Individuals & Families

Resources & Education

Market View Daily

Text Size: Decrease Increase
Print
  • Producer Price Index overall falls due to energy prices
  • Core PPI up 0.1%
  • Bernanke to speak to Congressional committee this afternoon
  • Volcker to speak also
Each morning we post a PDF file of our daily comments on the right sidebar under Current & Past Issues. If you would like this emailed to your attention, please contact your Janney representative.
March 17, 2010

(Note that the data in today’s market statistical tables are as of mid-morning today)

Pre-opening futures again had a positive bias today on the heels of gains in overseas markets. At its current pace, the S&P 500 is on track to post its fifth-best best March results in the last 61 years.

The dollar was lower, which boosted price for crude oil and other commodities.

The Producer Price Index reportedly fell 0.6 percent overall, but the core rate was 0.1 percent higher, which matched the consensus estimate. The drop in the overall number largely was due to a decline in energy prices.

Hartford Financial Services (HIG) and Discover Financial Services (DFS) said that they plan to repay $4.6 billion received from the TARP. Hartford is selling new shares and borrowing money to help it redeem $3.4 billion in preferred shares. Discover said it has received approval to redeem the $1.2 billion of preferred stock that it issued to the Treasury.

General Motors said that it has a “reasonable chance” of being profitable this year. The firm also indicated a desire to do an initial public offering at some point.

The energy inventory report at 10:30 showed that crude supplies rose 1.01 million barrels, which was close to the estimated increase. Gasoline inventories fell 1.71 million barrels, which was a modestly steeper drop that expected, and distillate supplies fell 1.49 million, which was a slightly greater than anticipated drop.

A key element in today’s trading could come around 2 PM when Fed Chairman Ben Bernanke speaks to a Congressional panel. Paul Volcker is expected to speak today also.

Bernanke is expected to point out that it is important for the Fed to supervise banks of all sizes, which gives the Fed one of the tools needed to implement monetary policy. Bernanke’s prepared remarks were available relatively early today. The remarks suggested that Bernanke is not in favor of some of the provisions in Senator Dodd’s recently released financial reform legislation.

The market seemed to embrace the potential that the continued use of the phrase “extended period” in the policy statement implied that interest rates would remain very low for at least the next six months.

Aside from this the only other notable aspect of the Fed policy statement was a slight change in the FOMC’s description of the employment situation. Previously the Fed said “that the deterioration in the labor market is abating”. Yesterday, the employment reference was changed to “the labor market is stabilizing”.

The entire Fed policy statement is near the end of this report.

Ahead of the afternoon release of the policy statement the market generally was higher. After only a modest period of hesitation stocks moved toward the high of the day nearing the close. This was enough to take the S&P 500 comfortably above 1150. Early gains this morning moved the S&P to around 1164. There could be some hesitation in the 1070-1080 range, but beyond that reaching1200 or more appears to be likely.

While the market felt comfortable with the Fed’s position, there is discomfort about the situation in Greece, which remains in flux.

Harvard University professor and a previous White House economic advisor Martin Feldstein expressed a dim view of prospects for Greece to extricate itself easily from the nation’s current plight. Feldstein was quoted as saying that, ““The idea that Greece can go from a 12 percent deficit now to a 3 percent deficit two years from now seems fantasy.” Feldstein’s comments carried some credibility since he years ago warned of problems relating to the Euro. He added that, “The alternatives are to default in some way or to leave, (the EU) or both.”

For the time being, however, the market seems to be willing to put Greece behind it. The market also seems to be accepting the possibility that a healthcare bill will be shoved through Congress, although it is not yet assured that the legislation will be approved, even if a special procedural process might be employed could make passage easier than it otherwise would be. We continue to have major reservations about the wisdom of legislation passing now that could establish a bureaucracy that would be virtually impossible to disassemble should a healthcare program prove to be ineffective or far too costly.

The move above 1150 for the S&P 500 has cleared some overhead supply for the index, but there are some major names in the S&P and Dow that are bumping against resistance. There are enough issues facing this resistance that they could become a negative influence should they fail to clear that resistance soon.

The sum of all of this leaves us exactly where we have been relative to market expectations. Higher levels are likely but the progress getting there could face periodic interruptions. We continue to think that 1200 is a reasonable upside target and 1250 for the S&P 500 is possible.

The current winning streak for the major averages has lasted long enough that a pullback at any moment has to be considered.

The first major option and futures expiration for 2010 occurs this week. After that, however, institutional window dressing will become a factor, which should provide some upside support as money managers adjust to the higher market levels posted through the first quarter.

Please note that due to other obligations today’s Market View Daily will be the last for this week. Regular publication will resume next Monday.

Have a great day.

Additional items from Yesterday
While Nucor (NUE, $45.12) guided Q1 EPS below consensus to ($0.05)-0.05 (vs. cons $0.15), shares gained 2.22% as management said operating rates and orders had improved significantly QoQ. In addition, NUE said it is seeing an improvement in its scrap business.

Microchip Technology Inc. (MCHP, $27.84) rose 1.83% after raising Q4 EPS guidance to $0.37 (up from $0.34-0.36; vs. cons $0.36) citing strong demand. Management said it is on track for record bookings in the current quarter and that the company stands to benefit from cost controls.

DSW Inc. (DSW, $29.43) reported better than expected sales and margin growth but fell 10.53% as it missed on the bottom line. Moreover, investors are concerned by the company's cautious commentary on Q1 trends. DSW guided 2010 EPS to $1.35-1.45 (vs. cons $1.40) and comps to the low-single digit range.

BioTime Inc. (BTIM, $5.80) rallied 27.93% as a peer reviewed scientific paper showed that the aging of human cells can be reversed, which is a positive for the company's technology. The publication could have a significant impact on the development of new therapies in the fight against age-related degenerative diseases.

Limited Brands, Inc. (LTD, $23.71) rallied 4.22% as it announced a special dividend of $1/sh. The board also authorized a $200 million share repurchase program.

Fed Policy Statement
March 16, 2010
Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing. Household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt; those purchases are nearing completion, and the remaining transactions will be executed by the end of this month. The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability.

In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis. The only remaining such program, the Term Asset-Backed Securities Loan Facility, is scheduled to close on June 30 for loans backed by new-issue commercial mortgage-backed securities and on March 31 for loans backed by all other types of collateral.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; James Bullard; Elizabeth A. Duke; Donald L. Kohn; Sandra Pianalto; Eric S. Rosengren; Daniel K. Tarullo; and Kevin M. Warsh. Voting against the policy action was Thomas M. Hoenig, who believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.


Subject to the limited scope of its contents described above, The Janney Market View Daily does not constitute a research report as the term “research report” is defined in Securities and Exchange Commission (“SEC”) Regulation AC-Analyst Certification Rule 500, New York Stock Exchange (“NYSE”) Rule 472.10(2), or National Association of Securities Dealers (“NASD”) Rule 2711(a)(8). The author of The Janney Market View Daily is not a registered research analyst as the term “research analyst” is defined in SEC Regulation AC-Analyst Certification Rule 500, NYSE Rule 472.40, or NASD Rule 2711(a)(5).

The Janney Market View Daily may contain factual information taken from third party sources which we believe to be reliable but the accuracy or completeness of such information is not guaranteed by us. Supporting information will be available upon request. The market view expressed should only be used for information purposes. Nothing in The Janney Market View Daily shall be construed as an offer to sell, or a solicitation of an offer to buy, any securities.

© 2010 Janney Montgomery Scott LLC. All Rights Reserved.

Member: NYSE, FINRA, SIPC