JPMorgan

U.S. Equities Trim Weekly Loss On Fourth Quarter GDP Revision

U.S. Session Key Developments

•    U.S. Fourth Quarter GDP Revised Higher to 5.9 Percent, Personal Consumption Lower
•    Existing-Home Sales Drop in January, Chicago Business Gauge Better-Than-Expected
•    Commodities Trade Higher as Greenback Falls Against Major Cross Currencies

U.S. stocks posted a slight gain in the final day of trading this week, as estimates for fourth quarter economic growth were shown to be higher than previously thought.  Despite today’s gain, however, the S&P 500 closed the week down 0.4 percent to 1,104.  The market-moving GDP revision was announced one hour before the opening bell and showed that the U.S. economy expanded 5.9 percent in the fourth quarter of 2009, better than the 5.7 percent initial estimate.  The GDP data was revised higher thanks to stronger business investment in the quarter and a greater contribution from inventories.  The personal consumption aspect, however, was revised lower to 1.7 percent from a 2.0 percent initial reading.  Overall, stocks traded mostly sideways during the session as other economic data released today was mixed.  The Chicago Purchasing Managers Index unexpectedly rose from 61.5 to 62.6 in February, but the University of Michigan Confidence indicator fell in the month and existing home sales disappointed for January.  Home sales were expected to rise 0.9 percent in January but instead were shown to have fallen 7.2 percent, after declining 16.2 percent in the month prior.

Globally, stocks had a strong day as the major European indices and China’s Hang Seng Index each traded at least 1 percent higher.  Investor risk appetite made a strong return as commodities joined stocks in trading higher across the board.  Crude oil prices gained for the third time this week, adding nearly 2 percent to $79 a barrel, while gold futures posted a second consecutive gain and closed the week near the $1120 level.  As for currencies, the U.S. Dollar was generally weak, falling against most of its major counterparts, including the euro.  The U.S. Dollar Index fell for a third consecutive day, but held above the 80 level for a seventh consecutive session.

DJIA 30                     10,325.26                      +4.23                       +0.04%
The Dow Jones Industrial Average closed slightly above even on a low-volume trading day.  Volume on U.S. exchanges today was slightly under 8 billion shares, 11 percent less than the 2010 average due to a snow storm in New York City and the surrounding area.  JPMorgan Chase led the index with a 3.2 percent gain after analysts at Barclays recommended buying the bank’s shares.  The bullish commentary led to a near full percent gain among financial shares.  Other stocks that outperformed the index included General Electric and drug maker Merck, which each added 0.8 percent on the day.  The worst performer on the index was Kraft Foods, which fell over 1.3 percent on the day.

S&P 500                     1,104.49                         +1.55                         +0.14%
The broad-based S&P 500 posted a small gain in the final day of trading this week on strength in financials and basic materials shares.  Financials rose nearly 0.7 percent on bullish commentary from Barclays analysts as well as commentary from Fed Chairman Ben Bernanke in the past two days that suggested rates would remain low for the foreseeable future.  The basic materials sector added 0.3 percent today, as commodities generally traded higher during the session.  Mining company Freeport McMoRan gained over 1 percent, while Barrick Gold Corp. added 0.2 percent on higher precious metals prices.  On the downside, AIG fell 10 percent for the biggest loss  on the index after posting a fourth-quarter net loss of $8.8 billion.

NASDAQ                     2,238.26                         +4.04                         +0.18%
The tech-heavy Nasdaq was the best performer among major U.S. indices as technology stocks posted a slight gain.  Among the heaviest-weighted fifteen tech stocks on the index, smart phone competitors Research in Motion and Apple posted the largest gains.  Shares of each company rose at least 1.2 percent as shares of Palm, another smart phone competitor, sank on news that company sales may be very weak this year.  Qualcomm was the worst performer among the large Nasdaq tech stocks, dropping 1.3 percent on the session.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

JPMorgan

European Equities Falter as Recovery Optimism Wanes

Europe Session Key Developments

•    German Price Index Declines, EZ CPI Holds Steady Despite Low Rates
•    Euro area Trade Balance Decreases on Exports
•    Poor Earnings Data Drag Financials

European stock markets declined for the first weekly decline in over a month as a poor U.S. consumer sentiment report, coupled with worse-than-expected revenue data from JPMorgan drove markets negative on Friday. As JPMorgan, the United States first bank to report fourth quarter earnings, announced that it increased its credit-loss provisions, investors hesitated on the notion of a full recovery of the Financial sector, driving down banking institutions across Western Europe. All eighteen national benchmarks in Western Europe declined, except in Iceland, while the DAX dropped by nearly 2.0 percent. As trepidation builds regarding a full-fledged recovery just yet, market sentiment is expected to move on more earnings and a slew of important economic releases early in the week.

FTSE 100                      5455.37                   -42.83               -0.78%
Following a poor start to earnings season, the British market ended the week negative for the first time in the past four, finishing Friday at 5455.37. Eight of ten sectors dropped on the day, with Basic Materials, Telecommunications, Financials, and Healthcare all losing more than one percent each. Man Group, Britain’s largest publicly traded hedge fund, plummeted 6.9 percent after data showed a larger-than-expected drop in assets. Later in the session, news from the United States showed that JPMorgan, the second largest American bank, reported less-than-expected revenue, dragging Financial sectors across Europe down. Other losers on the day include QinetiQ Group, falling 12 percent, a record drop for the company. Overall, the index posted a 1.4 percent drop on the week, though the FTSE remains up 0.78 percent in 2010.

CAC 40                     3954.38                   -61.39                 -1.53%
Following its British counter-part, the French index sank today following dismal outlook from the Financials sector, which dropped over two and one-half percent on Friday. Overall, the CAC tumbled 1.53 percent, with nine of ten sectors appearing in the red on the day. Societe Generale, France’s second-largest bank, and Dexia, the largest lender to local governments in Belgium and France, each dropped 2.7 percent following the JPMorgan data. Amid the sell-off, notable gainers during the session were Carrefour, Cap Gemini, and Atos Origin, adding 3.6 percent, 3.6 percent, and 2.0 percent, respectively.

DAX                         5875.97                    -112.91             -1.89%
The German index fell the most among the five major European equity markets on Friday, declining nearly 2.0 percent to 5875.97. Despite data early in the session that German inflation remains well-within the European Central Bank’s medium-term range even as the ECB holds the key interest rate at 1.00 percent, the DAX tumbled following poor data suggesting consumer spending remains depressed abroad. Nine of ten sectors fell on the day, with Technology dropping 3.44 percent, and Financials and Basic Materials each losing more than 2.0 percent. Deutsche Bank and Commerzbank fell 3.7 percent and 2.5 percent, respectively, following Financials down across the globe. Other movers on the day included Drillisch, which added 2.3 percent, and HeidelbergCement, which fell 2.7 percent after its stock was downgraded to “hold” at ING Groep.

IBEX 35                     11845.00                   -154.80                 -1.29%
Spain’s IBEX index had its largest daily decline in nearly four weeks, dropping 1.3 percent for the day overall. The index is now down 0.80 percent in the new year following its biggest weekly decline in five weeks. Nine of ten sectors dropped on Friday, with five sectors dropping one percent or more, and Health Care posting the only gain on the day. Banco Popular Espanol slid 1.5 percent, while Banco de Sabadell fell 2.2 percent, its biggest decline in a month. Iberia Lineas Aereas de Espana added 1.5 percent, its largest gain since December 7, as crude declined during trading hours.

S&P/MIB                        23472.11                     -333.88                 -1.40%

Notable Europe Event Risk / Economic Releases

Written by Christopher Vecchio, CFDTrading Research
Please send any comments about this report to Cvecchio@fxcm.com

JPMorgan

4Q Earnings Season Leaves Investors Guessing Ahead of Releases

With Alcoa posting a $227 million dollar loss, the fourth quarter earnings season has gotten off to a rough start.  However, according to analysts’ forecasts, earnings for the companies in the S&P 500 Index are expected to more than double the levels measured through the end of 2008.  Companies have seen their revenues handicapped by a tepid recovery from the worst recession in modern history. As a reflection of what is considered ‘good’ data in current conditions, government labor data recently reported the unemployment rate held near a 26-year high at 10%,  while net payrolls fell by 85K jobs in December.   Considering consumer spending accounts for an estimated 80 percent of economic activity, the outlook for business income remains challenging. However, considering the marked recovery in the financial markets through the end of the year and expectations of a robust holiday shopping season; there may be more to work with for bulls than underlying fundamentals suggest.  To garner a sense of what the 4Q earnings season may hold, we will draw comparison to the previous quarter and look at analyst expectations for the upcoming numbers.

Third quarter earnings were well ahead of analysts’ expectations, as over eighty percent of S&P companies reported earnings that surprised to the upside.  This was a record high for companies beating estimates according to Bloomberg which has tracked the data back to 1993.  The results were not all positive, however, as most sectors were unable to post year-over-year growth and revenues failed to keep pace with earnings.  The latter was attributable to weak consumer spending and it forced companies to cut costs to maintain an acceptable profit margin.  For perspective, this was the third consecutive quarter of better-than-expected results for the broader market.  However, this can be partially attributed to especially low forecasts founded on concerns related to the weak pace of recovery and anemic consumer spending in the U.S and abroad.

Looking ahead, this round of earnings figures could have a profound effect on market sentiment. Expectations for fourth quarter results are high; but this time around investors will no doubt be more judicious in their assessments of the sector’s health. Ultimately, the source of earnings will be the take away for investors: whether or not companies were able to move beyond the cost-cutting schemes of early 2009 and fill in with a steady revenue stream, as the United States and other countries around the world recommenced growth. Although the markets are likely to remain relatively quiet ahead of next week, volatility should pick up as traders adjust their expectations heading into the dense round of reports. However, depending on how these corporations performed as a whole, lingering cynicism regarding a double-dip recession in 2010 could be amplified or dispelled.

Written by Rab Jafri, James Russell, and Christopher Vecchio, CFDTrading Research

JPMorgan

3Q Earnings Season May Draw More Skeptics This Time Around

Few have forgotten the impact that the US second quarter earnings season had on the markets. Better-than-expected earnings reports were the norm and the impact on sentiment was clear. Risk appetite was feed and stocks rallied for the weeks afterwards. However, the accounting for that period was special as it confirmed the recovery was taking place for the corporate sector. This time around, enthusiasm will be generally more muted. No longer are we merely looking for a rebound from the worst of the crisis; instead, market participants will analyze the data for the pace of the recovery. And, should the market reflect on the numbers with a little more skepticism; they may very well be disappointed by what they see.

Taking a look at the general cut of the second quarter earnings numbers, it is safe to say that cash flows, revenue, invest and all other relevant measures of health are far below the figures we had come accustomed to up through 2007 and even 2008. The full brunt of the recession and financial seizure has severely stalled economic activity; and in turn demand for goods and services has naturally shriveled. With domestic US demand continuing to shrink as wages wither and unemployment marches higher, tight credit conditions prevents expansion and economic hardship and protectionist measures cool exports; the outlook for corporate earnings over the coming years (much less the past three months) looks anemic.

What should we look for specifically to gather a sense of direction from this data? The most important consideration is how the markets respond to the data. Better-than-expected or not, if the general consensus is one of skepticism for the future, sentiment can collapse under its own heights. At the same time, the surprises as compared to forecasts will act as a good catalyst for market activity either way. We should watch the numbers from the biggest corporations – those that represent the entire business sector. This is the first week for major releases; so expect the volatility to begin here (if at all).

It is especially important to watch the announcements from the four major US banks this week. While the rest of the firms’ numbers will be reasonable measures of economic health; the banks health is a necessary measure for growth, credit conditions and financial stability amongst other things. Write downs are especially important. The IMF has projected that the world’s banks have only accounted for half of their losses (and the US specifically 60 percent). Accounting rules may have allowed for roll over losses; but defaults and mortgage security-based losses will factor in sooner or later. Also, as the catalyst for the bullish drive during the second quarter season, Goldman Sachs will likely be under greater scrutiny than its peers.

Written by: John Kicklighter, Strategist for CFDTrading.com
Questions? Comments? Send them to John at jkicklighter@cfdtrading.com.

JPMorgan

Stocks Gain A Fourth Day After JPMorgan Blows Earnings Estimates Out of The Water

US Session Key Developments

• JPMorgan Earnings Beat Estimates by 600%
  
• Initial Jobless Claims Fall to Lowest Since Start of Year
  
• Philadelphia Federal Reserve Index of Manufacturing Plummets
  

Stocks Gain A Fourth Day After JPMorgan Blows Earnings Estimates Out of The Water

A fourth consecutive day of bullish price action on stocks was bolstered by JPMorgan’s earnings, which blew analysts estimates out of the water. Indeed, the New York-based banking giant reported that it had earned 28 cents per share with Wall Street thinking it would post earnings of only 4.6 cents per share. None of this was able to mitigate the harm done by news that the small business-lending giant CIT would probably default on the $2.5 billion lent to it via the Treasury’s TARP program. Financials finished the day down 0.16%. Momentous sentiment, however, was buoyed by the Intial Jobless Claims figure, which fell to the lowest level since the first week of the year. The week ending July 11th saw those stating that they had lost their job within the previous seven days decline to only 522,000. From it’s historic high, in March, the figure has declined 22.6%. For most of the day the broader market remained flat, but ultimately finished ahead.

Dow 30              8711.82             +95.61                        +1.11%

The Dow remained mostly range bound for the first two-thirds of the day before the risk-takers took hold of the market and pushed up to close near the session highs. Telecommunications was the sole sector finishing down after AT&T declined 1.08%.

SPX 500              940.74                 +8.06                        +0.86%

The VIX (fear gauge) declined today for the fifth of six days after stock prices rose mildly. Despite the positive news from JPMorgan, Financials managed to be the only sector in the index to finish the day in the red.

NAS 100             1885.03                +22.13                          +1.19%

Oil and Gas performed the strongest in the Tech-laden index, rising 2.20% as positive sentiment forced the price of New York crude to rally to the ighest point in nearly two weeks.

JPMorgan

Stocks Post Gains Ahead of Labor Data

US Session Key Developments

• Manufacturing Expectations Rises Less Than Expected
• Construction Spending Declines More Than Estimated
• Intel Earnings Forecast Raised by Morgan Stanley
  

Stocks Post Gains Ahead of Labor Data

U.S. stocks started the second half of the year on a positive note, despite reports showing that construction spending declined more than originally anticipated. Sentiment suggests that expectations of a recovery may be overshadowing current data showing that such has not begun occurring. Construction Spending generally reflects trends in the number of properties constructed.

Dow 30              8504.06             +57.06                        +0.68%

Financials were the only index to finish in the red today after JP Morgan announced that it would be raising its minimum credit card payment, sending the company’s stock down 1.0%.

SPX 500              923.33                 +4.01                        +0.44%

The S&P 500 was slightly more diverse in that the Health Care sector joined Financials by also declining. Consumer Goods jumped ahead 1.92%  after Kraft said that Russian sales were “Very strong,” advancing the stock 4.0%.

NAS 100             1845.72                +10.68                          +0.58%

NASDAQ performed solidly today with Intel managing to gain 3.0% after Morgan Stanley and AmTech increased the company’s earnings estimates.

JPMorgan

Stocks Break Losing Streak, Gaining Modest Amount

US Session Key Developments

· Continuing Jobless Claims Ease in May

· Research in Motion Beats Earnings Estimates

Stocks Break Losing Streak, Gaining Modest Amount

Stocks broke a three-day losing streak today after Continuing Jobless Claims data showed that the recession may be bottoming. Indeed, the number of those claiming unemployment benefits shrunk in the week ending June 6. Research in Motion beat estimated earnings by 4 cents per share, reporting a 98 cents per share earnings for the first-quarter. NASDAQ stocks as a whole, however, failed to finish in the green. Bank shares rallied ahead with JPMorgan and Bank of America finishing ahead at least 4.40% each.

Dow 30 8555.60 +58.42 +0.69%

The Dow had a very mixed day, with Industrials, Energy, and Technology all finishing the day down. Consumer Goods, however, surged ahead 3.05% with Kraft moving head nearly 4.0%.

SPX 500              918.37                 +7.66                        +0.84%

Banks allowed the S&P 500 to finish the day ahead, with Bank of America surging ahead 4.88% ofter speculation emerged that they would be repaying their TARP money in the near future. As a group, Financials beat all the major indices, finishing up by 2.42%.

NAS 100             1807.72 -0.34                          -0.02%

Tech stocks closed down despite Reserach In Motion’s surprise earnings estimates, which came in better than forecast. The Tech sector as a whole was very mixed with big names such as Microsoft closing down while companies like Oracle finished ahead.