"Yes, we helped to destroy the economy but no, you mustn't blame us" about sums up bankers' testimony on Capitol Hill Wednesday in front of a special commission; the panel inquiry is expected to last a year. CEOs of Goldman-Sachs and Bank of America said, "We regret the consequence that people have lost money" and "We understand the anger felt by many citizens," but still maintained that their risky behavior seemed like the thing to do at the time. No surprises here. Bank stocks had no real reason to fall on any of this and they didn't; next to health care they were today's big movers. (There's an Arabic proverb for all this: "The dogs bark but the caravan passes on.")
BANK OF AMERICA:
Bank of America (BAC) rose 1.83%, Goldman (GS) gained 0.79%, J.P. Morgan rose 2.5% and Morgan Stanley (MS) stopped a three-day slide with a 0.35% gain.
S&P BANK ETF:
That almost-cup-and-handle pattern, above, is one I'm seeing in any number of stocks and indexes, by the way. As you know, when the "handle" formed by a brief downtrend reverses to top the edge of the "cup" and continue on up, that's a solid bullish sign. Another proverb, though, is "Many's the slip twixt the cup and the lip," so no chicken-counting just yet.
Merck and Co.'s upgrade and a positive comment on its pipeline benefited not only Merck, a big Dow gainer today, but other pharmaceuticals and healthcare as well:
Investors could be turning defensive, not surprising in a weak economy where solid, tangible industries like healthcare and utilities seem (and often are) safer bets than the outer reaches of technology. Gas and electricity provider Pepco Holdings (POM), for example, put on 2%; the company's 6.4% dividend probably doesn't hurt:
PEPCO HOLDINGS -- utilities attract in a down economy:
Earnings are starting to trickle in, with today featuring Sealy Corp. (ZZ), not a snooze with fourth-quarter net income of $2.6 million or 2 cents a share, better than last year's net loss of $41.4 million or 45 cents. Revenue increased to $332.1 million from $325.8 million; analysts had forecast earnings of a penny a share on revenue of $317.2 million.
SEALY not asleep, its earnings up:
One of those defensive-type companies, filtration- and packaging maker Clarcor (CLC) posted a better-than-expected quarterly profit, helped by strong product demand and cost-reduction measures. In spite of a 12% revenue drop, the company reported net income of $24.7 million or 49 cents a share, compared with $ 29.1 million or 56 cents a year ago. For 2010 it expects earnings between $1.55 and $1.70 a share, about in line with analysts expectations of $1.65 a share.
Stocks saw a broad rally Wednesday helped by the Merck upgrade, while financials rose on the outlook, finally, for higher profits. Despite a drop soon after the open and before the close, the indexes exhibited sharply higher highs and higher lows throughout the session.
MARKET WRAP, Wednesday, Jan. 13:
DOW JONES INDUSTRIAL AVERAGE:
The Dow Jones Industrial Average gained 51.53 points or 0.50% to 10.680.77. The S&P500 was up 9.46 or 0.83% to 1145.68 and the Nasdaq was the winner, up 25.59 or 1.12% to 2,307.90.
Support for stocks led to selling among Treasuries, which extended their losses after a $21 billion auction of 10-year Notes garnered a yield of 3.75% amid very active bidding. The benchmark 10-year Note fell 19 ticks, which pushed its yield back up toward 3.8%.
Advancing issues and volume easily outdid decliners, but with fewer than a billion shares trading on the NYSE, enthusiasm could have been higher. Telecommunications was the only category in the broad index trading lower, off 0.4%; integrated telecoms dropped 0.7%.
Because it has a beige cover. Anecdotal and chatty rather than scientific, the Federal Reserve's Beige Book report still commands attention. The book is produced about two weeks before the major policy-setting meetings of the Fed's Open Market Committee (this one is a prelude to the January 26-27 meeting); each time a different Fed district bank compiles evidence on economic conditions from each of the Federal Reserve's 12 districts. The moderator this time was the Federal Reserve Bank of Philadelphia, with economic conditions from Nov. 21 through Jan. 4.
The Fed found the recovery spreading but slowly, noting in its usual clunky fashion that "while economic activity remains at a low level, conditions have improved modestly further and those improvements are broader geographically than in the last report." Weak labor and real estate markets were, of course, the speed bumps. Ten districts reported at least some increased activity or improvement in economic conditions, with Philadelphia and Richmond reporting mixed conditions.
As for details, retail sales for the holiday season "were slightly higher than in 2008 but still far below 2007 levels." (Well, naturally: Late 2007 was right before the roof fell on our heads.) Manufacturing was up in half of the twelve Fed Districts, mixed in three and weak in three. However, manufacturers were generally more optimistic about growth in the coming months, a good sign. Home sales were up in most regions with gains mostly in low-end sales. Nonresidential real estate conditions remained soft almost everywhere. Finance was a concern as loan demand continued to decline or stay dull in most fed regions. Some districts reported that credit quality is still deteriorating, with commercial loan delinquencies now doing their version of residential delinquencies. Labor market conditions are still nothing to write home about, hand in hand with wages. Except for some metals, prices are about level.
Upshot? The recovery continues to take slow baby steps. Risks remain in credit markets, especially for commercial real estate lending. Consumer debt is with us yet. Nobody seems to see much speeding up for the next few months. Inflation is well-behaved, so the Fed is likely to keep rates where they are. I could do worse than quote bond expert David Ader: "At best we can say that there are some signs of hope, but in the context of the bad news being less bad."
Jostling the Beige Book for the spotlight was the Treasury Department's budget deficit which came in around expectations: $91.9 billion in December, wow, the 15th straight deficit and the largest December deficit on record. As regards spending, we had a $13 billion payment to Fannie Mae and an $8 billion increase in unemployment benefits, as TARP outlays zoomed to $3.9 billion from November's $2.2 billion. (Is it just me, or do these numbers begin to sound absurd?) For the first three months of the fiscal year, the deficit is running ahead of last year at $388.5 billion, up from $332.5 billion; that's a 17% rise.
SOME GOVERNMENT OUTLAYS AND latest DEBT TOTALS WITH 2010 DEBT ESTIMATE:
Above you see the actual outlays for the dozen or so biggest-spending government departments for the last four fiscal years, and (insert box) the debt total for 2006-2009 and estimated debt for fiscal 2010. No comment is required.
Oh, well . . . at least year-to-date receipts are off 11%, with lower individual income taxes reflecting the millions who have lost their jobs and corporate tax revenues down as companies struggle to deal with falling demand for their products. Even though spending was down from the same period last year, tax revenue fell even more, dropping by $59.7 billion as individual income and payroll taxes declined. Interest paid on the debt in December was $104.6 billion -- an alarming 34% of federal outlays for the month. Some economists have been warning for a while that the government's financing costs will begin rising sharply once the recovery begins and the Fed starts raising rates to make sure inflation doesn't get out of hand. The Treasury estimates the annual deficit will climb to $1.502 trillion for the full fiscal year 2010, up from $1.42 trillion in 2009. Equities took a quick understandable dive on the report but soon resumed their upward move as if nothing had happened.
But quick! Guess what commodity rose on the news! That's correct:
S&P GOLD TRUST
Soybeans, lumber and most cattle were up Wednesday, too, should you be wondering.
Big buildups in all petroleum categories are continuing to pressure oil prices, now below $80 after falling from a two-month high Tuesday. The Energy Information Administration's report found oil inventories rising 3.7 million barrels last week, gasoline inventories up 3.8 million and distillates up 1.4 million. Rising imports combined with flat demand are the cause: Oil imports jumped 0.5 million barrels a day last week to 8.9 million barrels, with imports of both gasoline and distillates higher. The reason for the surge was that cargoes being held out at sea due to end-of-year tax considerations were finally offloaded.
Refineries, where margins are traditionally thin, are still operating at only 81.3% of capacity. Gasoline output fell a steep 0.6 million barrels a day to 8.5 million barrels while distillate output, reflecting seasonal and especially recent demand for heating oil, rose slightly to 3.9 million barrels a
day. Still, the drawdowns in heating-oil supplies were largely offset by the higher imports.
Crude-oil futures ended lower, slumping for a third consecutive session, with oil for February delivery down $1.14, or 1.4%, at $79.65 a barrel on the New York Mercantile Exchange. Some energy stocks recovered to finish with a small gain, but the U.S. Oil Fund (USO) followed it down to close at $39.30, off 33 cents or 0.83%; the Powershares Oil Fund (DBO) was off the same 0.83% at $27.60. One airline industry index was up nearly 1% in response, with all its components but one rising.
CRUDE OIL PRICES:
After hours came the interesting news that Federal regulators are planning their first major step to rein in oil speculators. On Thursday the Commodity Futures Trading Commission will consider setting trade limits on the New York Mercantile Exchange to keep fund managers and other speculative investors from wielding too much influence in the market.
Oil speculators have proliferated on the Nymex Oil on recent years, placing large bets on the direction of oil prices; the correlation between their activities and wild oil spikes isn't entirely coincidental. The limits proposed by the CFTC would cap how many contracts traders could buy; violators would be told to get rid of especially large positions. The CFTC also has the power to issue fines and revoke trading privileges on the exchange. Whether this will actually control future spikes in energy prices remains to be seen, as does the effect of the news on oil company shares.
In housing, we saw a respectable rise in the Mortgage Bankers Association's purchase index last week: It rose 0.8% while the refinance index jumped 21.8%. Interest rates remain 'way down with 30-year loans averaging 5.13%. It's still nothing to pin either real hopes or real gloom on, as the information out of the MBA has been inconsistent in recent weeks.
Trucker Werner (WERN) jumped sharply on an upgrade after DeutscheBank said the trucking sector is improving and the company, whose shares seem cheap, will be able to increase its rates; the stock jumped 58 cents or 2.75% to $21.69 . . . There was after-hours excitement at Zale Corp. (ZLC) with the forced resignations of its chief executive and two other top executives, just one day after rival Signet Jewelers released figures showing how much better it did in holiday sales. The shakeup came after several poor quarters at Zale . . . Also after the close, RealNetworks (RNWK) said founder Rob Glaser has stepped down as chief executive, but will remain board chairman . . . And now Hershey is preparing a counterbid to Kraft's (KFT) for U.K. candy maker Cadbury. This is shaping up as a pretty exciting duel . . . .
Earnings announcements accelerate Thursday and include potential big market mover Intel (INTC), engine maker Briggs & Stratton (BGS), Chinese agribusiness Origin Agritech (SEED), Korean steelmaker Posco (PKX); Shaw Communications (SJR) and gaming supplier Shuffle Master (SHFL). In economic reports, we could see some reaction to the jobless claims numbers; also on tap are retail sales, the European Central Bank announcement and the natural gas report. Keep your eye on import and export prices, too.