Financials were again on the boilerplate today. The rally which we saw a couple of weeks ago faded into renewed concerns about the health of the economy as well as the financial sector today. More and more people are getting concerned that financial companies would need to raise more capital and hence would end up diluting the current shareholders' positions. If this comes to fruition, then the existing shareholders will see their holdings drop in value.
This week will prove to be quite a roller-coaster. There are a lot of economic barometers that will be reported, starting with the consumer confidence number tomorrow. I recently read a pictorial comment where two people are on a roller-coaster and one of them is asking the other "Is it DowJonesy enough for you?" - this basically sums up what this week will be all about. Dont be surprised to see another big drops tomorrow and on friday when the labor department comes out with the employment numbers.
The IMF came out today blowing its horn loud enough to let everybody know that it expects the recovery will take longer than expected and that the losses could be much more severe than currently thought. This was enough to lead the market, which still had to recover from its dour mood (two more banks were taken over by the FDIC over the weekend), into further negative territory.
I am not surprised to see the market behave in a way that's been the norm over the past one year. The market is not looking at fundamentals or valuations, which form the basis of buy/sell decisions for a lot of money managers. All the market cares about today is momentum, driven by fear. Now this could lead to some people making an investment of a lifetime, or for some it could be a time to look back next year or the year after that and ponder "I wish I had bought that bank stock". Most of the big banks are on a solid footing and it would take a major force to take them out of business or have a firesale on any of those. Let's hope that never happens.
Monday, July 28, 2008
Friday, July 25, 2008
Market Update - 7/25/08
A mixed day for the markets today. Technology again led the market, rising more than a percent. The rally that began in the financials gave way yesterday to renewed concerns about the frailing health of the financial sector, and that sentiment continued today. Financials were the worst hit sector in the last two trading days this week. Yesterday's decline was a result of a dissapointing sales in the already subdued housing market. Today, the data was however a little bit better than expected. While the existing home sales number yesterday was a bummer, the economic data today showed the sales of new homes increased better than expected.
I think the theme for the market this week was a by product of an optimism of a bottom in the housing market followed by weak economic statistics, and earnings disappointments by some big names, Apple and VMW being some of the main culprits. We saw a brief rally this week after being surprised on the positive by earnings announcements by some of the big banks, which was quickly forgotten among disappointing earnings outlooks by some of the big technology companies.
It will be hardpressed to label this an inflection point for the stock market. When will that be? Nobody knows, and if someone claims to know then be careful of that quack!! The one thing I know, one thing that stays true, is that the market will always rebound anticipating the economy to turn a corner. This is the time when we dont want to be left out of the party.
I think the theme for the market this week was a by product of an optimism of a bottom in the housing market followed by weak economic statistics, and earnings disappointments by some big names, Apple and VMW being some of the main culprits. We saw a brief rally this week after being surprised on the positive by earnings announcements by some of the big banks, which was quickly forgotten among disappointing earnings outlooks by some of the big technology companies.
It will be hardpressed to label this an inflection point for the stock market. When will that be? Nobody knows, and if someone claims to know then be careful of that quack!! The one thing I know, one thing that stays true, is that the market will always rebound anticipating the economy to turn a corner. This is the time when we dont want to be left out of the party.
Wednesday, July 23, 2008
Market Update - 7/23/08
The market continued its upward climb today with the transportation sector leading it. Financials were the second best today. Had it not been for the 20% decline in Washington Mutual financials might have led the market today as well extending its lead to almost a week now.
Earnings season has been good so far, with most of the major companies reporting earnings ahead of forecasts. What is killing some of those, even after reporting good earnings, is their forecast for the next quarter. The companies are feeling price pressures from rising oil prices which is a concern for the general public as well. This is a double whaamy!!!! They are reluctant to raise prices since that could move some of their customers to their competitors, and if they don't raise the prices their margins get compressed and the stock gets penalized. Costco felt the pain today when they lowered their next quarter's estimates, based on increasing inflation and inability to pass on the increased prices to consumers. The stock fell 10%.
The Fed released the Beige Book today which shows that the economy shrunk in June and July. I'm not surprised to see the consumer tightening their belts since high oil prices are eating into their day-to-day budgets. Couple that with rising unemployment, credit tightening, and depreciating home values and you have got yourself a consumer who is stretched thin from all places. Any more stretching could cause the bubble to burst. This is reflected today in an article on CNN which states most economists believe the median income has contracted over the last 5 years for a middle income family.
Is this the gloom and doom scenario? Nope.!!
There still are good areas to invest depending on an investor's risk appetite. Valuations in the financial sector are at historical lows. If you are investing and have a long time frame, it might be worth having a chunk of your portfolio dedicated to this sector. If you are hesitant to own specific names, then an ETF could be worth a look. Remember I'm not suggesting an overload of this sector in your portfolio - just a small chunk of it. Wealth is not created by earning a salary - it is created by thoughtful investing. Compounding is a magical phenomenon and could work wonders for your portfolio. So, for the young gen - start as early as possible and reap the rewards for your lifetime.
Cheers!!!!
Earnings season has been good so far, with most of the major companies reporting earnings ahead of forecasts. What is killing some of those, even after reporting good earnings, is their forecast for the next quarter. The companies are feeling price pressures from rising oil prices which is a concern for the general public as well. This is a double whaamy!!!! They are reluctant to raise prices since that could move some of their customers to their competitors, and if they don't raise the prices their margins get compressed and the stock gets penalized. Costco felt the pain today when they lowered their next quarter's estimates, based on increasing inflation and inability to pass on the increased prices to consumers. The stock fell 10%.
The Fed released the Beige Book today which shows that the economy shrunk in June and July. I'm not surprised to see the consumer tightening their belts since high oil prices are eating into their day-to-day budgets. Couple that with rising unemployment, credit tightening, and depreciating home values and you have got yourself a consumer who is stretched thin from all places. Any more stretching could cause the bubble to burst. This is reflected today in an article on CNN which states most economists believe the median income has contracted over the last 5 years for a middle income family.
Is this the gloom and doom scenario? Nope.!!
There still are good areas to invest depending on an investor's risk appetite. Valuations in the financial sector are at historical lows. If you are investing and have a long time frame, it might be worth having a chunk of your portfolio dedicated to this sector. If you are hesitant to own specific names, then an ETF could be worth a look. Remember I'm not suggesting an overload of this sector in your portfolio - just a small chunk of it. Wealth is not created by earning a salary - it is created by thoughtful investing. Compounding is a magical phenomenon and could work wonders for your portfolio. So, for the young gen - start as early as possible and reap the rewards for your lifetime.
Cheers!!!!
Tuesday, July 22, 2008
Market Update - 7/22/08
What a Day!!!!! The markets opened lower, a result of the disappointing earnings from Apple, TI, and Wachovia. All these stock were down and out at the open. Apple and Wachovia plunged 10% at the open and so did some of the other financial stocks. But it all turned for the better as oil continued its downward spiral. At one time, it was down $5/barrel. Wachovia was in the green as the day ended based mostly on the fact that the CEO announced they will not be selling more stock and will be cutting their dividend. This news buoyed the entire financial sector, which ended up 3.5% on the day. Freddie Mac was the surprise winner. The stock, which had been down 13% at one time, rallied to finish up 10%.
One other major news was that the ruling coalition proved their majority in the Indian parliament and hence would stay in power for the time being. Look for a major upswing in the Sensex tomorrow. EPI, an ETF based on Indian shares rose 5% today.
Today was another good example of the fact that it is pretty hard to time the market. Stocks which were down 5 or 10% ended the session in the green or pared most of their losses. It doesnt pay to sit at the sidelines for long and trying to find a time to "enter" the market. You should be in it for the long term and not get anxious by the daily swings. This "noise" will be there always and is something that gives us the opportunity to make $$$$$$$$$!!!!!
Cheers!!!
One other major news was that the ruling coalition proved their majority in the Indian parliament and hence would stay in power for the time being. Look for a major upswing in the Sensex tomorrow. EPI, an ETF based on Indian shares rose 5% today.
Today was another good example of the fact that it is pretty hard to time the market. Stocks which were down 5 or 10% ended the session in the green or pared most of their losses. It doesnt pay to sit at the sidelines for long and trying to find a time to "enter" the market. You should be in it for the long term and not get anxious by the daily swings. This "noise" will be there always and is something that gives us the opportunity to make $$$$$$$$$!!!!!
Cheers!!!
Friday, July 18, 2008
Market Update - 7/18/08
Okay, I was wrong in my last post that Citi was going to disappoint. They actually posted better than expected results for the second quarter and that helped the financial sector lead the other major sectors today for the third consecutive day. The NASDAQ, however, had a forgettable outing, down 1.3%, based in large part due to the dissapointing earnings from Google and Microsoft, which are considered as bellwethers for the IT industry. Monday will again be very important. Apple releases its earnings after the bell. Everybody knows (or rather expects) that they will blow the analyst numbers away but the major part of action will be their guidance for the third quarter this year. One thing to remember is that the iPhone 3G sales will not be included in this quarter's results. That being said, I firmly believe that they will not only exceed the estimates for the 2nd quarter but will also guide to a rosy third quarter.
Fannie and Freddie had another good day. There were talks that Freddie is ready to raise more capital in the near future and this boosted the stocks of both these companies, not withstanding the dilution that this have for the current stock holders. I still believe that both these stocks are pretty cheap. The market had priced them as if there was no tomorrow for any of these companies, but that appears to be changing in the past three trading days, not only for these two but for the financial sector in general.
The markets, as efficient as they might be, are still governed by two major themes - "Fear" and "Greed", and these two things feed on each other. When one rules, the other takes a back seat and viceversa. No points for guessing which one is ruling the market today!! Naive investors panic and let their emotions dictate their investing habits. As a result they are dumping stocks either based on rumors or what their broker is telling them to do (guess whose side is he on!!!). This usually leads to pretty good opportunities in the markets if you are in it for the long term. Financials are a pretty good case in point. The sector has been deep in red for the past one year. The market had discounted their valuations to such levels that the book value of some stocks dropped below $1 for the first time. The dividend yields breached the 10% level. To put this in perspective, economists recommend buying stocks when the yields are above treasury yields (for the index as a whole, not an individual stock), and the current yield on a 10 yr treasury note is below 4%. And the third quarters' earnings from all the major banks that have reported till now (except Merill Lynch) have surprised to the upside.
Am I saying that we have already reached the inflection point? No. Have we seen the worst for the financials? No. Nobody knows when the inflection point occurs, we can only see that in hindsight. All I am saying is that we should not wait on the sidelines forever and miss the opportunites that the stock market provides us. It will never tell us when there is a bottom or when we have reached the top, but with careful analysis we can certainly enter at an opportune time and see our savings grow.
Have a nice weekend everyone!!!
Fannie and Freddie had another good day. There were talks that Freddie is ready to raise more capital in the near future and this boosted the stocks of both these companies, not withstanding the dilution that this have for the current stock holders. I still believe that both these stocks are pretty cheap. The market had priced them as if there was no tomorrow for any of these companies, but that appears to be changing in the past three trading days, not only for these two but for the financial sector in general.
The markets, as efficient as they might be, are still governed by two major themes - "Fear" and "Greed", and these two things feed on each other. When one rules, the other takes a back seat and viceversa. No points for guessing which one is ruling the market today!! Naive investors panic and let their emotions dictate their investing habits. As a result they are dumping stocks either based on rumors or what their broker is telling them to do (guess whose side is he on!!!). This usually leads to pretty good opportunities in the markets if you are in it for the long term. Financials are a pretty good case in point. The sector has been deep in red for the past one year. The market had discounted their valuations to such levels that the book value of some stocks dropped below $1 for the first time. The dividend yields breached the 10% level. To put this in perspective, economists recommend buying stocks when the yields are above treasury yields (for the index as a whole, not an individual stock), and the current yield on a 10 yr treasury note is below 4%. And the third quarters' earnings from all the major banks that have reported till now (except Merill Lynch) have surprised to the upside.
Am I saying that we have already reached the inflection point? No. Have we seen the worst for the financials? No. Nobody knows when the inflection point occurs, we can only see that in hindsight. All I am saying is that we should not wait on the sidelines forever and miss the opportunites that the stock market provides us. It will never tell us when there is a bottom or when we have reached the top, but with careful analysis we can certainly enter at an opportune time and see our savings grow.
Have a nice weekend everyone!!!
Thursday, July 17, 2008
Market Update - 7/17/08
Another good day for the markets, DOW in general. 3 of the 20 DOW components reported earnings before the market opened and all surprised to the upside. The market did get a kick, for a second consecutive day, out of a bank reporting earnings. J.P Morgan surprised to the upside and beat analyst expectations by 10 cents. Coke and United Health were the other components propping up the market. One big stimulus was provided by a drop in oil prices for a third consecutive day. Oil is down to $129 a barrel, the lowest close since June 5. Last week's record was $147/barrel. This helped the market in the afternoon after the early morning gains were surrendered.
A lot of the money flowed in to the financials for the second straight day. The Financial sector led the market again, rising 3.6%, and materials were hit hardest, declining 2.2%. Probably investors are expecting the bubble to pop or atleast are hoping that it pops sooner than later. This has been a trend lately - with materials declining on the day when oil price declines and financials are strong (not that we've seen a lot of those). Fannie Mae and Freddie Mac had another strong showing, rising 17% and 20% respectively. My opinion is that both these companies have been sold off since the start of this month on the fears that they may become insolvent, a scenario which is pretty unlikely (although anything can happen in this kind of a "fear" driven market).
Merrill Lynch, Microsoft, IBM, and Google are set to report their second quarter's results after hours. Google has already reported and surprised the market to the downside. The stock is down almost 10% after hours (as I'm writing this) and is taking a toll on other big tech names as well. This could be a good entry point into this stock as "One bad quarter does not a trend make". Merrill Lynch reported their results just now and as expected, they are not good. They lost almost $5B last quarter and the stock is down 5% after hours. IBM surprised on the upside. Tomorrow is another crucial day for the market since Citi is reporting before market opens. If they disappoint (which I think will be the case) we will be in for a very bad day. The short lived rally in the financial sector, which led some investors and analytsts to belive that the bottom might be close, will be gone.
Among other news today, Apple became the third largest PC retailer in the US last quarter. It overtook Acer and is now behind Dell and HP.
Internationally, China's GDP grew at a 10% annualized rate last quarter. Inflation in India was 11.91% and if that number continues to grow the economy will be in a very rough patch pretty soon. The GDP growth estimates have already been scaled down from 10% to between 7-8% by some economists. The startling news came from Karachi, Pakistan where people stormed the stock exchange and pelted it with stones. This was a result of the third consecutive day of declines in the market and allegations that some of the big brokers were manipulating the market for their own gains.
A lot of the money flowed in to the financials for the second straight day. The Financial sector led the market again, rising 3.6%, and materials were hit hardest, declining 2.2%. Probably investors are expecting the bubble to pop or atleast are hoping that it pops sooner than later. This has been a trend lately - with materials declining on the day when oil price declines and financials are strong (not that we've seen a lot of those). Fannie Mae and Freddie Mac had another strong showing, rising 17% and 20% respectively. My opinion is that both these companies have been sold off since the start of this month on the fears that they may become insolvent, a scenario which is pretty unlikely (although anything can happen in this kind of a "fear" driven market).
Merrill Lynch, Microsoft, IBM, and Google are set to report their second quarter's results after hours. Google has already reported and surprised the market to the downside. The stock is down almost 10% after hours (as I'm writing this) and is taking a toll on other big tech names as well. This could be a good entry point into this stock as "One bad quarter does not a trend make". Merrill Lynch reported their results just now and as expected, they are not good. They lost almost $5B last quarter and the stock is down 5% after hours. IBM surprised on the upside. Tomorrow is another crucial day for the market since Citi is reporting before market opens. If they disappoint (which I think will be the case) we will be in for a very bad day. The short lived rally in the financial sector, which led some investors and analytsts to belive that the bottom might be close, will be gone.
Among other news today, Apple became the third largest PC retailer in the US last quarter. It overtook Acer and is now behind Dell and HP.
Internationally, China's GDP grew at a 10% annualized rate last quarter. Inflation in India was 11.91% and if that number continues to grow the economy will be in a very rough patch pretty soon. The GDP growth estimates have already been scaled down from 10% to between 7-8% by some economists. The startling news came from Karachi, Pakistan where people stormed the stock exchange and pelted it with stones. This was a result of the third consecutive day of declines in the market and allegations that some of the big brokers were manipulating the market for their own gains.
Wednesday, July 16, 2008
Market Update - 7/16/08
Today was a fantastic day for the markets among the barrage of economic news that came out. There were quite a few positives; and a negative, but the biggest boost was provided early on before the market opened. Wells Fargo, a financial institution, reported better than expected results and also increased its dividend by 10%. This was enough to convince the markets for the time being that maybe the financials have been oversold and that the bad news might already be baked into the pie.
Following this positive announcement was a negative reading on the CPI. Headline CPI rose 1.1% last month, and Core-CPI rose a modest 0.3%, more than a 0.2% consensus estimate. This was followed by the Net Foreign Purchases, Capacity Utilization, Industrial Production, Crude Inventories, and FOMC minutes from their last meeting in June. Let's look at these one by one.
Net Foriegn Purchases were $67B, more than the consensus estimate of $65B. Capacity Utilization was 79.9%, 0.5% better than expected. To put this number in perspective, it has been between 80-85% over the past 15 years. Industrial Production came in at 0.5% while the consensus was 0%, which again shows that the economy continues to grow, albeit at a slower pace. Crude inventories came in at a positive 3 million barrels, while the analysts were expecting it to shrink by the same amount. All these economic indicators provided an initial boost to the stocks. Financials rallied and energy sector plunged.
Financials gained across the board today, up 6.5%. Fannie Mae and Freddie Mac, which had been battered in the past two weeks rose 29% and 30% respectively. Wells Fargo, Lehman Brothers, Washington Mutual, and Banc of America were among the other winners.
Among other news, Sony Corp. lowered the price of PS3 by $100 to $299. It will be interesting to see how this affects the stock since they have not yet turned a profit for this device. RIM's earnings estimates were lowered by an analyst st Koffman reflecting increasing competition by Apple's iPhone in the consumer market.
This month will be marked by a lot of companies reporting their second quarter's earnings and hence will be as much, if not more, volatile than June. Ebay reported after close today and the stock shed about 6% after hours (I think they did not raise their guidance that's why).
My opinion is that the Technology sector will continue to outperform the broad market till year end and there are quite a few bargains out there. If an investor has a big risk appetite then financials should prove to be attractive as well - looking forward 2-3 years.
This is my first blog ever and I plan to continue giving this market commentary on a regular basis going forward.
Let the good times begin!!!!!!!
ciao
Following this positive announcement was a negative reading on the CPI. Headline CPI rose 1.1% last month, and Core-CPI rose a modest 0.3%, more than a 0.2% consensus estimate. This was followed by the Net Foreign Purchases, Capacity Utilization, Industrial Production, Crude Inventories, and FOMC minutes from their last meeting in June. Let's look at these one by one.
Net Foriegn Purchases were $67B, more than the consensus estimate of $65B. Capacity Utilization was 79.9%, 0.5% better than expected. To put this number in perspective, it has been between 80-85% over the past 15 years. Industrial Production came in at 0.5% while the consensus was 0%, which again shows that the economy continues to grow, albeit at a slower pace. Crude inventories came in at a positive 3 million barrels, while the analysts were expecting it to shrink by the same amount. All these economic indicators provided an initial boost to the stocks. Financials rallied and energy sector plunged.
Financials gained across the board today, up 6.5%. Fannie Mae and Freddie Mac, which had been battered in the past two weeks rose 29% and 30% respectively. Wells Fargo, Lehman Brothers, Washington Mutual, and Banc of America were among the other winners.
Among other news, Sony Corp. lowered the price of PS3 by $100 to $299. It will be interesting to see how this affects the stock since they have not yet turned a profit for this device. RIM's earnings estimates were lowered by an analyst st Koffman reflecting increasing competition by Apple's iPhone in the consumer market.
This month will be marked by a lot of companies reporting their second quarter's earnings and hence will be as much, if not more, volatile than June. Ebay reported after close today and the stock shed about 6% after hours (I think they did not raise their guidance that's why).
My opinion is that the Technology sector will continue to outperform the broad market till year end and there are quite a few bargains out there. If an investor has a big risk appetite then financials should prove to be attractive as well - looking forward 2-3 years.
This is my first blog ever and I plan to continue giving this market commentary on a regular basis going forward.
Let the good times begin!!!!!!!
ciao
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