Daily Market Outlook: Early Indications Are for a Modest Rebound

Early indications point to a modest rebound Thursday after Central Banks across the globe pledged more liquidity to the world's financial markets. Less than an hour before the opening bell on Wall Street, stock index futures indicate that the Dow Jones Industrial Average could add 50 or 60 points at the open. The NASDAQ is indicated 10 or 15 points higher.  

Stock index futures rose early after the US Federal Reserve and others said they would pump $180 billion into money market funds to ease the funding squeeze that has plagued the financial markets. In addition to the Fed and the ECB, Central Banks in Japan, Switzerland, Canada, and Britain are taking part in the efforts.

However, the early advance in the stock index futures stalled amid ongoing worries about the financials and after the latest data from the Labor Department showed another uptick in weekly jobless claims. The number of filings for jobless benefits increased by 10,000 to 455,000 in the week ended September 13. Economists were looking for a decline to 440,000.   

Attention turns to the Philadelphia Fed Survey and the list of leading indicators. Both reports are due out at 10:00 a.m. Eastern time. Economists expect a reading of -10 for the Philadelphia Fed manufacturing report for September, which is modest improvement from the -12.7 the month before.

The list of leading indicators is expected to show a .2 percent decline for August, up from -.7 during the month of July.

Bonds are lower ahead of the news. The benchmark ten-year Treasury bond fell 15/32nd early and now yields 3.46 percent. The dollar is mixed, trading up .20 to 104.85 on the yen and to 1.445 on the euro.

Among the stocks to watch Thursday, Morgan Stanley (MS) is in focus on reports it is in merger talks with Wachovia (WB). Shares of Morgan Stanley are down 10.3 percent early. Wachovia gained 4.5 percent.  

Washington Mutual (WM) is up 12.5 percent on reports it is being auctioned off, with Wells Fargo (WFC), JP Morgan (JPM) and HSBC (HBC) mentioned as possible suitors.

FedEx (FDX) might help the transports early after the company delivered quarterly profits of $1.23 per share, which was in-line with analyst estimates. Revenues rose 8.4 percent to $9.97 billion, which was a bit better than analyst estimates of $9.12 billion. FedEx also raised second quarter guidance to $1.40 to $1.60 per share, compared to analyst estimates of $1.35.

Conagra (CAG) posted 27 cents per share for the quarter, which beat by three cents. Carnival (CCL) is also due to release results this morning. Oracle (ORCL) reports after the close of trading.   

Commodity-related stocks might show early strength after crude and gold moved higher. Crude oil is up $3.84 to $101 a barrel. After a $70 rally yesterday, its biggest one day gain ever, gold is up another $27.80 to $878.30 an ounce.  

In the options market, volumes set records Wednesday amid ongoing volatility in the equity market and ahead of this week's triple witch expiration. Today is the last day to trade many index options contracts. Tomorrow is the last day to trade any remaining September contracts (except quarterlys). In addition, futures and futures options also expire, making it a very busy, and potentially volatile, day for the financial markets Friday.

Yesterday, total volume reached records after 14.1 million puts and 12.0 million calls traded across the US exchanges. Implied volatility surged after the Dow Jones Industrials gave up 450 points, bringing its loss to 7.1 percent for the week. The CBOE Volatility Index (.VIX) closed at 36.22 and its best levels October 2002. VIX is up 10.56 points on the week.

The financials continue to see heavy trading. 617,000 puts and 760,000 calls traded on the Select Sector Financials (XLF). Morgan Stanley (MS), Goldman Sachs (GS), Citi (C), and Wachovia (WB) were among the most actives.

Volume picked up in Apple Computer (AAPL), as shares closed for $127.83 and near session lows, also its worst levels since mid-March. 310,000 AAPL calls and 209,000 puts traded Wednesday.  

General Electric (GE) saw a fourth day of heavy trading, with 231,000 GE puts and 234,000 calls traded. Call volume surged in SanDisk (SNDK) on news the company rejected a takeover offer from Samsung. Bullish trading was also seen in Seagate (STX), the SPDR Gold Trust (GLD), and the iShares Xihua China Fund (FXI).  Meanwhile, defensive or bearish order flow was seen in Xerox (XRX), Fastanel (FAST), and the Ultra Financial Proshares (UYG).

Disclosure: Long

Comments

[Shiv139:]

With the risks to solvency remaining high availability of liquidity does not answer the problems. Banks/institutions have a trust issue - can they trust a counter parties with the potential solvency risks. Central banks cannot eliminate this risk.
This solvency risk is only going to reduce through confidence building measures. Confidence will return once the insolvents are out of the market and the remaining banks/institutions well capitalized. Capital is required and no Private Capital is forthcoming because the risk is too high. So governments (not central banks) step in.
I am surprised that the SWF's have not stepped up to the plate. These massive budget surplus nations should have a vested interest in restoring confidence. Without confidence, the $ paper they hold could be significantly impaired in value. If a deficit nation steps up, the action does not necessarily provide a solution as increasing deficits will prove to be inflationary (unless of course the confidence building measure is a success and allows a profitable exit which will reduce the deficit). Since leverage is the issue, I would be far happier seeing budget surplus SWF's take action.
Active steps are being taken to solve the solvency issues (AIG/FRE/FNM); even BAC acquiring MER is a net positive. And yes, even the bankruptcy of LEH is good news. All of these help bring closure to solvency issues. Since it is early in the days of addressing this solvency issue; expect continued fireworks; but the healing process has begun. This together with liquidity will restore the economy to health. But it will take time. Healing has just begun.

2008 Sep 18 09:35 AM

[Jason Rines...:]

Wishful thinking. Recovery will happen when Washington is fixed. That won't happen anytime soon.

2008 Sep 18 10:09 AM

[Brandon:]

It appears policymakers including the fed are inclined to watch and wait. They will step in when they feel that absolutely have to but otherwise they'll remain on the sidelines.

In my opinion this almost guarantees a further 20% drop in the S&P from the old lows. The rate of bad news will begin to slow, but with a lack of good news to drive the market, it will slow it's decent before rebounding in a huge way.

That's the tough part, you shouldn't try and pick a bottom but waiting for a pop is going to cost you huge when the pop has all of this current liquidity behind it. It's tough out there.

2008 Sep 18 12:46 PM

[bowman711:]

My question is, why would all the money governments around the world can print encourage prudent lending? I can see how it might encourage reckless lending because the lender can 'bank' on the government to bail him out when the loans go bad. But, how does reckless lending (even if there happen to be some wise loans as well) solve the financial crisis problem?

I think most would agree that one learns more, and makes greater improvements to one stock trading, from losing trades than from profitable trades. Where would you be today if the government bailed you out every time you had a losing trade? Would you put the same care and analysis to your trades if you knew a bailout would be there if it went bad?

Similarly, how does it really improve the financial condition of these banks and investment banks when they can now count on a bailout for their bad investments? On top of that, there will be essentially the same executives making investment decision now as there were before this 'Mother of all Bailouts.' So, it seems to me we have the same incompetent executives making investment/loan decisions; only now they are assured of a rescue for their losses.

What the Government is doing today regarding the 'Mother of all Bailouts' may delay the real improvements needed in the wisom and prudence of the financial executives, but it doesn't address them. It seems to me that it would be far better for the government to cover the losses of million investers (whether directly as a trader, or indirectly, as owner of a mutual fund, pension fund, etc.) and let the reckless executives and ther financial firms they run get what they deserve.

It simply does not make sense to me for the Government to cover the recklessness of the wealthiest slice of our society, and let the regular people, voters, take their losses on their own.

2008 Sep 19 12:42 PM

[beetle:]

there is a bailout for stock losses ................its called a tax deduction


On Sep 19 12:42 PM bowman711 wrote:

> My question is, why would all the money governments around the world
> can print encourage prudent lending? I can see how it might encourage
> reckless lending because the lender can 'bank' on the government
> to bail him out when the loans go bad. But, how does reckless lending
> (even if there happen to be some wise loans as well) solve the financial
> crisis problem?
>
> I think most would agree that one learns more, and makes greater
> improvements to one stock trading, from losing trades than from profitable
> trades. Where would you be today if the government bailed you out
> every time you had a losing trade? Would you put the same care and
> analysis to your trades if you knew a bailout would be there if it
> went bad?
>
> Similarly, how does it really improve the financial condition of
> these banks and investment banks when they can now count on a bailout
> for their bad investments? On top of that, there will be essentially
> the same executives making investment decision now as there were
> before this 'Mother of all Bailouts.' So, it seems to me we have
> the same incompetent executives making investment/loan decisions;
> only now they are assured of a rescue for their losses.
>
> What the Government is doing today regarding the 'Mother of all Bailouts'
> may delay the real improvements needed in the wisom and prudence
> of the financial executives, but it doesn't address them. It seems
> to me that it would be far better for the government to cover the
> losses of million investers (whether directly as a trader, or indirectly,
> as owner of a mutual fund, pension fund, etc.) and let the reckless
> executives and ther financial firms they run get what they deserve.
>
>
> It simply does not make sense to me for the Government to cover the
> recklessness of the wealthiest slice of our society, and let the
> regular people, voters, take their losses on their own.

2008 Sep 19 01:05 PM

[Kelly Liebe...:]

Makes no sense. They think that they can clear the decks for the financial industry... It may make some money for some traders for the short term...This will not trickle down for the average Joe and that will be what will bring the economy to it's knees. The average Joe is losing their shirts...and the government knows it.
The govt is shoring up treasuries because if there is a run on in them we are scr*wed... It may happen...

2008 Sep 19 01:09 PM

[bowman711:]

Beetle, and there isn't a 'bailout' called tax deductions for corporations? Why not treat both individuals and financial companies the same?

2008 Sep 19 03:22 PM

[Ryanwahlstrom:]

In regards to CCL I see some trading possibilities and a very long term buy assuming they can manage to market the high end berth capicity comin online. www.ryanwahlstrom.com/...

2008 Oct 02 12:35 AM