MarketView for November 24

Summary 

You may not have liked the idea of Citigroup being on the dole again, this time for $20 billion of taxpayer money and a guarantee of over $300 billion for questionable securities, but you are not Wall Street and the Street certainly did as stock prices rose sharply for the second consecutive day on Monday. The Dow Jones industrial average has advanced 11.8 percent, while the S&P gained 13.2 percent in their best two-day rally since the days following the October 1987 stock market crash.

Citigroup, part of the Dow and the country’s second largest bank, saw its share price end the day up nearly 60 percent to $5.95 and gave one of the biggest lifts to the Dow as the bailout plan eased jittery investors' concerns regarding the financial sector. The government's cash infusion for Citigroup represented the largest bank bailout to date. Last week, Citigroup's stock tumbled to its lowest level in about 15 years amid uncertainty over the bank's future.

Adding to the day’s optimism was the presentation by President-elect Barack Obama of his team of economic advisors, all of whom are viewed favorably by Wall Street. Specifically, Obama appointed New York Fed President Timothy Geithner as Treasury secretary and Lawrence Summers, who has previously held the Treasury post, as director of the National Economic Council.

Wall Street briefly pared gains after President-elect Barack Obama named his economic team, as expected, but did not offer any specific dollar figures or other new details on a stimulus plan.

Shares Apple rose nearly 13 percent to $92.95 and the stock was the largest gainer among the Nasdaq 100. Microsoft ended the day up 5.1 percent to $20.69. Campbell Soup, considered a recession-proof play, surprised investors with a disappointing full-year earnings outlook, citing a stronger dollar. Campbell Soup's stock slid 7.6 percent to $33.52.

Xerox Corp ended the day up 17.9 percent to $6.19 after the world's top supplier of digital printer and document management services forecast 2009 profits generally in line with analysts' expectations due to repeat customers and recent cost-cutting measures.

On the economic front, existing home sales fell 3.1 percent in October to an annual rate of 4.98 million units, while the median home price dropped to its lowest in more than four years, according to a report from the National Association of Realtors. The 11.3 percent drop in the median home price from October 2007 was the largest price decline on record, the NAR said.

Existing Home Sales Fall

Sales of previously owned homes fell in October, with the median home price chalking up its largest decline on record as tough economic conditions kept buyers on the sidelines. The National Association of Realtors said the pace of sales of existing homes fell 3.1 percent in October to a 4.98 million-unit annual rate, slightly below expectations for a 5.0 million-unit pace.

On an annualized basis, sales were down 1.6 percent on the 5.06 million-units sold in October of last year.

"Many potential home buyers appear to have withdrawn from the market due to the stock market collapse and deteriorating economic conditions," NAR chief economist said Lawrence Yun told reporters.

The inventory of existing homes for sale slipped 0.9 percent to 4.23 million from 4.27 million in September. The median national home price declined 11.3 percent from a year ago to $183,300, the lowest since March 2004, the NAR said. However, the percentage drop in prices was the biggest since the NAR started keeping records in 1968. Distressed sales are accounting for about 45 percent of existing home sales.

The housing malaise, which triggered a global financial crisis, has infected other sectors of the broader economy, translating into the highest unemployment rate in 14 years and a record drop in retail sales. Stability in the housing sector is critical to any recovery.

Crude Returns To Its Upward Trend

The price of sweet domestic crude for January delivery rose 9 percent to over $54 a barrel on Monday on expectations that OPEC will cut output again. The price settled up  $4.57 per barrel at $54.50, while Brent crude settled up $4.74 at $53.93.

The price of crude has fallen from record highs of over $147 per barrel in July to a 3-1/2 year low of $48.25 last Friday, as the global economic crisis dented demand in consumer nations.

OPEC President Chakib Khelil said a further output cut of more than 1 million barrels per day would be necessary to support the oil market in its current state. OPEC oil ministers meet for informal talks in Cairo on November 29, though a cut is not expected to be announced until the next full policy meeting in December.

Some OPEC members have called for a further cut in output after a cut on November1 failed to curb the steep price drop. Venezuela on Sunday said OPEC should cut supply further. Iran made similar remarks on Monday. Meanwhile, the demand for crude in China grew 4.3 percent in October from a year earlier,

Hewlett-Packard Makes Hay With EDS and Notebook Sales

Hewlett-Packard is gaining market share in every segment, and is at or ahead of its integration plans for computer services provider EDS, Chief Executive Mark Hurd said on Monday.

He made the comments after HP, the largest manufacturer of personal computers, posted quarterly results and fiscal 2009 forecasts that matched strong preliminary figures on November 18. The preliminary report had topped Wall Street expectations and sent HP shares soaring 14 percent that day.

"We're guiding fairly conservatively" on PC sales and it will "have an effect across" the company, Hurd told reporters on a conference call, calling it a "challenging environment."

Net profit for the fiscal fourth quarter ended October 31 was $2.11 billion, or 84 cents per share, compared with $2.17 billion, or 81 cents per share, a year earlier. Profit per share excluding items, such as acquisition charges, was $1.03.

Fourth-quarter revenue rose 19 percent to $33.6 billion, or an increase of 16 percent when adjusted for currency effects. The results were assisted by the acquisition of Electronic Data Systems, which helped services revenue increase 99 percent to $8.6 billion. Excluding EDS, HP's overall revenue grew just 5 percent.

HP notebook computer sales also did well in the quarter, rising 21 percent, compared with a 2 percent decline in desktop computers.

HP's broad businesses, which include services, software, computers, printers and ink, has made it less vulnerable to the economic downturn than companies focused mainly on PCs. Rival PC maker Dell Inc (DELL.O: Quote, Profile, Research, Stock Buzz) did better than expected in the October quarter, mostly due to an aggressive cost cuts.

It said software revenue rose 13 percent to $855 million, while revenue from its imaging and printing group fell 1 percent to $7.5 billion. Revenue from its enterprise storage and server division fell 1 percent to $5.1 billion.