Maybe you remember a play, which was later a movie, called "Marty." In it, Marty's friend Angelo would frequently say, "Hey, Marty -- Whaddaya wanna do?" and Marty would invariably reply, "I don't know, Ange -- Whadda you
wanna do." That's the kind of market we had Wednesday â€” vacillating, irresolute, but at least we ended higher than we began. The dollar, like Marty and Ange, was undecided, and in reaction stocks were choppy, but narrowly. The major indexes managed a fractional rise:
INDEX WRAP, Wednesday, Dec. 9:
The dollar's early jump came not on any particular sign that the greenback was strengthening, but on word that Standard & Poor's revised its outlook for Spain from stable to negative just a day after Greece's credit rating was cut and Moody's grumbled about massive debt in the U.K. (As a friend puts it, "It's like winning the spelling bee because all the smart kids are home with the flu.")
U.S. DOLLAR INDEX, a breather after four good sessions:
After jolting commodities, as it's done by rising more than 1.5% since last week, the buck ended the day slightly lower due to falls against the euro and the yen, helping stocks make a comeback on the day. Gold put the brakes on after three losing sessions, closing around $1,134.58, up $8.22.
DOW JONES INDUSTRIAL AVERAGE:
Non-farm commodities were not happy, though:
CRB COMMODITIES INDEX:
The Dow rose 51 points or 0.5%, the S&P 500 index gained 4 points or 0.4%, and the Nasdaq put on almost 11 points or 0.49%. Advancers and decliners were roughly equal; volume was okay.
S&P 500 leaves 1,100 behind for the second day:
U.S. home loan demand rose last week to the highest level in about two months as the Mortgage Bankers Association's purchase index jumped 4%. It was boosted mainly by buyers (owners, really) locking in low rates with refinancing, which was up a hefty 11.1%; nearly three of every four loan requests last week was for a refinancing rather than a purchase. Also helping were purchase applications tied to government stimulus.
An $8,000 credit that was set to end November 30 for first-time buyers was extended, with contract signings now due by April 30 and loan closings by June 30; a new $6,500 tax credit to bait move-up buyers was added. Supporting it all is extremely low (although higher than the previous week's) mortgage rates, averaging 4.88% for 30-year loans. Although it won't be all smooth sailing â€” another wave of foreclosures by late next year is not out of the question â€” things are certainly improving. Unbridled optimism won't be called for next year or even the year after, but at least the housing market no longer gives you that horrible sick feeling in the pit of your stomach.
Like housing stocks, some major residential REITs have been lagging the uptick:
MORTGAGE MARKET: Apps up last week, REITs down:
Most homebuilder stocks are well off their August and September highs, and today's news about D.H. Horton (DHI) didn't help matters. When Horton's CEO Donald Tomnitz recently exercised the right to sell a chunk of company stock that was part of his compensation package, investors took it as a bearish sign and pulled out of the stock. As it happens, Tomnitz just needed a few bucks for a tax bill -- he wasn't bearish on his own company, but try telling that to other shareholders, especially with Horton announcing a fiscal-year loss of $542 million or $1.72 a share.
We can expect to see more scenes like this, what with the shift to increased stock-based compensation in American corporations, since CEO sales of stock can be and are easily misconstrued as harbingers of bad news. On Wednesday it became clear that the share sale by Horton's Tomnitz was only half the story: New SEC filings showed just how much Tomnitz was paid this year while his company otherwise cut costs: his comp package is valued at about $6.4 million, more than half in stock and option awards and a performance-based cash bonus of about $2.3 million, up 26% from last year's bonus. Listen, I don't mind CEOs of public companies making a pile of dough â€”but only if it's well-deserved, and that number strikes me as a whole lotta money to pay a skipper whose vessel is still navigating red ink. If I'm wrong, tell me. I don't mean to pick on the man; he's not alone, nor is he the worst case. Examples abound (so do studies) that show a strong inverse correlation between outsized CEO compensation and below-average stock performance. If you have an idle moment, Google "CEO compensation related to below-average stock performance". Here's what Horton looks like lately; it's similar to most other homebuilders:
D.R. HORTON, correlating inversely to CEO pay:
As to the Commerce Department's wholesale trade report, inventories rose 0.3% in October, ending more than a year of declines (13, to be exact) and offering new evidence that the inventory correction is at least trying to wind down. Despite the buildup, inventories relative to sales slipped to 1.16; sales at the wholesale level rose 1.2% in the month, better than the expected 0.7%. Petroleum products contributed, up 4.6%, and an 11.4% rise in farm-product inventories accounted for much of the month's build, as this agribusiness ETF shows, gaining over 3% in October:
The results for components were actually mixed, with many of them still posting significant reductions. Specifically, there was a big draw in apparel inventories matched by strong sales. Machinery and furniture saw declines in both inventories and sales during the month; the decline in machinery is no surprise given deep slumps for it in durable goods data and continuing weak business investment in capital goods. Furniture sales at the retail level were also weak in October but more recent reports from retailers hint at a rebound. Both inventories and sales of autos were up in October.
Hiring (not job creation: they're two completely different things) depends to a significant extent on the broad need to build inventory, both of which we have yet to see. October's round-up of inventory data concludes with Friday's Business Inventories report.
Wednesday the Energy Information Administration reported a 2.5-million-barrel build in crude stocks at the West Texas Intermediate Crude delivery point in Oklahoma, along with a 2.2 million barrel build in total gasoline stocks and a 1.6 million build in distillates. On the other hand, it announced a 3.8- million-barrel draw in total crude inventories to 336.1 million barrels. Oil and gasoline imports were both down last week; domestic output of gasoline and distillates were up with refineries finally rousing themselves and operating at 81% of capacity, still very low but better than previously. The major refiners Demand for gasoline was steady in the week but demand for other distillates dipped. Oil first fell $1 then rebounded $1 to trade at $73. It closed lower, however:
Supply in the petroleum market, despite the week's draw in crude, is still heavy and a threat to the oil industry should the global economic recovery stall. As I've said before, refiners usually zoom in an economic turnaround after demand for gasoline and distillates rises, and they pay dividends, always to be desired. Three I watch are Valero (VLO, yielding 3.7%), Tesoro (TSO, yielding 1.6%; it just cut its dividend in half) and Western Refining (WNR, who recently raised its dividend, yielding 5%).
In earnings, retail stocks fell Wednesday after venerable timepiece company Movado Group (MOV) and clothing retailer Men's Wearhouse (MW) among others delivered disappointing outlooks and took dives themselves. The watchmaker reported third-quarter results that fell short of Street expectations, swinging to a loss of $20.9 million or 85 cents a share, from a profit of $15.7 million or 62 cents a share last year; sales fell to $129 million from $135.8 million. On top of which Movado lowered its fiscal 2010 forecast to a loss of $1.40 to $1.50 a share, including $1.05 a share in charges. Analysts didn't like that, especially since they were expecting a profit of 62 cents a share in Q3 and a full-year profit of 46 cents. Blame tight inventory control and "destocking" as many jewelers closed their operations and liquidated inventory during the last year, which hasn't helped sales at high-end stores like Movado.
Men's Wearhouse shares responded to the company's after-hours Tuesday announcement that its third-quarter net income rose to $19.7 million or 37 cents a share from $14.6 million or 28 cents last year on increased revenue, beating estimates on both, by falling 7%: Investors were disappointed in the outlook of a 15-to-19-cent Q4 loss while same-store sales are projected to be flat to down.
Maker of popular athletic wear Lululemon Athletica (LULU) announced a very fine third quarter with revenue up 29.7% to $112.9 million; net income of $14.1 million, up from $8.8 million; and earnings per share of 20 cents, up from 13 cents; the company beat on revenue and earnings, and apparently didn't disappoint with its outlook, since the stock finished nicely higher. It's had a staggering run, up some 520% since March. The stock now looks like it's running out of steam, with its flattening top and non-confirming MACD. But one never knows, does one.
LULULEMON, what a run:
Tuesday night Texas Instruments narrowed its earnings and sales outlook, but pointed to a much better fourth quarter. The stock gapped down on the open but managed to crawl back some, losing only 34 cents or 1.29% to $25.99 . . . . Fluid management company Pall Corp. (PLL) said sales were down but profit up in the latest quarter. Pall shares fell 18 cents to $31.39 in regular trading; after the report in after-hours trading, they gained $2.33 to $33.90 . . . . I'd be remiss if I didn't mention CIT Group (CITGQ), who boldly expects to emerge from bankruptcy protection, all shiny and reorganized, on Thursday. CIT was the largest lender to small and mid-sized businesses in the U.S. It filed for bankruptcy protection on Nov. 1, a few weeks after the Federal Deposit Insurance Corp. refused to guarantee CIT's debt. Its plan calls for a $10.5 billion reduction in its debt load. It closed Wednesday at around 4 cents.
Nothing looks primed for a big move up right now, and of course nobody likes to see the S&P under 1,100. We could see a drift more or less lower till Christmas . . . then possibly some strength to take us into the new year. Buying on dips is not a bad idea.
With Christmas almost upon us, those of you who live with members of the under-six-year-old set may be noticing this phenomenon:
THE CLOSER IT GETS TO DEC. 25th . . . .
Thursday could bring us one or two market movers. There's the Bank of England rate announcement, the International Trade Report, Jobless Claims (always worth watching), the Natural Gas Report and the Treasury Budget.
For one low price the 2009 EOY package includes a full year of Option Investor, Premier Investor, Option Writer, LEAPS Trader and Couch Potato Trader. You get daily market commentary and plays every week in nearly every possible strategy. Plus you get two Option Expiration Calendar Mouse Pads with the "NEW" option symbol format for 2010. You get three DVDs with 254 minutes of option education. You get all of this for the unbelievable low price of $1.36 per day. If you have not signed up take two minutes and do it now!