A year ago, I highlighted the fast casual restaurant segment favorably, suggesting these chains would benefit from falling input costs and a slowdown in expansion. Most of the stocks mentioned are higher today despite the overall market being down. I followed that article up a few days later with a explanation of why I bought BJ's Restaurants (BJRI), which turned out to be a real winner. While most of the stocks mentioned are up, the path wasn't so straight, as all of these stocks were hammered in the October massacre. I had alluded to the too-high debt levels of many of these companies, and those were the[More...]
Late on Monday, Air Transport Services Group Inc. (NASDAQ: ATSG) said that it swung to a fourth-quarter loss of $64.2 million, or $1.03 a share, compared with net income of $8.4 million, or 14 cents a share, in the year-ago period.[More...]
Our Wall Street week ahead article has been engineered to serve as a reference you can look back upon all week long to keep ahead of the economic and corporate news flow.
After last week's
geopolitical news flow domination, this week offers several individual themes for each specific day. The President's week, however, will be geared toward preparing the Middle East for the near-term therapy he likely has in mind for Iran. He'll be sure to mix that into the conversation with his Israeli counterpart in between the fireworks and the champagne, as Israel celebrates its 60 year anniversary. Five decades have passed, and not a peaceful day among them it seems.
A Choice This Time. But Which One is Really Correct?
Between John McCain and apparently Barak Obama, it looks like Americans might have a distinct choice to make about Middle Eastern policy. But, is there really a choice, because we suspect the scenario playing itself out will not allow much free play between potential presidential actions. Also, McCain's experience with war, and his wisdom, might actually lead him to make the better-advised decisions. Anyway, we expect GW and Israel to make the important Iranian decision
for the incoming president, so it's a non-factor.
Guess what,
The Greek, now an Independent with Republican leanings, is actually bending toward McCain, despite our concern that he may have war in his genes at this point. Obama may promise change, but we remain concerned with the risk related to
not dealing with Iran now. Change for a peaceful future is a great ideology, but
Iran is too far progressed for us to bank on its changing its present direction.
In an ironic twist, it turns out McCain is actually less ballistic than Hillary Clinton. Jest we may, but we completely agree with Hillary's position on Iran. The threat of annihilation is not taken seriously in Iran, and it plainly exists. So, if we would do it, we need them to know we would. That might just prevent the next 9/11, which could be a thousand times worse than the
wake up call of nearly seven years ago.
As the market continues to wrestle with whether the worst is really over, or the flow of financial reports with ongoing asset write-downs and continued share dilution signal a need to discount stocks further, let's take a look at the week ahead.
The Week Ahead
What happens to stocks this week will likely have as much to do with how
geopolitical issues develop as it will with economic data flow. However, there are three key economic reports that could still have an impact.
Monday - Theme-less
A dearth of economic data greets investors on Monday. Lending to the abyss of information, markets in Hong Kong, South Korea and parts of Europe, including France and Germany, will be closed due to religious holidays.
Tuesday's theme is certainly consumer spending, with a focus on retail. As usual, the International Council of Shopping Centers starts the day off with its weekly same-store sales report. Remember, last week surprised us with its further improvement that we speculated was likely weather related since the week-to-week change was far different than the year-over-year improvement. Looking back, year-over-year growth of 2.3% compared to a week-to-week
decline of 0.2%. Therefore, we would expect this week's year-to-year change to prove more cohesive with recent strife in the space.
Well, at 8:30 our speculation will no longer be necessary, as April's aggregate retail sales are reported. Bloomberg's consensus of economists forecasts a month-to-month decrease of 0.1%, and a 0.3% increase when excluding autos. In March, sales including autos increased 0.2%, rising 0.1% without.
Last week, individual retailers noted chain store sales, and
"the cheaper the better" theme played on. Discounters like Wal-Mart (
NYSE: WMT), Costco (
Nasdaq: COST) and TJX Cos. (
NYSE: TJX) continued to outperform department stores and mall-based retailers like JC Penney (
NYSE: JCP), Nordstrom (
NYSE: JWN), The Limited (
NYSE: LTD) and The Gap (
NYSE: GPS).
We hope you noted that
"The Greek" beat the much more famous and well-paid Bob Dole on The Gap call. When Bob recommended GPS recently on CNBC, we came out critical of the pick. Seems to us Bob's wife must be shopping at an extraordinary location atypical of GPS' overall game.
Import and Export Prices are set for 8:30 a.m. release, with consensus expectations looking for an April increase in import prices of 1.7%. Energy pricing always plays a big role here, and we see no exception this time around, or the next for that matter.
March Business Inventories are scheduled for 10:00, with expectations for a 0.5% increase. That's slightly less than in recent months, but remember, it's not inventories in isolation that matter, but inventories-to-sales. Wholesale inventories were reported last week, and they decreased 0.1%, which was good to see.
Presidential primaries run off in West Virginia and Nebraska. Finally, Fed men Ben Bernanke and Richard Fisher are scheduled to find microphone's on Tuesday, and that's always fun!
Wednesday's theme is "inflation" with important consumer price and oil information on tap. The Consumer Price Index (CPI) for the month of April is expected to show prices increased 0.3% on the headline, month-to-month, and 0.2% on Core CPI, or after subtracting out food and energy price change (delusional CPI might be more like it). This month's forecast perfectly matches last month's actual change, and I guess lack of deterioration is a good thing?.. Bernanke keeps telling us prices will moderate though.
EIA Petroleum Status is on tap for 10:30 release, and last week noted a build of 5.7 million barrels of oil inventory. What's more important this week is if Hezbollah backs off in Lebanon, if The Wall Street Journal report on Hugo Chavez's aid to Colombian rebels proves poorly researched, and if Iran decides to build wind farms instead of nuclear plants...
The Mortgage Bankers' Association is also on the slate as usual for Wednesday. Overseas, President Bush meets with his Israeli counterpart in Jerusalem, marking the 60th anniversary of the nation's founding.
Thursday's theme is as clear cut as the two days preceding it, the state of manufacturing. Three separate reports will offer plenty of insight into how the guys who make things are doing. Leading off, the New York Federal Reserve will post its Empire State Manufacturing Survey for May at 8:30. The take on New York area manufacturing looks to show a state of limbo, with Bloomberg's consensus seeing a measure of 0.0, versus +0.6 last month.
In what looks to be a real treat, Industrial Production and the Philly Fed will follow that report up all before you've had your second cup of coffee (I know some of you will be on the third!). Consensus expectations for Philly area manufacturing see a reading of -20.0, compared to last month's -24.9. It's kind of sad really, the clarity in the fact that these expectations are most dependent upon the prior month result, rather than any solid gauge. Of course, the past is often the best forecaster of the near-term future, but I'm very sure from experience, that human weakness is at play here as well, and that's disappointing.
April Industrial Production is set for 9:15 reporting. Production is forecast to decrease 0.3%, compared to an increase of 0.3% in March. Capacity utilization is seen deteriorating to 80.1%, from 80.5%. The direction makes sense, but the intensity might be off; or could international demand for U.S. goods be enough to offset domestic softness in both durables and nondurables. The gauntlet has been tossed.
The auto industry has not been shy about posting cutbacks in production and noting its relevance to current demand. We've seen such moves from General Motors (
NYSE: GM), and Ford (
NYSE: F) is rumored to be considering putting its old Mercury line to bed. We say, good riddance! Companies should not fall in love with product lines, just as investors should not fall in love with stocks.
Thursday proves to be a busy day, with the regular Initial Weekly Jobless Claims Report also set for the early AM. This one almost religiously sees forecasts matched with prior week results, and almost always proves significantly off that estimate. Economists are looking for new benefits claims to have numbered 370,000 this week; that compares to 365K last week.
Treasury International Capital is also due before the market open. Foreign demand for long-term U.S. securities increased last month to $72.5 billion. The EIA reports on Natural Gas storage at its usual 10:30 a.m. time, just a week after Goldman Sachs (
NYSE: GS) added it to its list of energy spikes to fear in the future. Finally, in the afternoon, the National Association of Home Builders will release its Housing Market Index. As you might imagine, this has not offered a party atmosphere of late, and measured 20 at last reading, and through most of this year. Chairman Bernanke will also appear in Chicago, to discuss banking and credit market turmoil. Have some wine with that buffet of information.
After taking a breath following a busy Thursday, Friday offers a couple key data points. Housing is the theme for Friday. Treasury Secretary Paulson is scheduled to talk to few Congressmen on the topic in Washington. Recall, there's a bill working its way through Congress that the president has threatened to veto. Meanwhile, economists expect housing starts moderated even further, to a pace of 940,000 in April, from 947K in March.
The University of Michigan will update its Consumer Sentiment Index for May, and economists are looking for a still drab 62.5 measure. April sentiment was a robust 63.2 (that's sarcasm, we do that here on occasion).
While President Bush closes out his Middle Eastern themed week, some 60 government leaders have a nice weekend planned in Peru. We're looking forward to a possible round 2 between the royals of Spain and Hugo Chavez, or perhaps, a steel cage match between Chavez and the head of Colombia. You know they make unique bow ties over there...
Friday's earnings include Abercrombie & Fitch (
NYSE: ANF), Fairpoint Communications (
NYSE: FRP), Multi-Color Corp. (
Nasdaq: LABL) and Pinnacle Gas Resources (
Nasdaq: PINN). Please find our market commentary all week long at the site.
Please see our disclosure at the Wall Street Greek website.
One has to wonder what exactly turned the stock market around last week, while at the same time slapping some sense into the dollar and shooting down commodities like geese in open season? A lot happened last week, so it's not so easy to discern which factor was most important in driving change. We had many variables in play that ranged from the so-called bailout of Bear Stearns (NYSE: BSC); to the Fed's opening of its coffers for the I-banks; to the easing of restrictions on Fannie (NYSE: FNM) and Freddie (NYSE: FRE); to the 75 basis point rate cut. But could it be that all, or possibly none of these factors actually drove the change in market sentiment???
Bear bailout...
We are quite sure Bear Stearns employees have a few other choice words to describe the deal that left them high and dry, and for many, unemployed. The Fed brokered, or was it strong-armed, Bear's managers into settling for $2 a share in exchange for JP Morgan Chase's (NYSE: JPM) acceptance of Bears' risk (kind of). Nice guys, those fellas at JPM are... Oh, and by the way, they also got some $60 to $80 of book value, insured by the Fed.
While it's easy to rip the deal now, if the Fed let Monday start without one, Bear Stearns might not exist today, not even at $2. Bear's mistake was in not moving its Thursday scheduled earnings report up to the Friday before it's demise. Still, Monday morning should have been soon enough to appease the market's concern; unfortunately it was not soon enough to appease the Fed's.
After Bear's competitors all reported better than expected numbers last week, and Bear basically pulled its report from the board, it seems plainly obvious that BSC would also have had uplifting news to note. Apparently, this information is now insignificant, or would that be embarrassing, to report posting selling out for next to nothing...
Was it Fed action, or its limited ability to take future action that helped stocks and the dollar, and hurt commodities?
As the Federal Open Market Committee cut the fed funds interest rate 75 basis points, to 2.25%, it became plainly obvious there’s only so much the Fed can do before it runs out of gunpowder. Is it possible, however, that the stock market viewed that reality as a good thing. Maybe the stock market's rise displayed its satisfaction with the fact that there’s only so much more damage the Federal Reserve can do to the dollar going forward.
While the government, from all its facets, desperately worked to spur the election-year economy, stocks came back to life last week at the expense of newly rich commodities. The dollar also regained some serious lost ground by the close of trading on Friday.
Yet another possibility exists as to why this occurred. Perhaps the Fed’s words also scared some trigger happy, profit-rich investors out of commodity plays at the end of last week. The FOMC Policy Statement published last Tuesday contained this prescient notation, “The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization.”
Stocks got a noticeable lift on Tuesday, before giving back ground on Wednesday. By Thursday, however, the dollar was surefooted and strengthening, stocks rising and commodities crashing. The Dow Industrials closed the week up 3.4%. After first weakening sharply, the dollar strengthened to finish the week at 1.54 euros. Gold and oil closed the period well off where they started it.
Or, maybe none of the aforementioned factors drove the change, or all of them combined. Plenty of cash has built up on the sidelines, as noted by a Barron's article this weekend. The panicked public has stored some $3.45 trillion in money-market funds, and that compares to $2.2 trillion stashed away at the market low of March 2003. Plenty of capital was also piled up in the commodity market, so when catalyst came forth, money started moving into better balance (read back into equities).
The Week Ahead
The last week of March offers little in the form of market-moving economic events, and mostly wraps up prior reports with final update.
We took a look at a recent forecast published by the National Association of Home Builders. The group is projecting a bottoming of housing starts this year, with modest improvement in 2009. The group interestingly forecasts the fed funds rate to average 2.17% in 2008, and that would seem to imply their view that the Fed should be near finished in its expansionary rate action.
The group's fed funds rate projection for 2009, however, looks flawed to us, as it forecasts a rate of 2.13%. At first sign of economic stability, we expect the Fed to quickly hike rates to combat inflation. Thus, we would look for a higher average fed funds rate in 2009 than in 2008. Recall the Economic Fishtail of a monetary policy we anticipate Bernanke and Mishkin are planning, as per their own discussion in white papers and consistent with current inflation concerns.
Monday
We will get some indication of the current housing situation when February’s Existing Home Sales Report hits the wire on Monday and when New Home Sales are reported on Wednesday. Bloomberg’s consensus sees the annual pace of existing home sales running at 4.85 million in February, compared to 4.89 million in January.
The week ahead holds a few noteworthy earnings reports including Monday's news from 3Com (Nasdaq: COMS), Tiffany & Co. (NYSE: TIF), Walgreen (NYSE: WAG), A.C. Moore Arts & Crafts (Nasdaq: ACMR), Feldman Mall Properties (NYSE: FMP), Hastings Entertainment (Nasdaq: HAST), Inplay Technologies (Nasdaq: NPLA), Phillips-Van Heusen (NYSE: PVH), Radnet Inc. (Nasdaq: RDNT), Sonic (Nasdaq: SONC), Universal Power Group (AMEX: UPG) and a few more.
Tuesday
The state of the consumer will receive another check up this week, as the Conference Board’s Consumer Confidence Index is reported on Tuesday and the University of Michigan’s Consumer Sentiment Index reaches the wire on Friday. Bloomberg’s consensus is looking for a reading of 73.0 for the Conference Board measure, down from 75.0 in February. The ICSC will also weigh in with its weekly take on same-store sales. Last week's figure offered 1.6% sales growth, year over year.
Tuesday's earnings include Fortress Investment Group, LLC (NYSE: FIG), Jabil Circuit (NYSE: JBL), Yamana Gold (NYSE: AUY), ACME Communications (Nasdaq: ACME), Aehr Test Systems (Nasdaq: AEHR), American Medical Alert (Nasdaq: AMAC), Blyth (NYSE: BTH), Casual Male Retail Group (Nasdaq: CMRG), China Netcom (NYSE: CN), Commercial Metals (NYSE: CMC), Compton Petroleum (NYSE: CMZ), Comstock Homebuilding (Nasdaq: CHCI), Comverge (Nasdaq: COMV), CPI Aerostructures (AMEX: CVU), FiberNet Telecom (Nasdaq: FTGX), FSI Int'l (Nasdaq: FSII), Hana Biosciences (Nasdaq: HNAB), Henan Zhongpin Food Share (Nasdaq: HOGS), Kirkland's (Nasdaq: KIRK), Neogen (Nasdaq: NEOG), SAIC, Inc. (NYSE: SAI), Targeted Genetics (Nasdaq: TGEN), ValueVision (Nasdaq: VVTV), WSP Holdings (NYSE: WH) and Zi Corp. (Nasdaq: ZICA).
Wednesday
Economists measured by Bloomberg expect February’s Durable Goods orders, scheduled for report on Wednesday, to increase 0.7% month-to-month. This compares with a sharp order decrease in January. Recall, because of widespread penetration of efficient just-in-time processes, orders and inventories now move on a dime and can show volatility when reported.
New Home sales are seen running at a rate of 575K in February, compared to 588K in January. While we are still analyzing winter data, spring is the most important season for housing. Still, the continuation of the decreasing sales trend in February should dim near-term hopes for the industry's shares. The S&P Case Shiller Home Price Index (Jan.) should not offer any good news either, as prices likely continued their slide.
Look for the regular mortgage activity and petroleum status reports on Wednesday morning. Petroleum inventory information should regain trading significance now that the loft is coming out of oil prices. Fed rate cut dissenter, Richard Fisher, is scheduled to find a microphone on Wednesday when he addresses a group in Texas.
Wednesday earnings include Deutsche Bank (NYSE: DB), Oracle (Nasdaq: ORCL), Paychex (Nasdaq: PAYX), Alloy (Nasdaq: ALOY), Antares Pharma (AMEX: AIS), Babcock & Brown Air (NYSE: FLY), Bluefly (Nasdaq: BFLY), China Sunergy (Nasdaq: CSUN), Citi Trends (Nasdaq: CTRN), CKE Restaurants (NYSE: CKR), Edap TMS (Nasdaq: EDAP), GenCorp (NYSE: GY), HearUSA (AMEX: EAR), Huaneng Power (NYSE: HNP), Pep Boys (NYSE: PBY), PFSweb (Nasdaq: PFSW), Resources Global Professionals (Nasdaq: RECN), Response Genetics (Nasdaq: RGDX), Robbins & Myers (NYSE: RBN), TRI-S Security (Nasdaq: TRIS) and XELR8 Holdings (AMEX: BZI).
Thursday
Thursday's final take on fourth quarter GDP is expected to still show an increase of just 0.6%. Weekly Initial Jobless Claims, a closely followed barometer of the labor situation, is seen drifting to 370K, from 378K reported this past week. February's reporting of aggregate corporate profits is due for release at 8:30 a.m., and the Natural Gas Report at 10:30.
Thursday's earnings include ConAgra Foods (NYSE: CAG), Lennar Corp. (NYSE: LEN), Red Hat (NYSE: RHT), Williams-Sonoma (NYSE: WSM), Accenture (NYSE: ACN), Apollo Group (Nasdaq: APOL), CNOOC Ltd. (NYSE: CEO), Chunghwa Telecom (NYSE: CHT), Coleman Cable (Nasdaq: CCIX), Conn's Inc. (Nasdaq: CONN), Dolan Media (NYSE: DM), DSW Inc. (NYSE: DSW), Eldorado Gold (AMEX: EGO), Elixir Gaming (AMEX: EGT), Finish Line (Nasdaq: FINL), Fred's (Nasdaq: FRED), Full House Resorts (AMEX: FLL), Gammon Gold (AMEX: GRS), Global Payments (NYSE: GPN), McCormack & Co. (NYSE: MKC), Movado (NYSE: MOV), Noble Int'l (Nasdaq: NOBL), P&F Industries (Nasdaq: PFIN), Restore Medical (Nasdaq: REST), Rubios Restaurant (Nasdaq: RUBO), Scholastic (Nasdaq: SCHL), Spectrum Control (Nasdaq: SPEC), Texas Industries (NYSE: TXI), The Wet Seal (Nasdaq: WTSLA), TIBCO Software (Nasdaq: TIBX), UTi Worldwide (Nasdaq: UTIW) and Xyratex (Nasdaq: XRTX).
Friday
Personal Income and Outlays are expected to show increases in February of 0.3% for income and 0.1% for spending. The PCE Deflator is expected to still measure hot (above 2.0% yr/yr), bringing inflation concerns back into focus.
Fed rate cut dissenter #2, Charles Plosser, will address a group overseas on Friday; all ears will be on Plosser, as we seek more detail on exactly what he's thinking. Considering the sudden drop in commodity prices last week, Friday’s Farm Prices Report should garner some attention. The Department of Agriculture releases its data at 3:00 p.m. The University of Michigan Consumer Sentiment Index is expected to read 70.0 for March, down from 70.8. Ironically, poor sentiment should help stock fuel for an eventual robust rally.
Friday's earnings reports include Coca-Cola Hellenic Bottling (NYSE: CCH), KB Home (NYSE: KBH), Centennial Communications (Nasdaq: CYCL), Centerstate Banks of FL (Nasdaq: CSFL), IAMGold (NYSE: IAG), Modtech Holdings (Nasdaq: MODT), North Pointe Holdings (Nasdaq: NPTE) and Steelcase (NYSE: SCS).
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