The Answer Is No

Daily State of the Markets 
Wednesday Morning – January 19, 2011  

Yesterday, we wondered if the news of Steve Jobs’ medical leave from the maker of all things cool might be ‘that something’ the bears have been searching for in order to get back in the game (if only for a day or three). In short, the answer is no. While the market in general and Apple (AAPL) in particular started off in the red, it wasn’t long before the dip-buyers began falling all over each other trying to snatch up a bargain.

While we’ve seen comebacks in the market a time or two over the past six months and it has become apparent that there are many analysts around the world looking for big things in the U.S. stock market this year, the action in Apple yesterday was nothing short of remarkable. For the second time recent memory, Apple’s CEO said he was taking time off to try in order to seek treatment for his rare form of cancer. Traders in Europe assumed that with Apple having gained a nifty +208% since 2009, a quick pullback of 5- 6% or so would be in order. But apparently investors in the U.S. would have none of it.

Despite the fact that the market has enjoyed a stellar run since September 1st and Apple itself has tacked on more than $100 (+43.7%) to its share price, no one on Wall Street said sell. No one on Wall Street said take a little something off of the table. Not a single firm downgraded the stock or took their estimates down for the coming quarter. Nobody talked about a future of Apple without Mr. Jobs. And when asked the question that was asked of every guest on every show Tuesday – Would you buy AAPL here? – the answer, without exception (or hesitation) was, yes.

While you might not know it given the move from $85 to nearly $350 in a little over two years, apparently Apple is selling at a P/E multiple that is at the low range of its historical range. And given that the company prints money faster than almost anyone save the U.S. Central Bank, this actually makes sense. Exhibit A in this argument is the fact that the maker of all things “i” once again blew away even the most optimistic forecasts for the current quarter. Thus, as long as people continue to clamor for the pods, pads, tunes, and phones made by Apple (oops, I almost forgot, the company also makes a computer or two), apparently investors will continue to buy each and every dip in the stock.

While it would be hard to sing the same tune regarding the overall state of the stock market in the U.S. it might be okay to hum along. While there was some negative news over the long weekend, the fact that the economic data continues to show improvement is not lost on investors. And from where I sit, the numbers from what is called the “Master Trusts” of the banks issuing credit cards tells a story of a consumer on the mend.

Having spent the better part of three years “deleveraging,” the U.S. consumer appears to be getting a better handle on their debt. No, I am not saying everything is hunky dory at home as the 401(K) plans still have big dents in them and the house value remains a problem. But for those looking for a replay of the Credit Crisis, the net charge-off numbers from American Express (AXP), Bank of America (BAC), Citi (C), Capital One (COF), Discover (DFS), and JPMorgan Chase (JPM) would argue against it as this data continues to improve each and every month.

So, there you have it. With bonds overvalued, the likes of the Chinese Central Bankers ruining the fun in the emerging markets, gold beginning to lose its luster, and real estate still falling under the “10-foot pole rule” (as in “I wouldn’t touch it with a”), it appears that investors are looking to the U.S. stock market this year. And as long as this is the game that is being played, then the answer to the question “Is a 10% correction close at hand?” is, well, no.

Turning to this morning… Traders are attempting to digest conflicting earnings reports from the likes of IBM, Apple, and Goldman Sachs. Futures are looking to open slightly higher at the present time.

On the Economic front… Housing Starts fell by 4.3% in December to an annualized rate of 529K. This was below the consensus for 552K. In addition, the November numbers were revised lower to an annualized rate of 553K from 555K.

Building Permits for December rose to 560K. This was above the consensus of 553K and last month’s reading of 544K. The bottom line is there continues to be an overhang of inventory in the U.S. housing market.

Thought for the day: Regardless of the colors on the screens, make the decision to have a great day…

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell…

• Major Foreign Markets:
  • Australia: +0.66%
  • Shanghai: +1.86%
  • Hong Kong: +1.10%
  • Japan: +0.36%
  • France: +0.17%
  • Germany: +0.11%
  • London: -0.15%

   

• Crude Oil Futures: + $0.65 to $92.03
• Gold: + $4.30 to $1372.50
• Dollar: higher against the Yen, lower vs Pound and Euro
• 10-Year Bond Yield: Currently trading at 3.355%

   

• Stocks Futures Ahead of Open in U.S. (relative to fair value): 
  • S&P 500: +0.50
  • Dow Jones Industrial Average: +20
  • NASDAQ Composite: +4.46

Wall Street Research Summary

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