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Wall Street Strategies has been providing independent stock market research since 1991 to individual, retail and institutional clients through a balanced approach to investing and trading. Charles Payne, our founder and chief analyst, is routinely sought after for his stock market, political,... More
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  • A Perfect Storm Indeed - By Jennifer Coombs

    While New York City experienced a lighter storm impact that originally expected, the stock market is being bombarded with disappointing news today. The Dow Jones Industrial Average is having its worst session in quite some time; earlier, the index was down by almost 400 points, but it has since comeback slightly to be down just below 300 points. The last time the Dow experienced a drop this steep was in February 2014. Ultimately, the Dow's agony can be blamed on seven of the index's components reporting disappointing earnings and trading lower, in particular Microsoft (NASDAQ:MSFT) and Caterpillar (NYSE:CAT). Echoing CAT's disappointing economic outlook was the reporting of durable goods orders in December, which unexpectedly dropped by 3.4% for the month after a decline of 2.1% in November. Consensus actually anticipated that durable goods orders would rise by 0.7% in the month. In the early session, there was another wave of economic data that, while fairly positive, was unable to negate the mass selloff.

    Firstly, last week's reading of the FHFA home price report showed about as much life as this morning's release on the S&P's Case-Shiller 20-City Composite Index. The seasonally adjusted index rose by 0.7% in November which matched October's revised figure. Gains were primarily concentrated in the South, the largest region, where Tampa (+1.8%) and Atlanta (+1.7%) showed the largest gains, while gains in the West were also strong, led by San Francisco (+1.1%). Even though monthly sales showed a fair amount of strength, the year-over-year rate edged lower to +4.3% (same for both the adjusted and unadjusted indexes). The rate has been on the decline since November 2013, but we note that the latest reading only made the index flat and could make a reversal to the upside soon. Overall, housing activity was flat, though for most of 2014, however, recent price data hints towards an upside bounce.

    Also on the housing front, new home sales were quite positive for the month of December. Sales jumped by 11.6% to a seasonally adjusted annual rate (SAAR) of 481,000 units. This was well above consensus' range of 445,000 to 470,000 units. Coupled with the Case-Shiller report, there is further evidence in the price appreciation of homes as the median home price jumped 2.2% month-over-month to $298,100, which is up 8.2% over December 2013. However, there was a 2.3% gain of homes on the market in December, leading to a supply of 219,000 units. The gain in homes drew down the supply relative to sales to 5.5 months versus 6.0 months in November. We note that this draw on the supply of homes available is a negative for January 2015 sales, but a positive for homebuilders as they will be needed to bring new homes to the market. On a regional basis, the biggest gainer was once again the South, which jumped 17.7% in December. The Northeast, which is the smallest region, also showed a gain while the Midwest and West showed declines. It looks like lower mortgage rates and improvement in the labor market may finally be giving the housing sector a boost. The chart below shows the number to new home sales relative to supply - which has been relatively consistent.

    Lastly, and probably the most surprising, was the Conference Board's reading on consumer confidence. For the month of January, confidence reached a new recovery best of 102.9, well above the consensus range of 93.5 to 100.0. Gains could be found across most components of the reading, including a 12.7 point surge in the present component to 112.6. Additionally, the jobs-hard-to-get subcomponent showed noteworthy strength in the January jobs market, down 1.6 percentage points to 25.7% which is a positive indication for the monthly employment report. The expectations component, which is probably the most important reading on a day like today, rose 7.9 points in January to come in at 96.4, driven in particular by expected higher income. We note that strength in the expectations for future income points to a combination of strength in the jobs market, the stock market, and also the positive effect of lower gas prices. An additional positive point was the jump in vehicle buying plans for the month, which is another indication of strong confidence in the near term. In the end though, the positive spirit of the consumer has not been reflected in their buying activity, and this is what needs to improve for economic stability.

    Jan 27 1:44 PM | Link | Comment!
  • Texas Slowdown Just Starting - By Jennifer Coombs

    After opening the session rather deep in the red, the major equity indices have since reversed to the upside and are testing positive territory again. As expected, Greece's anti-austerity Syriza party has taken 36% of the vote in the country's general election, about 8% more than the governing conservatives. This raises some concern about the stability of the euro, which ended up dropping to as low as 1.1098 against the US dollar in the morning hours- an 11-year low. In addition, the price of oil dropped back below $45 overnight, but has since recovered in this market. As the East Coast braces for tomorrow's massive blizzard, volumes continue to be rather light. Although economic data will pick up later in the week, there was only one major domestic release today.

    The Dallas Federal Reserve released its manufacturing data for the month of January, and it told much of the same story as the Empire State and Philly Fed releases. Factory activity in Texas was flat for the month, with the production index coming in at 0.7. The production index is a key measure of the manufacturing conditions in the state, and this reading essentially noted that output was unchanged from December. Other measurements reflected sluggish activity during the month; the utilization index dropped to a reading of 5.1, the lowest in five months, and the shipments index dropped from 20.8 to 6.0. New orders also moved lower from 2.7 to -7.7 for the first negative reading in new orders since April 2013. Perceptions of business conditions worsened in the month, with both the general business index (-4.4) and the company outlook index (-3.8) dropping below 0 for the first time in 20 readings. The employment index was 9.0 in January, slightly below December's reading, but close to its average reading over the past two years. In fact, 20% of firms reported net hiring compared with 11% reporting net layoffs. Given the shutdown of many oil rigs and refineries expected in Texas over the coming months, we can expect these numbers to change for the worst next month as well.

    Jan 26 1:45 PM | Link | Comment!
  • Strange Love And The End Of The World By Charles Payne

    The conflicting messages from Wall Street and the end of the world collided yesterday.

    Wall Street's Odd Way of Showing Love

    Virtually, all firms on the street are bullish in 2015 for a variety of reasons that include economic momentum, wage growth, an accommodative Fed (even a rate hike would be infinitesimal), and a strong dollar.

    Yet, every single day this year, there have been more stock downgrades than upgrades. In fact, year-to- date, it is almost a two to one ratio. This morning, the ratio was almost 4 to 1, with only 11 upgrades.

    Analyst Rating Changes

    Yesterday

    Year to Date

    Upgrades

    11

    377

    Downgrades

    41

    660

    I get that it is a lot harder now to find value than a few years ago. Compounding the problem is separating business potential, execution, and opportunities from the financial engineering of bottom lines and valuation metrics. I grapple with this as well. Moreover, the street is simply chasing performance, upgrading stocks like Netflix after a hundred-point pop and downgrading stocks like H&E Equipment after a 50% decline. (We are in both stocks; one on the hotline, and the other, on the newsletter service.)

    Investor Emotional Swings

    However, it is not just Wall Street, investors are also skittish. Now that the market is gaining traction, they are becoming more bearish and very quickly.

    Analyst Rating Changes

    % Emotion

    Change

    Bullish

    37.1

    -9

    Neutral

    32.1

    Unchanged

    Bearish

    30.8

    +9.3

    Then, there is the doomsday clock that was established by the guys who built the atomic bomb to warn when mankind will finally destroy himself; it moved a minute closer to midnight.

    This was its first move in three years; a big move to just three minutes to that fateful moment, because of WW III, climate change, modernization of nuclear weapons, and terrorism. The clock is something of a public relations tool for those over-anxious gearheads and the politically correct crowd.

    Doomsday on the Mediterranean

    There is a big election in Greece tomorrow. It might not have the impact it would have had a few years ago, even a few weeks ago, because the European Central Bank (ECB) will begin spreading cash throughout the continent, save skipping Greece for at least six months.

    The Greek people, already living under austerity from the good old days, in return for hundreds of billions in bailout money want to go back, and they simply do not care about the fallout. Look at the goodies Syriza is promising if they take power in Greece.

    Syriza Utopian Promises

    Free Electric

    Increased Food Stamps

    Free Universal Healthcare

    Free Public Transportation for Lower Incomes

    Increase Minimum Wage 751 Euro from 510 Euro

    Harder to Fire Workers & Strengthen Collective Bargaining

    Yes, reading that list was like reading President Obama's wish list and recipe for staying in power. However, this all comes with a hefty price tag. In Greece, the debt is 175% of the Gross Domestic Product (NYSE:GDP), and unemployment is at 25%, down from 28%.

    Today, our massive social programs and giveaways coupled with profligate spending, has sent our debt to a GDP ratio above 100%.

    People say all the time that debt is no big deal, and we can always pay the interest, but there's a not-so-curious correlation to our slowing GDP growth and mounting debt- look at these numbers.

    Debt and Death of Growth

    Debt 40 to 110% GDP

    Decade

    GDP Growth

    1960s

    8.2%

    1970s

    6.7%

    1980s

    7.8%

    1990s

    5.9%

    2000s

    4.8%

    2010s

    3.4%

    While a Syriza win would be upsetting, the world is not being held hostage anymore, but the cautionary tale continues, because unlike Greece, when America's day of reckoning comes, there are not enough printing presses in the world to save us.

    Today's Session

    The major equity indices indicated lower in the premarket. Today, Markit will release its manufacturing flash purchasing mangers' index (PMI) for the month of January. It is projected that the headline will come in at 54.0, which is slightly higher than the December flash reading of 53.7 and December final reading of 53.9. Afterwards, the National Association of Realtors will release the December existing home sales report. Housing reports out this week have been mostly positive and we hope today's report will echo improvement in the housing sector as well.

    Below are some of the major companies that reported yesterday afternoon and this morning.

    Company

    EPS

    Consensus

    Revenue ($M)

    EPS Guidance

    EPS Consensus

    COF

    1.73

    1.78

    $5,813

    -

    FY15

    ETFC

    0.26

    0.25

    $461

    -

    FY15

    ISRG

    4.92

    4.40

    $605

    -

    FY15

    SWKS

    1.26

    1.19

    $806

    Q2 1.12

    Q2 1.04

    SBUX

    0.80

    0.80

    $4,803

    FY15 3.09-3.13

    FY15 3.12

    BK

    0.58

    0.59

    $3,665

    -

    FY15 2.64

    GE

    0.56

    0.55

    $42,004

    FY15 1.70-1.80

    FY15 1.76

    HON

    1.43

    1.42

    $10,266

    FY15 5.95-6.15

    FY15 6.11

    KSU

    1.27

    1.23

    $643

    -

    FY15 5.48

    KMB

    1.35

    1.37

    $4,828

    FY15 5.60-5.80

    FY15 6.00

    MCD

    1.22

    1.23

    $6,572

    -

    FY15 5.38

    Jan 23 10:14 AM | Link | Comment!
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