MarketView for March 9

 

 

 

Summary 

 

One year to the day after stocks chalked up their worst close in more than 12 years, the markets celebrated by doing mostly nothing. One year ago, the economic crisis dragged stocks to their lowest point in more than 12 years.

 

To date, the S&P 500 is up 68.5 percent since then, the strongest one-year rally since 1936, according to Standard & Poor's, but still 27.6 percent below its all-time high. Meanwhile, the major equity indexes closed out the trading day slightly higher as falling commodity prices pressured materials stocks, offsetting gains in the telecom and industrial sectors.

 

However the weakest financial companies dominated market activity, as Citigroup, American International Group and others ran up on strong volume amid speculation that regulators could consider clamping down on short sales of specific issues. Capital One Financial rose 2.1 percent to $38.66. Citigroup closed up 7.3 percent to $3.82, the largest daily percentage gain since last August.

 

Shares of telecommunications and Internet devices were also higher after Cisco unveiled a new router that AT&T, the largest telecom company, said it had successfully tested. Cisco’s shares, which gained almost 4 percent Monday on anticipation of the announcement, ended the trading day unchanged at $26.13. Apple rose 1.8 percent to $223.02, after earlier hitting a fresh lifetime high at $225.00.

 

Airline stocks chalked up gains after some of the major carriers said they would continue to explore new fees and cost-cutting measures to enhance profitability. At the same time, there has been a noticeable increase in business travel.

 

AMR, parent of American Airlines, rose 9.3 percent to $9.77, and UAL, parent of United, gained 3.6 percent to $18.15. Also lifting transports' shares, Morgan Stanley reiterated its upbeat view on railroads while raising its price target on Union Pacific and CSX. Union Pacific closed up 1.9 percent to $70.84 and CSX added 1 percent to $49.52.

 

Kroger fell 2.4 percent to $22.35 after the nation’s largest grocery chain said fiscal-year earnings could miss expectations as it posted higher-than-expected quarterly profit. Also lower was Texas Instruments, which said late Monday it was struggling to fill orders due to increased demand for microchips, but raised its forecasts. The stock fell 2 percent to $24.19.

 

The U.S. economy is slowly recovering from the worst economic downturn since the 1930s, with the latest data showing the economy may be on the verge of creating jobs and a majority of companies reporting stronger-than-expected earnings.

 

Cisco Develops Router 12 Times Faster Than Competition

 

Cisco Systems Inc introduced its first major new routers in six years and said they can be configured to handle Internet traffic up to 12 times faster than rival products. Yet, Cisco ended the day unchanged at $26.13, after gaining 4 percent the previous day, a rise that was in part in anticipation of the announcement.

 

According to the company’s announcement, up to 72 of the new CRS-3 routers can be connected for capacity of 322 terabits per second (tbs). At that maximum configuration, the routers could in theory deliver every movie ever made in four minutes over the Internet, or connect China's entire population of 1.3 billion people by video conference at the same time.

 

While operators do not put this much routing power into their networks today, Cisco is betting that surging Web traffic -- driven by smartphones like Apple Inc's iPhone and services like Google Inc's YouTube -- will make these products necessary in the future.

 

The CRS-3 router took Cisco three years to develop and supports data speeds three times faster than its own existing products. It goes on sale starting at $90,000 each and will be available in the third quarter.

 

Cisco said it has invested $1.6 billion in the CRS product line including half a billion dollars spent to build the CRS-1. It did not break out spending for CRS-3.

 

The global market for high-powered routers that direct traffic at the core of the Internet will be about $2.8 billion in 2010, according to Frost & Sullivan analyst Ronald Gruia.He estimated that Cisco, which reported revenue of $9.8 billion in its most recent quarter, has a roughly 55 percent share of this market while Juniper Networks Inc, the next biggest player, has about 30 percent.

 

The CRS-3 will give Cisco an edge over Juniper and other rivals like Huawei Technologies Co. However analysts said that Juniper could catch up as early as year's end. Juniper said it was already in the process of upgrading its own products but noted that Cisco's vision for 72 connected CRS-3's would "never likely be deployed in practice due to space, power and manageability realities."

 

Cisco Chief Executive John Chambers said it is important for carriers to increase network capacity in anticipation of a five-fold increase in Internet traffic in the next four years. "If we don't provide this type of foundation for the future of the Internet, we actually become the constricting factor on the ability for it to grow," Chambers said on a webcast.

 

In recent years Cisco has benefited from the rising popularity of bandwidth-hungry Web services, which has driven sales of its network equipment. AT&T has completed a 100-gigabit-per-second field test of the new router. Cisco said AT&T was the largest operator working with the company on the new product so far. However, Verizon Communications and Juniper said they ran a trial at a similar speed.

 

Cisco said on the webcast that it expects to keep selling its existing product, the CRS-1, for many years even after it launches the CRS-3. It said it has installed more than 5,000 of the CRS-1 routers in networks around the world.

 

The news comes a week ahead of the expected announcement of the U.S. Federal Communications Commission's National Broadband plan, aimed at boosting high-speed Internet adoption in the country. FCC Chairman Julius Genachowski said on Tuesday that he sees technologies like Cisco's helping forward his goal of connecting every community with high-speed networks.

 

Christine Romer Says It Is Too Soon To Cut Government Spending

 

According to Christine Romer, Chairwoman of the Administration’s Council of Economic Advisors, reducing government spending now to reduce the budget deficit would be "pound-foolish" and derail the economic recovery.

 

"Immediate fiscal contraction would inevitably nip the nascent economic recovery in the bud -- just as fiscal and monetary contraction in 1936 and 1937 led to a second severe recession before the recovery from the Great Depression was complete," said Romer.

 

She also said President Obama's $787 billion stimulus package had been successful in pulling the economy out of a deep recession. However, additional measures were necessary to bring the jobless rate down from the current level of 9.7 percent, which she called "a terrible number by any metric."

 

One year ago, said the stimulus package would probably generate more "oomph" than usual because with the existing tight credit conditions, households and businesses would be more likely to spend the extra money from tax cuts and other measures. Business spending has picked up recently, particularly in the fourth quarter of 2009 when spending on equipment and software jumped at an 18.2 percent annual rate.

 

Consumer spending has been slower to recover, although it has shown some signs of modest improvement in the first few weeks of 2010. It took additional measures such as the "cash for clunkers" auto sales incentives and the $8,000 credit for home buyers to spur demand. Many households are still trying to pay down debt and boost savings lost in the housing and stock market slumps, which may constrain spending growth for some time.

 

The weak link remains employment. Romer's own research had predicted that the stimulus package would curtail the rise in unemployment, but the jobless rate rose far higher than the White House had anticipated. That has created political problems for Obama and his Democratic party, which has recently lost two governors' races and the Senate seat that had been held by liberal standard-bearer Edward Kennedy, who died last year.

 

Romer said Obama's job creation proposals -- a hiring tax credit, additional aid for cash-strapped states, and providing capital to small banks -- would help to bring down the jobless rate although she acknowledged that the economy probably would not grow fast enough to quickly close the labor gap.

 

A $149 billion package of tax breaks and unemployment aid cleared a procedural hurdle in the Senate on Tuesday. The Senate is expected to pass the bill within the next few days and send it to the House of Representatives.

 

Responding to Republicans, who have objected to additional spending measures because of budgetary concerns, Romer said that the budget problem had been "years in the making." "It was not, as some have suggested, due to actions taken this past year," she said.

 

The sensible way to address the deficit was with a long-run plan that tackles the biggest drivers, including health care costs, while keeping necessary short-term assistance flowing to the economy and labor market, Romer said.

 

"Failure to take additional targeted actions to jump-start job creation would lead to slower recovery and higher unemployment for an extended period," Romer said.

 

"High unemployment is not just bad for people; it is bad for the budget deficit. It is virtually impossible to get the deficit under control when the unemployment rate remains near 10 percent," she said.