Some comments on the economy and valuations...
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DJ MARKET TALK: Normalized P/E Or Not, Market Is Expensive
Edited by Thomas Granahan of DOW JONES NEWSWIRES
(Call Us: 201 938-5299; All Times Eastern)
MARKET TALK can be found using code N/DJMT
11:38 (Dow Jones) Merrill's Rich Bernstein not giving credence to
"normalized" earnings argument, which says stock market is undervalued using
normalized earnings - allowing for cyclicality, growth prospects, and
inflation. While it's true the market would be less expensive using that P/E
rather than one based on reported earnings, "the market appears extremely
expensive even on a 'normalized' basis," he says. (TG)
11:26 (Dow Jones) California, Massachusetts, and New York have long been the
venture capital hot spots. But other states are showing some promise.
According to an NVCA study, the two fastest growing states for VC investment
between 1996 and 2001 are Maryland, with a nearly 59% jump in VC investments
over the five-year period; and Minnesota, with a nearly 36% increase. (JAW)
11:15 (Dow Jones) The act that prevented Internet taxes expired Sunday, and
ABN-Amro says weakening state finances may increase pressure to tax Internet
commerce. That increase could slow growth or make it harder to sell
ancillary services, the firm says. And, if pure-play e-commerce companies
have to eventually collect taxes, they would lose a material price advantage
over "click-and-mortar" competitors. It's too early in the political game
now, but it's an issue that bears watching. (TG)
11:03 (Dow Jones) Warehouse clubs and big discount retailers not including
Kmart (KM) have outperformed the market by about 9% since Sept. 11 despite a
slew of profit warnings, notes Sanford C. Bernstein's Emme Kozloff. But
while stocks like Wal-Mart (WMT) and Costco (COST) have benefited from a
"flight to safety" within the sector, they've done so despite a weakening
consumer, and those runs aren't sustainable, she says. Of the group, only
Target (TGT) is trading below its absolute and relative 5-year mean P/E, and
that could indicate upside potential. But Kozloff also warns that most of
Target's inventory is apparel and hard goods, and that poses risks to its
4Q. (JMC)
10:52 (Dow Jones) Investors bid up shares of WebEx Communications (WEBX) by
10% Monday after the company announced a reseller agreement with France
Telecom (FTE). Analysts quickly noted that even though the deal will not add
to WebEx's bottom line immediately, it represents an important strategic
move in the company's effort to move abroad. Peter Martin, analyst at
Jefferies & Co., says it is difficult to gauge how big the deal is, but
believes it could start adding to the bottom line in 2002. (EGS)
10:47 (Dow Jones) Venture capital investment in the U.S. has created 7.6
million jobs and generated $1.3 trillion in revenue since 1970, according to
an NVCA study. The study also shows that 5.9% of the nation's jobs and 13.1%
of the U.S. GDP in 2000 were created by $273.3 billion of VC-capital created
companies. (JAW)
10:35 (Dow Jones) This on Monday morning from Morgan Stanley economist
Stephen Roach: "America, the once proud land of the virtuous circle, is now
trapped in a vicious circle. Unfortunately, the rest of a US-dependent world
economy is trapped in this same lethal dynamic. A new global growth
contagion is taking the world economy sharply to the downside. Sadly, it's
not clear at all what can break this chain of events." (JCC)
10:26 (Dow Jones) Research from Ned Davis shows the percentage gap between
2Q operating and reported earnings for the S&P 500 is the biggest on record,
with operating EPS 88% higher than reported EPS. The discrepancy makes it
difficult to use earnings data in keeping tabs on the market, but the firm's
overall view remains that upside potential on the S&P 500 is likely limited
for a while given valuations, reduced earnings growth expectations, and a
trend of increasing investor risk aversion. (TG)
10:13 (Dow Jones) The index of leading indicators fell by 0.5% in September,
the steepest one-month decline since January 1996. Indeed, were it not for
the Fed's provision of liquidity that boosted the money supply and steepened
the yield spread, the drop would have been much deeper. (JM)
10:11 (Dow Jones) Stocks have no trouble digesting LEI (data were right in
line). Early softness in major averages has reversed - DJIA up 55 at 9258,
Nasdaq Comp up 22 to 1692, and S&P 500 climbs 3 to 1076. Intel best DJIA
performer, and SOX is up 3.5%. Some big profit reports out, but Street
really gets inundated Tuesday, with the likes of AT&T, Compaq, Lucent,
Schering-Plough and so many others. Some traders in stock futures cite short
covering for mini rally. (TG)
9:59 (Dow Jones) In addition to breaking resistance versus the euro, the
dollar is setting new intraday highs vs. all majors now, approaching
resistance at Y122 on the yen. Y122.05 is the high on Sept. 11 before the
disaster. GBP/USD is at more than two-month lows. EUR/USD at $0.8940.
GBP/USD at $1.4275. USD/CHF at CHF1.6504. (JEN)
9:53 (Dow Jones) Wal-Mart's (WMT) same-store sales last week ran above its
plan for a 4% to 6% increase as weather comparisons got easier from last
week, when sales fell within the 4% to 6% range. Sales of Halloween
merchandise began slightly later than last year, but have picked up
gradually. Wal-Mart expects "a significant portion" of its Halloween sales
to come during the final days before the holiday. Strongest categories last
week included housewares, apparel, fabrics and crafts, pet supplies, health
and beauty aids, shoes, and pharmacy items. Comparable food sales continued
to increase by a percentage in the double digits. Stores in the Northeast
performed best, followed by the Great Lakes and South Central regions. (JMC)
9:44 (Dow Jones) UBS Warburg's Maury Harris says "we expect that the economy
will come out of recession some time early in 2002, helped by more monetary
and fiscal stimulus." He also says "the next employment report is expected
to show a 400k decline in payrolls." (JCC)
9:37 (Dow Jones) EUR/USD is perilously close to significant support at
$0.8950, now at $0.8954 -- close to the low for the pair on pre-disaster
Sept. 11. Forex market is still divided whether the ECB will cut rates at
its Thursday meeting, with various outcomes being bandied. UBS Warburg
predicts EUR may suffer most ahead of the meeting, "rather than collapse on
a no-rate-cut decision." (JEN)
9:28 (Dow Jones) Nymex crude oil futures are seen opening unchanged to 5
cents a barrel lower, giving up some of Friday's gains due to technical
factors. In the absence of any market-moving news, analysts expect
rangebound trading. Nov. contract's expiration could cause some volatility
in the market, however. Nov. crude, down 5c at $21.78 on Access, has support
at $21.05-$21.20; resistance is seen at $21.85-$21.96. (MXF)
9:25 (Dow Jones) In keeping with its own glum outlook at the start of the
month, Federated Department Stores' (FD) same-store sales last week
continued to fall 7% to 10% below year-ago levels. That's the second week in
a row they've declined in that range, hampered by a slowed economy and
skittish consumers in the wake of Sept. 11. Federated, which operates the
Macy's and Bloomingdale's chains, said Monday it still expects sales for the
month of October to decline at that rate. Its September same-store sales
declined 12.9%, with the worst performances from stores in and around New
York City. (JMC)
(END) DOW JONES NEWS 1 |
