Weekly Markets Review 04-02-2010

April 2, 2010

“Those who have a ‘why’ to live can bear with almost any ‘how’.” –Victor Frankl
Major market indices finished higher this week. The DJIA rose 0.79%, and S&P 500 rose 1.06%, and the Nasdaq rose 0.22%. Growth outperformed value and the small cap index gained 0.75%. The 10-Treasury yield lost 2 basis points on the week, closing at 3.87%.
Despite the 6% move for the major U.S. indexes this year, sentiment remains morose and skittish as investors appear willing to listen to any story that comes along. The most recent sentiment poll by the American Association of Individual Investors showed only 41% bulls. Cash flows at mutual funds that invest in U.S. equities tell a similar tale with a $5.1 billion monthly outflow in the most recent data.
Who can blame a person for being anxious, though. With high deficits, persistent unemployment, more taxes on the way, and Europe torn by old jealousies and new debts.
Yet as we go into the new quarter, we need to keep focused on data that reveals the balance between the demand for stocks and the supply. And that continues to be positive -- even in beleaguered Europe. Companies, pension funds and individuals have long-dated needs that need to be matched up with long-dated assets, and bonds paying 1.5% to 3% just don't cut it. So slowly but surely they are dipping back into equities kicking and screaming, much as they did in 1991-1992 following the recession and bear market in 1990. Stay tuned…
Equity Markets Review
* The U.S. economy has added 162,000 jobs in March, according to an April 2 report issued by the U.S. Bureau of Labor Statistics. The report also revised upwards previous estimates for January from down 26,000 to an additional 14,000, and for February, from down 36,000 to down 14,000.
* Russia likely will try to raise cash on capital markets in late April, AP reported March 31, citing Finance Minister Alexei Kudrin. This would mark the first time the country has borrowed since it defaulted 12 years ago. This year, the government faces a budget deficit expected to reach 6.4 percent of gross domestic product. Kudrin said officials would meet foreign investors in Asia, Europe and the United States during an April 21-22 promotional tour before placing Eurobonds. Russia also hired Barclays Capital, Citigroup, Credit Suisse Group and VTB Capital in February.
* Three data points released yesterday showed that while consumer and investor confidence have seen some minor gains, uncertainty still reigns. The ABC Consumer Comfort Index dropped one-point to -45. There was an increase in those rating the national economy positively, but positive ratings of personal finance slipped. Conference Board's Consumer Confidence Index came in at 52.5 vs. 51 expected and 46.4 prior, but "consumers continue to express concern about current business and labor market conditions. And, their outlook for the next six months is still rather pessimistic."
* China's consumer price index is due to rise 3.2 percent in 2010, Beijing Times reported Tuesday, citing an expert with the State Information Center. During June to July, a peak is expected, said the expert. There is a forecast of 11 percent growth for China's economy in the first quarter, about 10 percent in the second, and below 10 percent in the third and fourth quarters.
* Borders Group rocketed nearly 34% in after hours trading after announcing its Q4 earnings per share had risen to $0.91 from $0.48 the year before, and that it had secured new credit facilities of nearly $800M. Though its profit rose, helped in part by an income tax benefit and cost cuts, sales fell 13%. The company plans to put more emphasis on "growing market share by acquiring, engaging and retaining customers through a transformation of the Borders brand."
* A handful of companies made their market debuts, with most of the initial public offerings showing favorable results. Wireless network provider Meru Networks closed nearly 28% above its IPO price, while financial services software maker SS&C Technologies opened 6.7% above its IPO price (though it closed up only 0.5%). Primerica, Citigroup's life insurance unit, sold 21.4M shares instead of the 18M expected, and priced at $15 instead of the $12-14 expected. Crude oil and petroleum transporter Scorpio Tankers performed worse-than-expected, closing 3.4% below its IPO price.
* Blockbuster fell more than 10% again in trading Tuesday, to just $0.25, following Monday's announcement that it's not in compliance with NYSE listing requirements regarding minimum market value. Blockbuster, which earlier this month said it may need to file for bankruptcy, plans to submit a plan to NYSE to demonstrate its ability to regain compliance within 18 months, and will ask shareholders to vote in May on a reverse stock split.
* Apple is producing new iPhones for summer, The Wall Street Journal reports, including a phone based on CDMA, the wireless technology used by such competitors to AT&T as Verizon Wireless and Sprint . AT&T has had an exclusive carrier arrangement for the phone since its 2007 launch. Various rumors have Apple producing an "iPhone HD" with a custom processor, multitasking support and a front-facing camera.
* Cisco Systems cleared its last hurdles in a $3.4B acquisition of Norway's Tandberg, securing approvals from the EU and the Justice Department. Cisco had to divest itself of a "telepresence" standard the company made for interoperability with competitors. Separately, Cisco said it secured its biggest telepresence deal, with Bank of America agreeing to buy 200 units.
Weekly Sector Review
The sectors of the U.S. economy, as well as the S&P 500, have performed as follows:
Last Week’s Returns:
Information Technology… (0.03)%
Materials… 2.39
Consumer Staples… 0.61
Utilities… 2.01
Consumer Discretionary… (0.04)
Financials… 0.55
S&P 500… 1.06
Industrials… 1.06
Healthcare… 1.16
Telecommunications… 0.87
Energy… 3.83
Sports, Culture & Politics
* U.S. President Barack Obama will announce plans on March 31 to open sections of the eastern Gulf of Mexico and an area off the Virginia coast for oil and natural gas drilling, CNN reported. These measures, designed to boost domestic energy production and promote clean energy innovation and independence, include lifting a 20-year ban on drilling off the Virginia coastline and clamping down on approved sites off the coast of Alaska.
* An Iranian nuclear scientist, who disappeared last year under mysterious circumstances, defected to the CIA and was resettled in the United States, ABC News reported March 31. Officials called the defection of scientist Shahram Amiri "an intelligence coup." Amiri's disappearance was said to be part of a long-planned CIA operation to get him to defect. The CIA reportedly approached the scientist in Iran through an intermediary who made an offer of U.S. resettlement. The CIA debriefed Amiri since his defection. Amiri reportedly helped to confirm U.S. intelligence assessments about the Iranian nuclear program.
* U.S. President Barack Obama said he will keep "turning up the pressure" on Iran, CBS News reported April 2. Obama said all evidence points to Iran trying to develop the capability for nuclear weapons and that if they attain that capability it will destabilize the entire region. He said Iran is becoming further isolated, which will have an effect on its economy.
* The Taliban are preparing for a fight with U.S.-led troops in Kandahar province, with plans to plant mines when an offensive begins, Afghan Islamic Press reported April 2, citing a Taliban spokesman. Meanwhile, Afghan officials said the Taliban have already begun planting mines in roads, Pajhwok Afghan News reported.
* The Obama administration will announce a new screening system for flights to the United States under which passengers who fit an intelligence profile of potential terrorists will be searched before boarding their flight, the LA Times reported April 2. Under the new system, passengers on flights from all countries could be subject to special screening before boarding if they have personal characteristics that match the latest intelligence information about potential attackers, according to a senior administration official. This is a more effective system that is "tailored to optimize the ability to interdict would-be terrorists," the senior official said.
* The government of Afghanistan is investigating reports of Iran's assistance to the Taliban, Tolo TV reported April 2. The Afghan Ministry of Foreign Affairs stated that although the Afghan government enjoys friendly ties with Iran, it started investigations into reports of Tehran's military assistance to the Taliban. The chairman of the U.S. Joint Chiefs of Staff Admiral Mike Mullen said Iran sent arms consignments to Kandahar Province.
* Iranian nuclear negotiator Said Jalili is expected to travel to China April 1 at the invitation of Chinese State Councilor Dai Bingguo. The Chinese government has ambiguously softened its rhetoric opposing sanctions against Iran in recent weeks, spreading fear in Tehran that Chinese diplomatic support was slipping. At the same time, China and the United States are in an intensifying trade spat over rising U.S. criticism of China's currency policy. China can thus use its relations with Iran, as it appears to be doing in inviting Jalili for a visit, to try and influence its trade negotiations with the United States. If Washington continues to push hard in pressuring Beijing to revalue the yuan, China will highlight its diplomatic support for Iran and signal to the United States that it can continue to undermine U.S. sanctions efforts. If Washington eases up on pressuring Beijing in this trade dispute, China could also reciprocate by entertaining sanctions. The United States has already backed away from "crippling" energy sanctions on Iran, and is instead pursuing a lesser sanctions regime in the hopes of getting U.N. Security Council members like China on board. But the move has had an unintended effect, taking the urgency out of the sanctions push, and giving China more room to maneuver on the issue. Iran is now taking the opportunity to exploit this current phase of U.S.-Chinese trade tensions to firm up its relationship with Beijing and fracture U.S. attempts to build a sanctions coalition.
* Change is Not New... Thomas Sowell...

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