2011-01-24 Market Recap
U.S. stocks gained ground on another Merger Monday and as Intel’s board authorized a higher dividend payout and a dramatic increase to their latest buyback program. The Dow made a charge to the 12K mark, and the S&P 500 moved closer to 1300.
The merger of the day came when Smurfit-Stone agreed to be purchased by paper/container packaging company Rock-Tenn. Rock-Tenn paid close to a 30% premium to Smurfit’s closing price on Friday.
On the Intel news, I would have liked to see a bigger increase in the dividend (they’ve got the yield up to 3.40%, but a higher payout ratio that gets that yield to 4% is probably what’s needed to get stock back above $24/share). The company apparently sees a buyback as more important as they know EPS comps are going to be really tough to beat as we move into the second-half of the year.
Tech, industrials and basic material (ended a three-session slump) shares led the broad market higher. Financials and health care were the only of the major 10 industry groups to close down for the session.
Well, we heard that refrain again. You know, the one I’ve been ripping on for some time now: “The U.S. dollar gained ground on the improved growth outlook.” The financial press pulled this comment-card out again as the greenback was rallying a bit yesterday morning. Well, around lunchtime the outlook must have deteriorated rather abruptly as the dollar quickly reversed course to go negative for the session.
Seriously though, the near term outlook didn’t suddenly change midday; the belief that the outlook for U.S. economic activity is driving the dollar is simply without merit as the greenback is down 11.5% since June – exactly the time period in which the growth outlook improved. No, the dollar’s direction is completely a function of what the euro is doing these days, which erased losses midday. The dollar will continue to be driven by the euro until the next scare comes along and everyone moves back to the greenback Once the economy proves activity is self-sustaining and doesn’t need the latest iteration of fiscal stimulus or an unprecedentedly easy monetary policy (which cannot be proven until policymakers stop stuffing short-term stimulus in our collective face) the dollar’s direction will again be driven by the economic outlook but not before.
And on that turn in the euro, it seemed to come from comments from ECB President JC Trichet when he reiterated the central bank will be vigilante on inflation. This appears to be more talk than anything as the ECB probably has its hands tied due to the eurozone’s government debt and financial system woes. The comments are no more believable than if our own Fed stated they’d voluntarily change course with the unemployment rate close to 10%. But this topic is better left for another day.
Sector Activity for January 24, 2011
Index | Day Change | YTD |
Consumer Discretionary | +0.55% | 1.50% |
Consumer Staples | +0.39% | 0.54% |
Energy | +0.23% | 3.68% |
Financials | -0.09% | 3.13% |
Health Care | -0.03% | 2.06% |
Industrials | +1.00% | 4.32% |
Information Tech | +1.55% | 4.55% |
Basic Materials | +1.02% | -1.64% |
Telecoms | +0.63% | -2.86% |
Utilities | +0.53% | 2.48% |
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