December NFP +155,000
Posted by Eddy Elfenbein on January 4th, 2013 at 9:39 am

Kind of a boring jobs report. The economy created 155,000 jobs last month which was very close to expectations. The unemployment rate ticked up to 7.8%. It was just 2,000 jobs away from rounding up to 7.9%. The price of gold has dropped to a four-month low.

The details of the report paint a similarly solid but uninspiring picture. The unemployment rate was driven by a combination of more people entering the labor force, 192,000 of them, a gain not matched by the number of people reporting having a job. If that pattern were to continue, it would eventually push the jobless rate up even as employers create new positions. A broader measure of unemployment that captures people working part time who want a full-time job and those who have given up looking for work out of frustration was unchanged at 14.4 percent.

The employment gains were relatively broad, with an 25,000 rise in manufacturing employment and a welcome 30,000 gain in construction jobs. Those might, in part, reflect a ramp-up in activity to rebuild following Hurricane Sandy, but the construction gain in particular is a welcome change after months in which the sectors job tally hasn’t kept up with a rise in homebuilding.

CWS Market Review – January 4, 2013
Posted by Eddy Elfenbein on January 4th, 2013 at 8:17 am

“You get recessions, you have stock market declines. If you don’t understand
that’s going to happen, then you’re not ready, you won’t do well in the markets.”
– Peter Lynch

Happy New Year! This has been an exciting week: the Fiscal Cliff is done and gone, stocks are near multi-year highs and our Buy List officially beat the market for the sixth year in a row!

For the last several weeks, I’ve been telling investors not to get caught up in all the ridiculous hype surrounding the Fiscal Cliff. What else can I say but that the financial media behaved irresponsibly in stoking the fears of this manufactured crisis? Congress was even worse. At some point, I believed, a deal would be reached—and that’s exactly what happened.

The market celebrated the deal on Wednesday with its strongest rally in more than a year. In just two days, the Volatility Index ($VIX), also known as the Fear Index, plunged by one-third, and the S&P 500 made back everything it had lost since mid-October. Before a late-day sell-off on Thursday, the index was flirting with its highest close since 2007. On top of that, our 2013 Buy List has already grabbed a slight lead over the S&P 500.

It’s times like this I’m glad we’re long-term investors. I can’t imagine what it’s like trading through all these vacuous pronouncements during the Fiscal Cliff debate. The math is still very much on the side of stocks. Six weeks ago, I told you I thought the S&P 500 would break 1,500 sometime early this year. At the time, that seemed like a bold forecast. Now it looks more like a cakewalk. The index is currently less than 3% away from topping 1,500.

In this week’s CWS Market Review, we’ll take a look at what’s driving the current rally. Plus, Q4 earnings season is only days away and I’m expecting solid results from our Buy List stocks. In fact, one of the newbies on our Buy List is already making waves. Ross Stores ($ROST) soared 8% on Thursday on higher earnings guidance! This came exactly one day after an analyst at Citigroup downgraded Ross. Now let’s take a look at the current market.

The High-Beta Rally

The big two-day surge we just had was interesting because it comprised the final trading day of one year and the opening day of the next. This past December 31st was the single-best final-day gain since 1974.

But this hasn’t been a standard rally. It’s been what traders call a “high-beta” rally. These are rallies that have concentrated on the most volatile stocks (or more technically, it’s correlated volatility). That’s why we’ve seen small-cap stocks and tech stocks do the best. The Russell 2000 ($RUT), which is a widely-followed index of small-cap stocks, just broke out to a new all-time high. The Equal Weighted version of the S&P 500 also hit an all-time high. The regular S&P 500 is weighted by market cap, so the mega-caps, which have been lagging of late, have greater weight.

Here’s a chart showing a High-Beta ETF ($SPHB) compared with the S&P 500, and you can see that’s been crushing the market lately.

Cyclical stocks also tend to do well during high-beta rallies. In essence, what the market is doing is shifting towards riskier assets. This is good news because investors need to be rewarded for being willing to shoulder more risk. It’s the willingness to put your money down that helps the entire economy move along. The move has been slow, but the market is becoming more risk-friendly. High-yield spreads, for example, are at an 18-month low, and high-dividend stocks were laggards in 2012.

When the world economy went kablooey a couple of years ago, everyone ran screaming to the most secure assets. Gold and U.S. Treasuries soared as stocks and junk bonds plunged into the abyss. Banks and businesses just sat on their cash. But a major turning point came last summer when Mario Draghi made his now-famous statement: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.” My friends, that’s what we call a game-changer.

Even though this was an announcement from a European central banker, it sent shock waves around the world, and investors here in the U.S. took this as a signal to move towards risk. When I use the word “risk” here I don’t mean to use it with the negative connotations of recklessness or imprudence. Rather, I mean areas that have a longer time horizon to pay off. For example, I have a pretty good idea where Treasury bill yields will be in a week, but I have no idea what AFLAC’s ($AFL) stock will do. Yet over the next, say, two or three years, I have a very high level of confidence that AFLAC will still be pulling down a sizeable profit despite a fluctuating stock market. The latter investment simply needs more time to pay off.

I should also point out that it isn’t so much that investors are becoming riskier. Instead, it’s that investors are moving from a state of extreme risk-phobia to a more normal state of affairs. The day before Dragi’s statement, the yield on 10-year Treasury bonds hit an historic low of 1.4%. Since then, they’ve soared all the way to a still-puny 1.9%. Put it this way: Microsoft ($MSFT), which is a new member of the Buy List, is one of the largest and best-known blue chips stocks in the world, yet its yield is nearly double that of the 10-year.

The rotation towards risk got another big boost a few weeks after Draghi’s announcement when the Federal Reserve said it would pursue its QE Infinity policy. I should add that I was completely and totally wrong about this announcement. For weeks beforehand, I had said that the Fed was in no way pursing such a policy. Shows what I know!

Fortunately, our Buy List was perfectly poised to ride the market’s rotation. One great example is Ford Motor ($F). In the CWS Market Review from August 24th, I highlighted Ford as a good bargain. I wrote: “I don’t see how the stock can go for less than $10, but it is.” Just a few days before I wrote that, I remember that Ford had even dropped below $9. But patience once again paid off for us. Yesterday, shares of Ford got as high as $13.70. The stock is up more than 52% from its summer low.

The company just announced that December sales rose 1.9%. It was Ford’s best December since 2006. Look for another solid earnings report later this month. Ford remains an excellent buy up to $15 per share.

Ross Stores Soar 8% on Higher Guidance

One of the new stocks on this year’s Buy List is Ross Stores ($ROST). This is a very solid retailer. On Thursday, one day after an analyst at Citigroup downgraded the stock, ROST reported outstanding sales and guided higher for Q4. December sales rose 11% to $1.276 billion.

The key metric for a retailer is comparable-store sales. Wall Street was expecting ROST to report an increase of 2.7%. Instead, it was 6%. The company also raised its earnings guidance for Q4 (which ends in one month). Before, Ross was expecting earnings of 99 cents to $1.04 per share. Now they expect earnings of $1.04 to $1.05 per share. Ross expects comparable-store sales to rise between 1% and 2% for January. This is excellent news. The shares gapped up 7.97% on Thursday to close at $58.78. Thanks to the rally, I’m raising my Buy Below on Ross to $62 per share. Expect to see their 19th-straight annual dividend increase in a few weeks.

Before I go, I want to point out some good bargains on the Buy List. Bed Bath & Beyond ($BBBY) has dropped down recently. My Buy Below price is currently $60, but if you can get BBBY below $57, that’s a really good deal for the long-term. CA Technologies ($CA) is pretty cheap. At its price, CA yields 4.42%. Also, Microsoft ($MSFT) continues to be the stock everyone loves to hate, but it looks very attractive below $28 per share. Actually, one of the reasons why I like it is that everyone else hates it so much. MSFT currently yields 3.38%.

That’s all for now. Earnings season starts next week. Our first Buy List stock to report will be Wells Fargo ($WFC) on Friday, January 11th. Wall Street currently expects 90 cents per share, which sounds about right. Wells is a good buy up to $37. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

– Eddy

P.S. It’s official. I’m very happy to report that our Buy List beat the S&P 500 for the sixth year in a row in 2012. The 20 stocks on the Crossing Wall Street Buy List gained 14.56%, while the S&P gained 13.41%. Including dividends, our Buy List gained 17.85%, compared with 16.00% for the S&P.

Morning News: January 4, 2013
Posted by Eddy Elfenbein on January 4th, 2013 at 7:15 am

Most European Stocks Fall as Fed Considers Stimulus Cut

Euro-Area Consumer Prices Rise More Than Estimated on Food

Shock Fall In UK Services Activity Raises Recession Fears

Dollar Climbs to 29-Month High vs. Yen as U.S. Interest Rates Rise

U.S. Jobless Claims Rise 10,000 To 372,000

A Victory for Google as F.T.C. Takes No Formal Steps

Barnes & Noble Holiday Sales Decline on Nook Devices

Transocean $1.4 Billion Gulf Spill Deal Lures Investors

JMP Securities Upgrades Bank of America to Market Perform (BAC)

Hormel to Buy Skippy Peanut Butter

BMW Tops Mercedes as U.S. Auto Sales Highest Since 2007

7 ETFs To Be Excited For In 2013

Swiss Bank Wegelin & Co. Pleads Guilty in U.S. Tax Probe

Jeff Carter: Seed Round Financing: Why Crowdfunding Will Be Challenging

Howard Lindzon: Big Data or Small Data – Economists and Analysts Stink With Both…and it will get Worse with Social Data

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Dividend Growth Soars 22.8% in Q4
Posted by Eddy Elfenbein on January 3rd, 2013 at 2:14 pm

Thanks to higher profits and special dividends, quarterly dividends for the S&P 500 jumped 22.77% in the fourth quarter. All told, the S&P 500 paid out $8.93 in dividends (that’s just to the index).

For the year, the S&P 500 paid out $31.25. To add some context, that means that the index yields 4.6% for investors who bought at the March 2009 low.

Dividends have been hot recently. Consider that dividends grew 18.2% last year which followed a 16.3% increase in 2011.

Mic’d Up RGIII
Posted by Eddy Elfenbein on January 3rd, 2013 at 12:43 pm

I don’t how to embed this, but here’s amazing video of a mic’d up RGIII during the Redskins’ win over the Cowboys. Trust me, it’s very cool.

Ross Stores Soars 7%
Posted by Eddy Elfenbein on January 3rd, 2013 at 11:01 am

The stock market opened 2013 with a strong day yesterday. In two days, the S&P 500 gained back everything it lost since mid-October. Today so far, the market is down just a bit.

Retail stocks are having a very good day as many are reporting strong holiday sales figures. In fact, we already have a star stock this year as Ross Stores ($ROST) has gained 7% today. The company raised its fourth-quarter profit estimate to a range of $1.05 to $1.06 per share from the earlier range of 99 cents to $1.04 per share. Comparable same-store sales rose 6% which was far more than the 2.7% analysts were expecting.

Right after breaking $13, Ford Motor ($F) has motored above $13.50. The company said today that its U.S. sales rose 1.9% in December.

The Labor Department reported that unemployment claims rose to 372,000. That’s an increase of 10,000 from last week’s revised number of 362,000. Technically, this report was worse than expected (Wall Street’s consensus was for 360,000), but everyone is focused on the big jobs report for tomorrow. The ADP report, which is done by a private payroll firm, showed an increase of 215,000 jobs. According to ADP, private employers added 1.7 million jobs in the last year.

Wall Street’s consensus for tomorrow’s jobs report is a gain of 157,000.

Morning News: January 3, 2013
Posted by Eddy Elfenbein on January 3rd, 2013 at 7:19 am

Some Breaks for Industries Are Retained in Fiscal Deal

Moody’s Says ‘Fiscal Cliff’ Deal Doesn’t End Credit Downgrade Risk

Dollar Rises As U.S. Budget Deal Optimism Wanes

CEOs Pan Fiscal Cliff Deal, Vow to Continue Debt Fight

Basel Becomes Babel as Conflicting Rules Undermine Safety

UK Construction Hits a Six-Month Low

Spain Sees Jobless Total Fall In December

Al Jazeera Seeks a U.S. Voice Where Gore Failed

China Poised for 2013 Rebound as Debt Risks Rise for Xi

Global Natural Catastrophe Losses Fell in 2012, Munich Re Says

Avis Will Buy Zipcar For $500 Million

Starbucks to Open First Store in Vietnam

Google Said Poised to Resolve FTC Antitrust Probe Today

What’s Inside America’s Banks

Jeff Miller: Analyzing the Fiscal Cliff Outcome

Stone Street: Down So Long It Looks Up – Zipcar

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Cyclicals Continue to Lead
Posted by Eddy Elfenbein on January 2nd, 2013 at 11:08 am

Here’s a look at the Morgan Stanley Cyclical Index ($CYC) relative to the S&P 500.

The cyclicals grabbed the lead right after Mario Draghi said that the ECB would do “whatever it takes” to save the euro. As I said before, today is a high-beta rally. The Russell 2000 ($RUT) and the Equal Weight S&P 500 are at all-time highs.

2013 Is Off to a Strong Start
Posted by Eddy Elfenbein on January 2nd, 2013 at 10:52 am

For the last few weeks I’ve cautioned investors to ignore the hype about the Fiscal Cliff. Eventually, I believed, some deal would be reached, and late last night, that’s exactly what happened. Here are the details.

It wasn’t pretty and not everybody got what they wanted, but compromise is the cornerstone of democracy. Plus, there will be more battles ahead on the debt ceiling.

The good news is that the markets are responding very well this morning. The S&P 500 has been as high as 1,457.53 this morning. That’s a 2.2% jump and it brings the index just eight points shy of its highest close since 2007. On our Buy List, Oracle ($ORCL) is up to an 18-month high this morning.

Today’s rally is what’s called a high-beta rally which means that the leaders are small-cap stocks plus industries like tech (like Oracle), finance and cyclicals. High-beta rallies usually (but not always) tend to pull along lower-quality stocks with them. There are lots of sketchy names among small-cap tech stocks. Since our Buy List is concentrated among high-quality stocks, we tend to lag the broader markets on days like this. The Russell 2000, which is a popular index of the small-cap sector, is up to an all-time high this morning.

Still, our Buy List is beginning 2013 on a strong note. Every stock but Ross Stores ($ROST) is higher today. I was pleased to see that CR Bard ($BCR) was upgraded by JPMorgan today. (The Buy List is so new I haven’t had time to enter in comments for the new additions. I’d better get on that.)

On the economic front, the ISM Index for December rose to 50.7. If you recall, the number for November was 49.5 which was a dud. Any reading above 50 means the manufacturing sector is expanding. Below 50 means it’s shrinking. The worry zone doesn’t really kick in until the ISM drops to 45 or so. The next big report will be Friday’s jobs report.

Morning News: January 2, 2013
Posted by Eddy Elfenbein on January 2nd, 2013 at 6:49 am

U.S. Fiscal Cliff Deal Prompts Broad Global Market Rally

Bipartisan House Backs Tax Deal Vote as Next Fight Looms

Bond Tab for Biggest Economies Seen Falling $220 Billion

Senate Plan Undoes Most of $600 Billion in Budget Changes

Euro-Zone Manufacturing Shrinks in December

Macau Casinos End Year on a High

Malls Blossom in Russia, With a Middle Class

Tech Giants Brace for More Scrutiny From Regulators

Arcelormittal To Sell $1.1bln Stake In Canadian Unit

Hyundai, Kia Forecast Slowest Growth in Seven Years

Middleby Buys Appliance Maker Viking For $380 Million

Buffett Combines BofA With Buybacks to Beat S&P 500

Crime Forfeiture Pays for U.S. Attorney’s Office (Sometimes in Dinosaur Bones)

Joshua Brown: Binary Sunset, Revisited

Phil Pearlman: Crushing It Is a Process

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