From Briefing.com: Heading into the just completed week, we expected it to be a make or break week for the equity market given a number of high profile happenings that included Fed Chairman Greenspan's testimony on monetary policy and the economic outlook before committees in the House and Senate, a plethora of earnings reports from the influential technology and financial sectors, and a host of economic data. When it was all said and done, we saw little reason to alter our positive, long-term outlook for stocks.
That, of course, begets the question: what about your short-term outlook? Well, caution was our watchword heading into the week and it remains so exiting the week. Despite what Briefing.com considered to be reassuring testimony from Greenspan, blowout earnings news from several financial companies, "good enough" earnings commentary from the likes of Intel (INTC), IBM (IBM), and Microsoft (MSFT), and encouraging economic data, the market failed to rally as participants saw an opportunity to take some money off the table. We recognize, of course, that skeptics would counter, saying, "no, participants saw that the run-up in stock prices wasn't warranted."
To an extent, Briefing.com would agree. Momentum investing did carry the market too far, and let's face it, companies reporting their earnings results were reluctant to suggest that a meaningful pickup in end demand is imminent. Nonetheless, there was a discernible tone of optimism on many conference calls that the expectations for a second half recovery this time around are indeed more credible than they have been in the past two years. On the latter point, we would also agree.
Credit spreads have tightened, the yield curve is steepening, the stock rally has been accented by broad-based leadership with heavier volume on up days versus down days, corporate profits are improving, industrial production is picking up, interest rates are low, and the stimulative impact of the recent tax cut is hitting home in July paychecks.
That doesn't mean, though, that the market will go up every day or every week for that matter. To that end, the past week was a week of consolidation more than anything else. Admittedly, there were some fissures from a technical standpoint, but given how far the indices have run off their lows, it is a stretch to say the market's bullish spirit was broken this week. More damage will need to be done before we entertain that viewpoint.
Overall, it is Briefing.com's contention that the market, and the tech sector in particular, is over-extended and that a period of consolidation is a necessary pre-condition for the market to make an appreciable, and credible, move higher from here. Thus, we won't get overly concerned by a near-term correction as we feel the earnings commentary thus far, and recent economic data, are good enough to view interim weakness as a buying opportunity.-- Patrick J. O'Hare, Briefing.com
4:19PM Weekly Wrap :
Heading into the week, we expected it to be a make or break week for the equity market given a number of high profile happenings that included Fed Chairman Greenspan's testimony on monetary policy and the economic outlook before committees in the House and Senate, a plethora of earnings reports from the influential technology and financial sectors, and a host of economic data. When it was all said and done, we saw little reason to alter our positive, long-term outlook for stocks.
That, of course, begets the question: what about your short-term outlook? Well, caution was our watchword heading into the week and it remains so exiting the week. Despite what Briefing.com considered to be reassuring testimony from Greenspan, blowout earnings news from several financial companies, "good enough" earnings commentary from the likes of Intel (INTC), IBM (IBM), and Microsoft (MSFT), and encouraging economic data, the market failed to rally as participants saw an opportunity to take some money off the table. We recognize, of course, that skeptics would counter, saying, "no, participants saw that the run-up in stock prices wasn't warranted."
To an extent, Briefing.com would agree. Momentum investing did carry the market too far, and let's face it, companies reporting this week were reluctant to suggest that a meaningful pickup in end demand is imminent. Nonetheless, there was a discernible tone of optimism on many conference calls that the expectations for a second half recovery this time around are indeed more credible than they have been in the past two years. On the latter point, we would also agree.
Credit spreads have tightened, the yield curve is steepening, the stock rally has been accented by broad-based leadership with heavier volume on up days versus down days, corporate profits are improving, industrial production is picking up, interest rates are low, and the stimulative impact of the recent tax cut is hitting home in July paychecks.
That doesn't mean, though, that the market will go up every day or every week for that matter. To that end, this week was a week of consolidation more than anything else. Admittedly, there were some fissures from a technical standpoint, but given how far the indices have run off their lows, it is a stretch to say the market's bullish spirit was broken this week. More damage will need to be done before we entertain that viewpoint.
Overall, it is Briefing.com's contention that the market, and the tech sector in particular, is over-extended and that a period of consolidation is a necessary pre-condition for the market to make an appreciable, and credible, move higher from here. Thus, we won't get overly concerned by a near-term correction as we feel the earnings commentary thus far, and recent economic data, are good enough to view interim weakness as a buying opportunity.
Rising interest rates, admittedly, present a risk to our outlook, but even with the recent backup in the 10-yr yield, stocks remain fairly valued from a longer-term vantage point.
Industry standouts this week included machinery, steel, auto parts, department store, brokerage, paper, and oil drilling. On the flip side of things, the storage, software, telecom equipment, airline, gold, tobacco,and homebuilding groups were notable laggards. As always, we recommend reading Briefing.com's Looking Ahead Story Stock to gain a brief overview of the notable items that will be dictating market activity next week.-- Patrick J. O'Hare, Briefing.com
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 9119.59 9188.15 68.56 0.8 % 10.1 %
Nasdaq 1733.90 1708.51 -25.39 -1.5 % 27.9 %
S&P 500 998.13 993.32 -4.81 -0.5 % 13.0 %
Russell 2000 473.77 464.76 -9.01 -1.9 % 21.3 %
2:20PM NVIDIA estimates cut to reflect Xbox outlook -- Pacific Growth (NVDA) 21.28 -0.72: --Update-- Pacific Growth lowering EPS and revenue estimates for 2003 and 2004 following Microsoft comments that it expects the number of Xbox consoles shipped through June 2004 to grow to a total of 14.5-16 mln. Given the amount of existing inventory currently in the channel, firm believes this demand forecast will lead to lower chip sales for NVIDIA than Pacific Growth or the rest of the Street currently had anticipated.
12:00PM PMC-Sierra cut to Mkt Perform at CEUT (PMCS) 11.62 -0.39: -- Update -- CE Unterberg Towbin downgrades to Long-Term Mkt Perform from Buy; firm says the co's flat Sept guidance implies that the June uptick was from inventory replenishment and not from sustainable demand growth, and given the significant decline in telecom infrastructure rev at MOT, LU, and other OEMs they believe that sustainable demand recovery is not in the cards until mid-CY04; firm thinks the shares will likely find support at the $8 level based on 40x FY05 earnings power of $0.20.
10:21AM XLNX reit Neutral at SoundView; target cut to $27 25.23 -0.46: -- Update -- SoundView lowers price target to $27 from $34 and reiterates its Neutral rating; believes Xilinx (XLNX) will trade flat to down over the next few months. Fact that June was weaker than May does not resonate well with firm.
9:47AM LEXR: Blowout qtr, but stay on sidelines until more visibility -- WR Hambrecht 12.59 +0.54:
9:38AM Fahnestock reits Sell on Novellus; target $22 (NVLS) 36.56 +0.06: Fahnestock reiterates their Sell rating and $22 target; while firm believes that the co's exposure to the copper equipment mkt gives it above-avg growth potential, they are concerned that the co's acquisitions will meaningfully reduce its margins; also, firm cautions that industry visibility remains low, and while orders from two large Asian co's may boost Q3 bookings, they do not expect a significant order upturn to begin until Q4.
9:35AM MRVL: Checks confirm that Dell is still a customer -- Smith Barney 35.50 +0.32: According to firm, this is contrary to other Wall Street reports earlier this week.
9:06AM Transmeta started with an Outperform at Soundview; target $2.50 (TMTA) 1.41: -- Update -- Soundview initiates coverage with an Outperform rating and $2.50 target; while the mkt has dismissed TMTA as irrelevant in the notebook space due to past execution problems, the new mgmt at the co is set to introduce the TM8000, which they believe will be a viable alternative to INTC's Centrino in 2004.
8:52AM Fairchild Semi cut to Neutral at HNG (FCS) 13.52: Harris Nesbitt Gerard downgrades to Neutral from Outperform, saying continued component pricing pressure, an increase in channel inventories, a lack of improvement in its capacity utilization, and a late cycle restructuring leads them to believe that FCS's biz should remain challenged for the foreseeable future.
8:41AM Monolithic cut to Hold at B. Riley (MOSY) 10.18: B. Riley downgrades to Hold from Buy based on valuation as well as their reduced outlook for the co. Target is $9.40.
8:24AM Nokia upgraded at FBR (NOK) 14.40: -- Update -- Friedman Billings Ramsey upgrades to Outperform from Mkt Perform, saying the co is poised to further improve its position in the mobile handset mkt given new product introductions for both the low- and high-end mkts as well as CDMA; also, improved gross margins at Nokia Mobile Phones is allowing the co to continue to reinvest for the long-term, while still offering sequentially stronger earnings in 2H03 compared to 1H03, and further earnings improvement in 2004 and enabling it to continue to generate strong cash flow; target is $18.
9:56AM Fairchild Semi (FCS) 12.88 -0.63: Harris Nesbitt Gerard downgrades Outperform to NEUTRAL. Cites continued component pricing pressure, an increase in channel inventories, and a lack of improvement in its capacity utilization.
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Thanks for the charts update Gottfried and for your explanation on the selling of those calls. I think you will do great.
Don, thanks for the tables.
RtS |
