MarketView for January 11

 

 

 

Summary 

 

The Dow Jones industrial average and the S&P 500 indexes hit new 15-month highs on Monday after China bolstered expectations the world economy would strengthen. However, the Nasdaq was down minimally as a result of profit-taking in tech stocks. IBM ended the day down 1.2 percent to close at $129.30 and cut gains on the Dow. The S&P 500 has risen every trading day so far in 2010, the second-longest streak starting a year since 1987's seven straight days of gains.

 

China reported record imports of some commodities and stronger-than-expected exports, thereby raising the potential outlook for companies with large international operations, Caterpillar and Alcoa. Caterpillar shares jumped 6.3 percent to $64.13, its largest daily advance since late July.

 

Alcoa closed 2.5 percent higher at $17.45 before reporting after the market's close a narrower fourth-quarter net loss of $277 million, or 28 cents per share. Alcoa's revenue fell to $5.43 billion from $5.68 billion but was higher than the average analyst estimate of $4.86 billion.

 

Alcoa is the first Dow component to announce results, launching the earnings season that will be a major indicator of whether the outlook going forward will be strong enough to sustain the market's advance.

 

Data from China showed the country ended 2009 with record monthly imports of crude oil and soybeans and a strong appetite for iron ore and copper, while its exports rose 17.7 percent year-over-year.

 

United Parcel Service rose 4.4 percent to $62.82 and FedEx Corp was up 2.7 percent to $87.25. One reason being given is that the unusually cold weather will increase online shopping as people try to avoid the unusually cold weather. UPS and Caterpillar helped lift the S&P industrial sector 1.2 percent, making it the best performing group.

 

Citigroup raised its long-term oil price estimate to $80 per barrel from $65 and upgraded some energy companies, including Chevron, whose shares rose 1.8 percent to $80.88.

 

Among the companies losing ground on Monday was the Dow component Procter & Gamble, whose shares fell 0.4 percent to $60.20 after BMO Capital Markets cut its rating on the stock on concern Friday's devaluation in Venezuela could hurt sales and revenue as products will be more expensive. Walt Disney also had a difficult time on Monday as its share price ended the day down 2 percent to $31.25 after it was downgraded by Janney Capital Markets.

 

The price of crude oil closed marginally lower on Monday, after early rising to a fresh 15-month high, as the promise of milder weather in the United States took some steam out of the market.

Weather forecasters said the worst of the cold spell, which swept across the United States and helped support energy prices over the last two weeks, was nearly over.

 

U.S. crude for February delivery settled down 23 cents per barrel at $82.52, off an earlier peak of $83.95, the highest intraday price since October 2008. London Brent settled down 40 cents per barrel at $80.97.

 

Alcoa Cuts Loss and Surprises on Revenue

 

Alcoa posted a narrower fourth-quarter loss on Monday as aluminum prices inched up and the manufacturing industry showed signs of recovering from the recession. The net loss was $277 million, or 28 cents per share, compared with a loss of $1.19 billion, or $1.49 per share, in the fourth quarter of 2008, when the economic downturn began. The company also indicated that it had an operating loss of $266 million, or 27 cents per share.

 

The loss followed a narrow profit in the third quarter, which had been preceded by three consecutive quarterly losses for the aluminum company, traditionally the first Dow component to report each quarter.

 

Revenue fell to $5.43 billion from $5.68 billion but was 18 percent higher than the third quarter.  The consensus on Wall Street was for an approximate revenue number of $4.86 billion.

Alcoa also had a positive cash flow of $761 million in the quarter.

 

Aluminum, used in automobile and plane manufacturing, and for kitchen wrap and beverage cans, reached a peak of $3,380 per ton in July 2008. However, it fell 35 percent later as the global economy went into recession and has only slowly begun to recover. On Monday the metal was selling for around $2,330 per ton.

 

Fed Remains on Track

 

Federal Reserve monetary policy is unlikely to be pushed off course by December's surprising job losses, St. Louis Federal Reserve Bank President James Bullard said on Monday. Despite a December jobs report indicating that 85,000 jobs were shed and unemployment remained at 10 percent, Bullard was steadfast in his opinion that those numbers would not change the Fed's policy.

 

"It was different from expectations but not far enough to really change assessments of policy," said Bullard, who votes on the U.S. central bank's policy-setting Federal Open Market Committee (FOMC) this year. "I do think we'll see positive job growth in the first part of 2010," Bullard said.

 

News of persistent weakness in the labor market cooled optimism about the economic recovery and kept pressure on President Barack Obama to help employers.

 

Bullard said that the pace of job losses had slowed even though unemployment remained high. The challenge for policymakers will be to adjust the central bank's extensive securities purchases, he said.

 

"Forces driving the U.S. economic recovery include stronger-than-expected global growth, especially in Asia," he said. Other forces include stabilizing consumer spending and housing markets and less stress in financial markets, Bullard said.

 

Policy-makers have pledged to keep rates exceptionally low for an extended period to nurture the fragile recovery that appears to be taking hold.

 

However, many analysts question whether the recovery can be sustained once government aid is removed. December's job losses underscored the persistent weakness of the labor market, which is critical to the return to economic health.

 

In his third public speech during a trip to China, Bullard said the Fed's liquidity programs were not an inflationary concern, and he signaled the U.S. central bank was in no rush to raise rates.

 

"Interest rates may remain low for quite some time," he said.

 

He said any risks of igniting inflation by mishandling the Fed's exit from its support policies lie two to four years in the future.

 

"I do think we will handle it in an appropriate way," Bullard told the conference. The St. Louis Fed chief repeated comments urging financial markets to look to the Fed's management of its extensive securities purchases for an understanding of how the central bank will begin to withdraw its extraordinary monetary stimulus. "Markets should be focusing on quantitative monetary policy rather than interest rate policy," he said.

 

The Fed has bought $300 billion of longer-term Treasury securities and is in the process of buying almost $1.4 trillion in mortgage-related debt. Central bank officials have expressed confidence they have the necessary tools to implement their exit strategy but have not publicly discussed the timing and sequencing of the withdrawal. They have also not made clear whether they will hold on to the longer-term securities they have purchased or begin to sell them off once they will decide to tighten financial conditions.

 

Ford is Proud

 

Ford Motor Co swept the 2010 North American Car and Truck Awards at the Detroit auto show on Monday, marking only the third time in the 17-year history of the award that a single automaker has claimed both titles. A panel of about 50 U.S. and Canadian automotive journalists named the Ford Fusion Hybrid the car of the year and the Ford Transit Connect, a European-style delivery van, the truck of the year.

 

The Fusion beat out the Buick LaCrosse and the Volkswagen Golf/GTI for the car title, while the Transit Connect, a truck that is actually shorter than the Fusion, edged out the Chevrolet Equinox and Subaru Outback for the truck title.

 

The automakers typically use the awards, presented at the start of the North American International Auto Show, to market their vehicles. Last year's winners -- the Hyundai Genesis and the Ford F-150 pickup -- were both standout sellers in an otherwise dismal year for the industry.

 

"A couple of years ago -- a number of years ago -- we said we wanted to get back into the car business and we wanted to do it with vehicles that had great quality, great fuel efficiency, technology and safety," said Mark Fields, president of the Americas for Ford.

 

Ford is the only one of the three Detroit automakers that did not file for bankruptcy last year or receive any of the $120 billion the government spent to prop up the industry. And unlike General Motors and Chrysler, its top leadership has been steady since 2006, when Ford brought in former Boeing executive Alan Mulally to take the helm.

 

Ford stock has gained 55 percent since November and more than quadrupled over the past year as the No. 2 U.S. automaker steered clear of the government bailouts that wiped out equity in its domestic rivals and prompted a massive restructuring of the industry.

 

While Ford was the only domestic automaker to avoid bankruptcy, its relative success has complicated its efforts to win concessions from the United Auto Workers.

 

The two Ford vehicles that won on Monday actually are both assembled outside the United States -- the Fusion in Mexico and the Transit Connect in Turkey, though some alterations are made to the Transit Connect in North America.