With Europe's two G's, Germany and Greec, butting heads again, U.S. stocks got off to a dreadful start this morning, but buyers stepped in later in the day helping pare early-session losses and sending the major U.S. indexes off with only moderate declines. With Europe looming large and no marquee earnings reports to speak of before the bell, Monday had the distinct feeling of a risk off day.
Germany, the Euro Zone's largest economy, and Greece, perhaps the most erstwhile of the PIIGS, were commanding plenty of headlines today as European policymakers met to discuss ways to skirt a Greek default and prevent the sovereign debt crisis from escalating further. And again Greece is balking at some of Germany's demands, namely appointing an a European overseer to rein in the Greek budget.
At least Greece is close to getting beleaguered bondholders to accept loss on a 50 percent cut in the face value of more than 200 billion euros of debt, Bloomberg reported. Portugal, the ''P'' in PIIGS, is another issue. Today, Portuguese bond yields spiked to Euro-era highs, surging over 200 basis points to 17.26%. Credit default swaps issued to protect against a default on Portuguese debt are now pricing in a 70% chance the country will default in the next five years, according to the Financial Times.
Earlier this month, Standard & Poor's lowered Portugal's debt rating to junk status, but the European Central Bank has been suspiciously quiet about the Mediterranean nation. Italy held a successful bond auction today and Greece is closing in on some good news, so maybe it makes sense that Portugal is taking center stage now. With bond yields like these, it is easy to understand why.
Portuguese Bond Yields
Going back to Greece for a moment, for those not in the know, there is now a Greece ETF, the Global X FTSE Greece 20 ETF (GREK). I spend a lot time writing about ETFs for other places and when this ETF debuted in December, the best I can say is the reaction was mixed. Mixed no more and maybe a bottom has finally been found in Greek equities because GREK is up almost 23% since its debut. Year-to-date, that is a better performance than just about any other ETF tracking an individual European country. Yes, GREK is new and thinly traded. It is also on fire when a lot of folks were probably writing it off before it was even born.
Here in the U.S., the one economic data point of the day was fair. The Commerce Department said personal incomes rose 0.5% last month after climbing 0.1% in November. Economists expected a 0.4% increase in December. On the other hand, personal spending fell by $2 billion last month following an $11.4 billion increase in November. Rising incomes are good, declines in spending not so much when the U.S. economy is propelled in large part by consumer spending. That much is true, but my humble opinion is that it is never a bad idea to save part of your hard-earned money.
I happened to come across an article in the Wall Street Journal recently that caught my eye regarding share repurchase plans. One of the key takeaways is with so much cash just sitting around, companies are escalating their buyback efforts. Not surprisingly, this is reigniting the debate about what is a better use of a companyâ€™s cash: Buybacks, dividends or reinvested capital?
Among the S&P 500 companies, repurchase spending totaled at least $437 billion last year, a 46% increase from 2010, estimates Howard Silverblatt, senior index analyst at S&P, the Journal noted.
Well, the Journal also included a great chart that shows companies are not all that good at knowing when to buy their own shares. Put another way, there were buybacks aplenty in 2007, not so much in 2009. Among the egregious offenders I turned up in terms of buying their own shares at bad prices: Exxon Mobil (XOM), ConocoPhillips (COP) and Netflix (NFLX). One example of a company that has executed buybacks the right way: IBM.
Speaking of Exxon, the largest U.S. oil and natural gas company, reports fourth-quarter results before the bell tomorrow. The shares were down slightly today even after the company announced it will sell its Japanese downstream operations to TonenGeneral Sekiyu K.K. for $3.9 billion. Texas-based Exxon will retain a 22% stake in the venture, but the deal effectively marks Exxon's departure from Japan, the world's third-largest economy. Wary investors can only hope that some or all of that $3.9 billion goes to oil NOT gas production.
And speaking of problems with oil stocks, Chevron (CVX), the second-largest U.S. oil company, continues to tumble and today's slide means the stock has given up its 50-day moving average. The 20-day line was taken out on the downside earlier this month. Today's bad news from Chevron? The company's Kazakh venture, TengizChevroil, said its oil output dropped 0.4% in 2011 from 2010's levels.
That and Brazilian prosecutors are out for blood against Chevron and Transocean (RIG) are preparing to pursue criminal charges against the companies related to a November spill off Brazil's coast.
Looking at the charts, the S&P 500 continues its flirtation with support at 1310, though todayâ€™s close was three points higher. Exxon's post-earnings performance will have an impact because that is the second-largest U.S. company by market value. If the S&P 500 can hang around in the 1300-1310 area, or better yet, start creeping higher, there is a nice runway back to 1350. Of course, the January jobs number on Friday will have some say in the matter.
S&P 500 Chart
Twelve of the Dow's 30 stocks closed higher today. IBM, Microsoft (MSFT) and Verizon (VZ) led the way each with gains over 1%. When the Dow closes lower by 7 points on Monday, it is difficult for me to give you any new technical tidbits above and beyond what Jim mentioned over the weekend, which is the next obvious resistance point for the Dow is 12,600 and support is 12,300. Besides Exxon, the only other Dow stock making its way to the earnings confessional this week is Merck (MRK).
Same goes for the Nasdaq. With a mere 4.6-point drop, I am left with few new technical illuminations. The Nasdaq is holding above 2800 with support there and at 2775. Nasdaq earnings besides Apple (AAPL) have not been great and that trend could continue this week, imperiling the Nasdaq's gains or it could be broken.
Amazon (AMZN) and Broadcom report after the bell tomorrow and Qualcomm (QCOM) takes its turn on Wednesday after the bell.
I want to stop shy of saying this is a make or break week, but it is an important and that is the case excluding Europe. There are enough noteworthy names left to report earnings this week and then we have jobs Friday, so we could be in for some good moves this week. I scooped up some silver earlier this month banking on $50 or higher prices later this year and I still like oil stocks over the long haul.