US futures are quoted higher this morning as we write and investors have jobs numbers to look forward to this morning and tomorrow. The fiscal cliff continues to dominate both the financial and political world as a deal is being negotiated in Washington. The President made clear that it is not an option to go over the cliff, so as long as the Republicans are willing to be logical and get the tea party wing in-line we should get an agreement - at least that is what the evidence is suggesting. It might take a pullback in the stock market to force all parties to the table to hammer this out and pass something, but at the end of the day that has to be a price investors are willing to pay in the short-term in order to succeed long-term. We would advise readers who use margin to make sure there is a healthy cushion in your account so that you do not get a margin call should we see a pullback in the next week or so on the lack of a resolution to the fiscal cliff.
We have economic news due out today, and it is as follows:
Challenger Job Cuts - N/A
Initial Claims - 382k
Continuing Claims - 3275k
Asian markets finished mixed today:
All Ordinaries - down 0.27%
Shanghai Composite - down 0.13%
Nikkei 225 - up 0.81%
NZSE 50 - up 0.40%
Seoul Composite - up 0.13%
In Europe markets are higher this morning:
CAC 40 - up 0.47%
DAX - up 0.95%
FTSE 100 - up 0.15%
OSE - up 0.79%
Yesterday most of the market was green, however shares in Apple (AAPL) were flashing red after one clearing house raised the margin requirements for the company's shares. It was a pretty puzzling move in our opinion as Apple is in no way an illiquid stock nor has the volatility created a situation whereby the clearing houses would need to raise the margin requirements. Remember volume declined in Apple because many moved on from trading the high priced shares to speculating in the options market in order to get leverage. Volatile stocks we are used to seeing on the higher margin requirements list, but not the most valuable company by market capitalization in the world. There is a lot of noise surrounding the company right now, but we think that the trend is upward, especially if the company releases their next big product in 2013.
Technology indices were held back by Apple, however many companies had decent days yesterday and the storage companies were among them. Our OCZ Technology Group (OCZ) rose once again which kept their consecutive streak for up session intact. The company's shares rose $0.25 (12.82%) to close at $2.20/share with volume strong again as investors traded 8.4 million shares. The company has finally crossed back above the $2/share threshold, which as a shareholder we can appreciate however based on the significant rally we would recommend that readers wanting to buy shares hold off until we get a bit of a correction which should happen in the near-term. After all, nothing continues to rise every day.
Another storage company experiencing gains yesterday was Western Digital (WDC) which closed at $36.03/share after share rose $2.44 (7.26%) on volume of 10.8 million shares. Investors cheered the company's move to accelerate the dividend and pay it in December so that investors could lock in the current capital gains rate, just the latest company to do so. Western Digital also announced that they intend to return roughly half of free cash flows in 2013 to shareholders through a series of dividends and buybacks. Our guess is that the ratio of each depends upon the tax code moving forward as the company looks to maintain a respectable yield while also attempting to return this cash to shareholders in the most tax efficient manner.
While looking through the new 52-week lows yesterday we were surprised to see Baidu (BIDU) included. Shares finished at $88.12 after falling $2.12 (2.35%) on volume of 8.1 million shares . The company was joined on the new 52 week lows list by numerous Chinese companies which used to be high fliers. We believe it is safe to say that the accounting issues have hurt Chinese stocks traded in the US dramatically and those which were able to get through that semi-crisis were unable to escape the realities that the economy there is slowing and putting pressure upon the companies' growth prospects. In our opinion Baidu is one of the best China plays available to US investors and should continue to be a good play on China's growth in internet users and online advertising.
Don't look now but Bank of America (BAC) is on a serious run. Shares rose $0.55 (5.55%) yesterday to close at $10.46/share with volume of 463.5 million shares traded. The stock hit a new 52-week high as momentum has been building here over the past few months. The stock has been taking out every level of resistance on the way up, using a step up process as it slowly grinded out its way higher. The shares have been impressive over this period of time, outperforming other banks during this period and rising where many have actually fallen. The big US banks face a hostile Administration and Senate for the next four years but if the fiscal cliff is avoided and the housing rally continues, then we do not see why the sector as a whole cannot rise 10-20% from current levels, including Bank of America.