Stock Market

Is the U.S. economy beginning a recession, or are we merely experiencing a correction?  Is a bear market on the way for 2008?  How much longer will the subprime crisis linger?  These questions and plenty more are being asked daily, and assuredly someone somewhere has the answer, but who?  What is for sure, is that the volatility that has been the benchmark of this year, will likely continue.

On November 30,  which is next Friday, the year-end markers are due for several of the country’s biggest banks–Bear Stearns, Lehman Bros, Goldman Sachs, and Merrill Lynch.  The banks will be looking to clear their ledgers for the next year, and depending on what they have to liquidate to do so, could push the financial sector even lower.  As it stands now, the sector has lost 27% off its high, according to this article on thestreet.com.  The Dow is at it’s lowest point since April, and has given back almost 10%, since reaching the year’s high in October.

If it’s volatility that you’re looking for, then in addition to the markers coming due, there is a slew of reports coming out this week.  The same article states:

. . .next week’s economic data pose some telling signals for markets on whether recession looms, and the Federal Reserve’s thinking. The Fed’s beige book, or intermeeting report on economic activity, comes out Wednesday, while Fed officials pepper the week with speeches, including one Thursday from Chairman Ben Bernanke. Tuesday brings November’s consumer confidence report, followed Wednesday by a read on business spending with durable goods orders for October. Most economists are expecting declines in both.

Lastly — as if Treasury Secretary Henry Paulson’s new view that the housing recession and upcoming loan rate resets need a united response from the mortgage servicing industry isn’t enough to spook investors — economists are predicting that both existing- and new-home sales, which are reported Wednesday and Thursday, respectively, will decline again.

Looks like the end of the year, will be anything but dull.

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Merrill Lynch has just published its annual “Thanksgiving Index” which uses the typical holiday foods and travel expenses to judge how the price of the holiday has increased or decreased relative to the previous year. The index takes items like turkey, potatoes, cranberries, pumpkin pies, gasoline, hotels, and airline tickets and uses them to judge the holiday economy. With Friday being ‘Black Friday’, which signals the beginning of the shopping season, and with the markets in total disarray over the past month, the index this year tells us that this Thanksgiving costs 7.9% more than the previous. Last year, the index actually dropped 4.4% over 2005.

Black Friday got its name from businesses finally getting ‘into the black’ on their ledgers with a day of huge sales. This year, with the price of the holiday basics cutting into people’s bank accounts and with the level of market insecurity that we’ve seen recently, the holiday season could be a less than festive one for merchants and businesses.

Although spending could be down over the season, the real result will be delayed a few months until the earnings reports come out after the quarter. Links to the articles on the index can be found here and here.

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After a painful week that saw the Dow drop briefly below the 13,000 mark, stocks came back with a vengeance on Tuesday.  Chinese ADSs, banks, emerging markets, technology–you name it–last week it was down.  The bulls finally broke through, shooting the Dow up 2.5%, over 300 points for the day.  Among the big winners from the tech sector was Google, which  finished up 4.5%, or over $28 per share for the day.  Apple also had a strong run, closing at $170.40, up $16.20, or 10.54%.

Brazil’s ETF, EWZ was one of the emerging market funds that had taken a beating during last week’s sell-off, but it too charged back, ending the day up over 8%.  Likewise, China’s index fund, FXI, suffered a steep decline.  The fund set a new high of 219 in early October, but saw those gains and more lost, when the shares dropped down into the mid-160s at the lowest point in the sell-off.  On Tuesday, FXI roared back, posting a $12.61 gain, up a healthy 7.44%.

Thestreet.com has the day’s wrap up here.

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Visa has announced that it has filed for IPO with the SEC, in the hopes of raising $10 billion, the company recently stated.  Just exactly when this is to take place is still being decided, but an AP article, states that it should be sometime early next year.  Visa is the world’s largest credit card company in terms of transactions made, network size, and cards in circulation.  The AP article states that:

Visa’s payment processing network is by far the largest in the United States. Last year, the company processed 44 billion transactions totaling $3.2 trillion, according to Friday’s SEC filing. MasterCard processed 23.4 billion transactions totaling $1.9 trillion.

Visa makes most of its money from the fees it charges card issuers and merchants for using its network. During the first nine months of this year, the company earned $771 million on $3.7 billion in revenue.

The company has had some legal issues recently, having settled a lawsuit filed by American Express, and fighting another similar one filed by Discover Financial Services.  Both suits were antitrust suits, claiming that the company tried to stifle competition.  Visa agreed to pay AmEx $2.25 billion.

Investors who purchased MasterCard shares when they went public roughly a year and a half ago, have seen their investment go up almost 5X over that time period.  MA’s shares were listed at about $40 when they hit the market, and recently closed over $200 for the first time last week.  Given that bit of news, Visa will be a hot commodity whenever the company does finally IPO.

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Monday morning in Asia saw a bit of history made, as Petrochina finally went public on the Chinese mainland to huge success. The company’s shares tripled during trading, enough to value the company at over $1 trillion–the first company to reach that milestone. By hitting that valuation, PTR was worth more than the entire Russian stock market, and more than Exxon-Mobil and GE combined. In fact, the Chinese economy was only valued at $1.1 trillion before this year started! Bloomberg has the article here.

Unfortunately for holders of the company’s U.S. shares didn’t fare quite as well, when the trading day opened on Monday. PTR was hammered all afternoon by American sellers, driving the company’s price down around 13% on the day. Other Asian stocks got clobbered during the day, with FXI, the Chinese index fund, closing down almost 9%, and China Mobile, CHL, ending the day down about 12%.

While Chinese mainland investors were basking in their earnings over PTRs debut, Alibaba made its entry on Tuesday. The internet seller’s stock quickly doubled, making it Asia’s second biggest internet company. Although the stock is not yet available to U.S. investors, Yahoo! and Cisco both have large stakes in the company, and it will be interesting to see in the following weeks what those stocks do.

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Anytime Chinese IPOs debut is a time to look at them carefully as an investment opportunity.  These days, much of the time, the simple fact that any new Chinese company to go public can cause quite a stir is very real.  And for good reason.  Chinese stocks are ultra-hot, and the successful IPOs of such companies as ICBC Bank ($19.1 billion) and Mindray (MR) have given investors ammo to back up their claims that Chinese IPOs are typically winners.

This week, three Chinese companies are making their entrance into the area.  The biggest is alibaba.com, of which Yahoo! owns a fair percentage.  Unfortunately for U.S. investors, the IPO is only available to investors in Hong Kong.  Yahoo!’s stock has been rising considerably over the past few months, perhaps in conjunction with the highly anticipated offering of alibaba.  Alibaba is China’s largest e-commerce company, and its corporate history reads like the success stories of many dot com companies.  It was started in 1999 in the apartment of a few friends, and has gone on to have major dealings in Hong Kong, India, U.S., U.K., and Turkey.

U.S. investors will have a crack at two new companies this week, when Giant Interactive and CNinsure offer their ADS to Wall Street.  Giant Interactive (GA) is a Chinese games manufacturer who currently has the hottest online game in China, ZT Online.  In July, another Chinese games manufacturer, Perfect World Co. went public, and it’s price is up 65% since.  Investors are hoping for a similar performance from Giant.

Although the Chinese insurance market is flooded with companies providing a range of plans and programs, CNInsure is one of the leaders.  According to an article on bloggingstocks.com by Tom Taulli, the company is helping lead China’s insurance companies to the top of Asia.  He states:

 As of last year, the Chinese insurance industry was ranked #3 in Asia. But, with the surging economic growth, I’m sure it will ultimately become #1. After all, life insurance premiums represent only about 1.7% of China’s GDP (this compares to about 4% in the US).

Growth has been stunning, averaging about 169.4% over the past three years. For the first six months of 2007, revenues were about $22.7 million.

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Microsoft (MSFT) announced earnings after the bell on Thursday, and Friday saw the company’s shares zoom to 11% on the good news. The tech giant announced profits across the board, with PC sales driving orders for Office, Vista, and other programs. Halo 3 also helped the company add to its quarterly profits. The game has brought in $330 million since it was released.

Analysts were expecting something in the neighborhood of $0.39 per share, but the company easily surpassed those numbers, posting $0.45 EPS. The near future looks good for the software manufacturer as well. The company believes that orders for Vista will be up over the next few months, as corporate clients begin to upgrade now that many of Vista’s bugs have been patched.

On Thursday, MSFT was trading up around 2% for most of the day and closed at $31.99. After the earnings report, the price shot up in after hours trading, and opened Friday morning at $35.92. During the day, it vacillated between 9-11% before closing at $35.03.

This article at thestreet.com has a breakdown of all the profits for the company’s different divisions.

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Last Friday was the 20th anniversary of ‘Black Monday,’ the date in 1987 when the DJIA dropped 22% in one of the biggest crashes ever.  How did Wall Street celebrate?  By dumping about 2.5% or over 350 points.  Friday’s sell off in America, led to Asian selling on Monday morning with Shanghai, Hong Kong, Taiwan, and most of the rest of Asia ending their day down.

On Monday, it appeared that Wall Street would continue the trend, as the Dow quickly dropped 119 points and remained down much of the day.  Finally, the buyers came out and the index rallied to finish up 44 points.  Earnings season might have had something to do with the recovery, or perhaps cooler heads finally prevailed.  After the bell, Apple (AAPL) announced a magnificent report, and shares charged up almost 7% after gaining over 2% during the day.  American Express (AXP) also announced, and gained over 3% after hours.  Royal Caribbean Cruises Inc. (RCL) sailed to a 7% gain during regular hours.

Whether these after hours moves are indicative of an upswing for tomorrow and the rest of the week is anyone’s guess, but the tech earnings, so far, have been a huge boost, with all the big names meeting or exceeding expectations.  Google, Apple, and Intel have all posted big numbers so far.  Later in the week, Amazon and Microsoft are the tech giants that will announce, as well as Motorola, Comcast, Wendy’s, and ConocoPhillips.

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While the American markets are experiencing a positive year, albeit with some large slumps, the real action has been taking place in the East, where the Indian and Chinese markets continue to grow at an incredible pace.  With Asian markets rising from Hong Kong to Mumbai, American investors are taking advantage of the growth through ETFs designed to zero into certain markets, sectors, or economies by acting like mutual funds and offering investors a ‘basket’ of stocks, for a fraction of the cost of buying each individual stock.  Groups like Barclay’s and Merril Lynch offer ETFs for everything from internet technology groups, to market indexes, to groupings of major companies in countries and regions.  These last groups are the ones that are particularly interesting, as so-called emerging markets are taking off.  Let’s look at a few of ETFs for Asia.

• iShare MSCI Brazil (EWZ): Brazil has been one of Latin America’s economic leaders over the past few years, and EWZ has had a banner year this year.  Some of the key holdings include Petroleo Brasiliero, Petrobras, Companhia Vale do Rio Doce (RIO), and Banco Itau.  The ETF is heavily weighted in energy and industrial materials, with these two sectors making up roughly 56% of all holdings.   EWZ is up over 80% on the year, even considering that it lost around 50% in a late summer dip.  EWZ is currently trading at $78.80 and is rated a ‘B’ and a ‘Buy’ by thestreet.com.
• First Trust ISE Chindia (FNI):  China and India are the hot markets in the world at the moment showing huge returns to investors, and this new ETF is designed to allow investors to enter both markets under one ‘umbrella’ ETF.  Since its inception in May, FNI has gone up almost 50% on the strength of some of the biggest companies in the two countries.  Among the companies represented in FNI are: China Life (LFC), Infosys (INFY), Petrochina (PTR), and Satyam Computer (SAY).  Looking at FNI’s holdings, one notices that the sectors are fairly equally weighted, with software at 18%, energy at 12%, telecommunications at 12%, financial services at 16%, and business services at 13%.
• iShares MSCI Hong Kong Index (EWH):  Hong Kong is the financial hub of Asia, and EWH offers investors an way to own the whole index.  EWH is heavily weighted in the financial services sector, with over 55% of its holdings there.  Telecommunications, utilities, and consumer services are among the other major representations.  Some of the major companies included are: Bank of China, Hong Kong and China Gas, Espirit Holdings, and Sun Hung Kai Properties.  EWH has returned over 30% for the year, and is rated an A+ Buy by thestreet.com.

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Last week saw some big companies release their earnings reports, and the market reacted. Earnings season is in full swing now, and this week will bring more reports and more big moves. Here is a list of some of the bigger names to keep an eye on this week.

Monday, Oct. 15

Citigroup (C)

Eaton (ETN)

Genentech, Inc. (DNA)

Mattel (MAT)

Robbins and Myers (RBN)

W.W. Grainger (GWW)

Tues., Oct 16:

CSX Corporation (CSX)

Delta Airlines (DAL)

Domino’s Inc. (DPZ)

Forest Laboratories Inc. (FRX)

Intel Corp. (INTC)

International Business Machines (IBM)

Johnson and Johnson (JNJ)

Linear Technology (LLTC)

Regions Financial Corp. (RF)

State Street Corp. (STT)

U.S. Bancorp (USB)

Wells Fargo and Company (WFC)

Yahoo! Inc. (YHOO)

Wed., Oct 17

Abbot Laboratories (ABT)

Altria Group Inc. (MO)

E*Trade Financial Corp. (ETFC)

ebay (EBAY)

The Allstate Corp. (ALL)

The Coca-Cola Company (KO)

United Technologies (UTX)

Washington Mutual (WM)

Thursday, Oct. 18

Bank of America (BAC)

Capital One Financial Co. (COF)

Dow Jones and Company, Inc. (DJ)

Google (GOOG)

Nokia (NOK)

Pfizer (PFE)

Friday, Oct. 19

3M Company (MMM)

Harley Davidson (HOG)

Wachovia (WB)

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