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Daily State of the Markets |
Good morning. Uncertainty and conflicting reports out of Dubai made it an up and down session on Wall Street yesterday. However, at the end of the day, fear of a debt contagion had subsided and a couple of better than expected economic reports won out as the bulls were able to hold an important line in the sand.
Although there was a lot more than the Dubai story happening yesterday, the question of whether or not the debt mess in Dubai would spread to other countries has been a major focal point since last Wednesday when Dubai World, the quasi state-run real estate firm, announced it wanted to take a timeout on the payment of its $59 billion in debts.
The situation appeared to take a turn for the better on Sunday when the central bank said it would provide an additional liquidity facility and that it stood behind the banks in the Dubai. This vote of confidence gave Asian markets a shot in the arm and rallies ensued in the Pacific Rim. However, when Dubai announced Monday morning that it was not responsible for Dubai World’s debts, the European markets took a turn for the worse.
But in the big picture, it quickly became apparent that Abu Dhabi and the Dubai government were not going to stand idly by and let the situation get out of hand. So, by the time the U.S. markets opened, the panic seen late last week had subsided and traders appeared ready to turn their attention elsewhere.
Thus, when the Chicago Purchasing Managers reported that their index rose to 56.1 in November, which was both above expectations for a pullback to 53 and above last month’s reading of 54.2, traders quickly returned their focus to the state of the economy here at home. Traders apparently liked what they saw as all nine regional surveys including Milwaukee, Cincinnati, Texas and New York indicated growth, providing confirmation of a widespread recovery in manufacturing.
The good news on the economy sparked some buying, some short-covering, and perhaps a little end-of-month window dressing as the Dow quickly moved to the high of the day with a gain of 55 points by about 10:30 eastern. But then all of a sudden, stocks started to dive and within 30 minutes had declined more than 80 points.
The reason for the sudden reversal seemed to be tied to the announcement that the NY Fed was going to begin testing an operation called reverse repo’s. The move was not really a surprise and although the NY Fed made it clear that the move did not represent a change in policy, the fact that the Fed’s exit strategy was even being discussed seemed to unnerve traders as the dollar rallied in response.
Another source of discontent during the middle of the day seemed to be tied to disappointment over the fact that the average spend on Black Friday was a bit below last year’s. However, with word soon coming out that Cyber Monday was a big hit with shoppers, it didn’t take long for traders to return to a festive mood and push stocks higher on the day. So, by the time the closing bell rang, everybody was happy and the line in the sand on the charts had held.
Turning to this morning, we do not have any economic data due to be released before the bell but we will get reports on October Pending Home Sales, November ISM Manufacturing, and October Construction Spending – all at 10:00am.
Running through the rest of the pre-game indicators, the foreign markets are up nicely across the board with European bourses up nearly 2%. Crude futures are higher with the latest quote showing oil trading up by $0.94 to $78.22. On the interest rate front, we’ve got the yield on the 10-yr trading at 3.23%, while the yield on the 3-month T-Bill is currently at 0.05%. In addition, gold is up $11.40 and the dollar is weaker against the Yen, Euro, and Pound. Finally, with about 45 minutes before the bell, stock futures in the U.S. are pointing to green screens at the open. The Dow futures are currently ahead by about 67 points; the S&P’s are up about 9 points, while the NASDAQ looks to be about 15 points above fair value at the moment.
Wall Street Research Summary
Upgrades:
United Technologies (UTX) – Target increased at Bernstein BB&T Corp (BBT) – Citi Fifth Third (FITB) – Citi Eli Lilly (LLY) – Removed from Conviction Sell list at Goldman JP Morgan (JPM) – Added Conviction Buy at Goldman Bank of America (BAC) – Added Conviction Buy at Goldman Capital One (COF) – Added Conviction Buy at Goldman US Bancorp (USB) – Estimates increased at JP Morgan Mentor Graphics (MENT) – JP Morgan Watsco (ESO) – Piper Jaffray Limited Brands (LTD) – Soleil Securities Cummins (CMI) – Estimates increased at UBS
Abbott Labs (ABT) – Removed from Conviction Buy list at Goldman Netflix (NFLX) – Merriman Curhan Ford Church & Dwight (CHD) – RBC Capital
Long positions in stocks mentioned: GS
Try smiling at everyone you meet today and until next time, “may the bulls be with you!”
David D. Moenning
Founder TopStockPortfolios.com
For more “top stock” portfolios and research, visit TopStockPortfolios.com
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