotthaus said. "Our numbers indicate that we didn't go up as rapidly, but we're not seeing that correction in the overall proportion as some areas of the country."
In fact, more existing homes were sold in Lincoln last year, 2,922, than in 2006, 2,874. The record was 3,030 in 2005, Rotthaus said.
"The demand for existing homes is somewhat steady," he said, but there are more homes on the market than usual. The latest figure he had 2,083 on Dec. 31, which was about 1.5 percent more single-family homes, including new ones, than the same date a year earlier.
He also said Lincoln had fewer new home starts last year: 843 permits issued in 2007, versus 1,021 in 2006.
Molony with the national realtors group said the states and metropolitan areas that are doing better are the ones "that preserve good affordability conditions."
Lawrence Yun, the Realtors Association's chief economist, said the healthiest housing markets "generally are moderately priced and are experiencing job growth."
Nebraska has long been among the most affordable states for housing. A 2006 U.S. Census report listed Nebraska No. 39 for the median price of owner-occupied housing units, $119,200, versus the U.S. median of $185,200 and No. 1 California, at $535,700.
The Nebraska unemployment rate remains low as well: 3.2 percent in December, compared with 5 percent nationally.
The state Labor Department says Nebraska has added 13,571 jobs since December 2006, a growth rate of 1.4 percent.
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