From Briefing.com: 5:47PM Thursday After Hours price changes vs 4pm ET levels: Following a sizable rally in the regular session, the bulls have reined in their enthusiasm a bit in the after hours trade as the S&P futures, at 906, are 2 points with fair value while the Nasdaq 100 futures, at 1023, are 7 points below fair value. The main drag on the futures market is an earnings warning from Dow component, Home Depot (HD 24.88).
Other companies issuing warnings tonight include Advent Software (ADVS 13.10 -0.54) and Cadence Design Systems (CDN 11.66). The former company said it expects to report total revenues of about $36 mln (Multex consensus $37.9 mln), which is roughly 5% below its prior projection due to a shortfall in license revenue. CDN, meanwhile, sees Q4 pro forma EPS of $0.02-0.04 (Multex consensus $0.14) and revenues between $272-278 mln (Multex consensus $329 mln). For FY03, the company expects pro forma EPS of $0.50-0.55, versus the Multex consensus estimate of $0.87, and product bookings to be approximately flat.
4:12PM Cadence Design warns for Q4, Y03 (CDN) 11.70 -0.09: Sees Q4 EPS of $0.02-0.04 vs Multex consensus of $0.14; revs $272-278 mln vs Multex consensus of $329 mln, cites greater percentage of subscription-license product bookings than expected. Company also sees FY03 EPS of $0.50-0.55 vs Multex consensus of $0.87
Close Dow +265.89 at 8607.52, S&P +29.21 at 909.03, Nasdaq +49.34 at 1384.85: The equity market started 2003 with a bang as the major indices closed the first trading session of the year with gains of at least 3.0%... The main catalyst for the upswing was a strong ISM index for December that advanced to 54.7% from 49.2% in November and handily surpassed the consensus expectation of 50.1%... The jump was tied to the surge in the new orders component of the index (up 13.4 points to 63.3%), which is considered to be the best leading indicator of the index...
This encouraging data point for the manufacturing sector gave investors renewed faith in the economy's gradual recovery and boded well for sentiment on Wall Street that 2003 would be the first year of positive returns for stocks following three years of double-digit declines... Also contributing to the improved outlook was an announcement from President Bush that he plans to unveil a new economic stimulus package aimed at boosting growth and adding jobs... The confluence of those encouraging factors put buyers in firm control of today's action and kept sellers sidelined for the most part...
Virtually every industry group moved higher, with influential sectors such as technology, financial, and retail pacing the broad-based advance... As a result of the strong performance from stocks and the favorable implications of the ISM Index, the dollar surged higher against the euro and yen as investors took advantage of the recent weakness in the greenback... Not all of today's developments, however, were positive as investors had to contend with a weaker-than-expected jobless claims report (at 403K versus the consensus estimate for 382K), and the escalation in the price of crude oil, which served as a reminder of the tense geopolitical climate surrounding Iraq and Venezuela...
To that end, the underlying sense of apprehension regarding geopolitical developments was reflected in the relatively light volume that accompanied today's rally... Not surprisingly, a winning session in equities translated into a losing session for Treasuries, which saw widespread, and sizable, losses across the curve... The positive implications of the ISM data, concerns the market had gotten overbought, worries about corporate issuance, and mortgage-related selling were the driving factors behind the Treasury sell-off...
Additionally, with the equity market rallying, it stands to reason that asset re-allocation may have been a limiting factor for the Treasury market as well... The equity market, for its part, finished at its highs for the day and every Dow component, with the exception of Philip Morris (MO 40.35 -0.18), ended with a gain...Nasdaq 100 +4.4%, Russell 2000 +2.5%, S&P Midcap 400 +2.7%, NYSE Adv/Dec 2552/749, Nasdaq Adv/Dec 2309/1034
12:06PM ISM Index-- What's up with That? : Who doesn't want to believe the economy, and the stock market, will be in better shape when we're raising champagne glasses to ring in 2004?
After all, we just completed the third straight year of losses in the stock market-- something that hasn't happened since FDR was in office-- and the pace of economic growth in 2002 was relatively sluggish as business investment remained depressed. With that in mind, it stands to reason that the better than expected ISM Index for December would elicit such a bullish response from investors, but arguably, they are giving the ISM number more credit than it is due.
That's not to say the ISM report isn't encouraging. The 54.7% reading follows three straight months of sub-50 readings, which denote contraction in the manufacturing sector. Meanwhile, the surge in new orders (+13.4 points to 63.3%), which leads the index and the manufacturing sector, was the strongest since August 1980. The other components of the report also signalled expansion, with the exception of employment (47.4%). The latter, we would add, is on the cusp of the 47.5% level that is deemed consistent with manufacturing payroll growth.
After a lackluster end to 2002, this report, frankly, is a welcome rallying point for the stock market. Be that as it may, there is a great deal of convenience in the timing of the report as investors want to believe better things are in store for them in the new year. What better way to kick things off in that respect than a solid report on the state of the manufacturing sector, which has been the bane of the economy's existence for some time now? Before getting too carried away with the December ISM Index, though, investors should keep a few things in mind.
First, the December jump mimics the powerful new orders gains in the regional indices seen in November, but as a reminder, Philadelphia and Chicago softened in December. To be fair, the New York PMI showed a similar sized December gain. Briefing.com, for its part, expects a slip from the 63.3 level in January, and if that proves to be the case, we suspect there will be some bothersome talk that the surge in new orders in December was an aberration. Third, it is worth noting that the ISM Index provided some false hope last June when it checked in at 56.2% and new orders printed at 60.8%. Just last month, the ISM stood at 49.2% and new orders were at 49.9%.
To that end, the December ISM Index is not enough to claim either the manufacturing sector or the economy is suddenly booming, but the 54.7% reading, if it can be sustained, is consistent with 4.4% GDP growth. That pace of growth isn't shabby by any means, and it is a focal point that has lifted investor spirits today considering we remain in an environment where there still hasn't been a substantive pickup in business investment.-- Patrick J. O'Hare, Briefing.com
10:56AM Ahead of The Curve: China's 3G Infrastructure There was a time when the 3G cellular phone standard was viewed as the turbo-charge for the telecom industry. Qualcomm (QCOM) in particular was seen as the primary benefactor, but InterDigital Communications (IDCC) was also seen as a big 3G beneficiary. The way things have turned out, however, is entirely different from the way US investors viewed the potential in China just two years ago.
China has no wired phone infrastructure. Their first phone system will be cellular. The thought of an unpenetrated two billion person market is more than most people in the hungry telecom market can handle. The problem, however, is the Chinese government and time. It is becoming increasingly clear that China will not allow western companies to build this infrastructure for their country. It will be built and owned by Chinese companies. Furthermore, it might not even be compatible with WCDMA, the European version of 3G, or with CDMA2000, the Qualcomm 3G standard, according to a Reuters news story today which quotes Li Shihe of Datang Mobile Communications Equipment. As if that weren't enough, the rollout of the Chinese system will not take place until 2004 at the earliest.
All of this adds up to one thing: investment premises for non-Chinese telecom companies based on an explosion of revenues in the Chinese market are ill founded. Even arguments for royalty payments on essential patents on the 3G system are probably misguided as investments in western telecom companies. The illegal copying of entertainment content and software is rampant in China with only token attempts to enforce payment of royalties to US companies. The same will probably occur with technology patent infringement, if it occurs. Investment premises for Chinese-based telecom companies might be developed, but investments in individual foreign growth stocks are about as risky as it gets, even when the stock trades on NYSE, such as China Mobile (CHL). It is unclear if China Mobile will be forced to meaningfully compete with China Telecom, its parent before the companies were split apart, and China Unicom (CHU), which embraced the CDMA2000 standard. The Chinese version of 3G technology might be forced on all of them or on one only. There is a certain fickleness to Chinese telecommunications policy that must be recognized as a risk if you choose to pursue Chinese company investments. They are, after all, still state-owned companies, despite having publicly traded shares and western partners.
Nevertheless, the one thing that seems to be getting increasingly clearer as time passes is this: China will not let western companies capture and control the Chinese wireless market. They will accept slower rollouts and possibly inferior quality service in exchange for building this industry themselves. If you put yourselves in their shoes, it makes perfect sense. But if you own US telecom firms and the "unpenetrated" worldwide market is part of your investment premise, you should probably rethink your investments. - Robert V. Green
9:49AM Micron hits another new 52-wk low (MU) 9.52 -0.22: Stock is taking out its previous low of $9.50 set on Tuesday.
9:43AM Volume Alert -- National Semi plunges 5% in early trade (NSM) 14.23 -0.78:
8:32AM Cisco Systems ests cut to consensus at UBS (CSCO) 13.10: -- Update -- UBS Warburg cuts Jan qtr ests for CSCO due to their view that the U.S. enterprise mkt is shaping up to be weaker than expected this qtr; cuts Q2 rev/EPS ests to $4.70 bln/$0.13 from $4.76 bln/$0.14, which are in line with consensus. Maintains Hold rating and $14.50 price target.
8:26AM Voice switching price declines are bad news for Lucent, Nortel - CIBC : CIBC says that anecdotal evidence from the US and China suggests voice switching prices declined 65-90% from 2001 to 2002, and that it is difficult to see a scenario where voice gear pricing recovers; evidence is not good for LU and NT, as firm believes voice gear and services revs make up at least 20-25% of total revs for both.
7:52AM Goldman Sachs IT survey shows declining sentiment : Goldman Sachs reports that after a stabilization in its prior IT survey, the latest results have take a turn for the worse. The average outlook on 2003 spending from its Dec IT survey deteriorated sharply from 2%-3% growth in firm's last survey to a 1% decline. Two-thirds of the respondents believe that incremental budget tightening is more likely than budget loosening heading into early 2003, and 56% see discounting on the rise; only 15% of respondents expect acceleration before the 2nd-half of 2003, as opposed to 28% two months ago. Based on subdued outlook, Goldman expects that the MarQ is likely to be more severe than current estimates appear to suggest.
5:54AM Parametric reduces Q1 outlook (PMTC) 2.52: Co expects to post a Q1 pro forma loss of $0.02-$0.04 vs previous guidance of $0.00. Puts revs at $171-$175 mln, which is below $180 mln targeted level.
New Claims for State Unemployment for the week ended December 28 rose 13,000 to 403,000. A decline was expected, so this is slightly bad news on the economic front. However, the recent pop up to the 430,00 to 440,000 level for two weeks in early December now clearly looks like an aberration. Those levels, if continued, were cause for concern. A level of 400,000 or slightly lower is consistent with a modest economic recovery. This morning's data are not cause for alarm and the stock futures dipped only a tad on the report, but remained higher.
The higher open indicated for today reflects optimism that 2003 will end the three-year losing streak for stocks. January could well see an earnings season rally. There have been relatively few earnings warnings this quarter. Reports in the second and third week of the month could provide comfort to the market. There is a long way to go in 2003, but here's to a good start. -- Dick Green, Briefing.com
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