Stocks, oil, and gold continue to rise higher on further weakness in the U.S. dollar. Alcoa and Intel will kick off fourth quarter 2009 earnings season amid positive expectations.
Early Market Action
In overseas equity markets this morning, Asian markets were mostly higher.
Japan's Nikkei 225 index jumped 1.1 percent today.
China's Shanghai Shenzen index is up 0.5 percent.
Hong Kong's Hang Seng climbed 0.5 percent.
Australian shares rose on Monday on the strength of resource stocks. Gold miners were the showcase sector with Lihir Gold (LIHR) jumping 3.0 percent. The All Ordinaries Index was up 0.8 percent.
India's Sensex edged downward by 0.1 percent.
European equity markets were also higher this morning.
The German DAX index is up 0.6 percent.
Britain's Footsie 100 index climbed 0.5 percent.
U.S. stock futures edged higher this morning in the pre-market with the Dow up 0.3 percent, the S&P up 0.4 percent, and the Nasdaq climbing 0.3 percent.
Crude oil prices climbed on Monday morning to a 15-month high as Chinese imports surged and the dollar dropped. Front month oil is trading at $83.56 a barrel for a 0.8 percent gain from Friday's close.
February natural gas futures are priced at $5.53, down 0.2 percent.
The price of gold surged overnight by $24, rising as high as $1,163 per troy ounce. The yellow metal is now trading at $1,157 per ounce, up 1.7 percent this morning.
January copper contracts are trading at $3.48 a pound, up 0.1 percent from Friday.
The U.S. dollar index or DXY, dropped 0.6 percent overnight.
Economic Preview
On the economic front, December retail sales data will be released on Thursday. Economists are expecting retail sales to edge up 0.4 percent for December. Overall retail sales for November were up 1.3 percent.
On Friday, all the eyes will be on the December Consumer Price Index or CPI. The CPI jumped 0.4 percent November, boosted by a surge in energy costs. The consensus estimate for December's CPI is 0.1 percent.
Finally, the preliminary January University of Michigan sentiment index is expected to reach 74, slightly higher than the 72.5 reading in December.
Looking beyond December, retail sector analysts expect monthly sales data should improve in 2010.
Upgrades and Downgrades
Citigroup (C) upgraded integrated oil majors BP (BP), Petrobras Brasileiro (PBR) and Chevron (CVX) from hold to buy. Shares of BP were trading higher by 3.0 percent in the pre-market, Petrobras climbed 1.4 percent and Chevron was higher by 1.6 percent in pre-market trading.
Deutsche Bank upgraded Chipotle (CMG), Corning (GLW), Panera Bread (PNRA), and Parker-Hannifin (PH) from hold to buy. Burger King (BKC) was downgraded from buy to hold. Corning shares jumped 4.5 percent, while Parker-Hannifin shares rose about 1.2 percent in the premarket. In a surprising move, Chipotle shares sunk almost 6 percent in the pre-market even with the upgrade.
Retail Focus
Despite positive growth in retail sales over the past few months, households are not expected to increase discretionary spending until employment prospects improve and housing values pick up. Slack consumer demand should continue to restrain margin growth in the retail sector.
Nevertheless, U.S. chain stores had an unexpected rise in same-store sales for December. This was the fourth straight gain after a year of monthly declines during the recession. Chains such as Macy’s (M), Nordstrom (JWN), TJX Company (TJX), and Aeropostale (ARO) increased forecasts for bottom line profits.
Absent improvement in top line revenues going into 2010, growth in inventories and retail employment will likely remain on hold.
Materials Lead
Materials have been leading the market for much of 2009 as China's appetite for resources have partially offset demand destruction in the industrialized world.
Fourth-quarter earnings year-over-year growth for the materials sector is expected to exceed 160 percent according to Thomson Reuters. Following materials in expected earnings growth is consumer discretionary at 114 percent, telecoms at 51 percent, and technology with 30 percent. Energy is projected to fall 24 percent in earnings growth, while industrials come in at negative 13 percent and utilities at negative 8 percent. Health care is expected to show earnings growth losses of negative 4 percent.
Earnings Preview
Fourth-quarter earnings for S&P 500 companies are expected to increase 184 percent from a year ago, when the economic downturn took a big toll on corporate results.
Corporate earnings have been improving in recent quarters, with many companies beating estimates, but have still been down from year-ago levels. Third-quarter S&P 500 earnings declined 14.7 percent.
This week kicks off fourth quarter earnings season with most eyes on Alcoa (AA) and Intel (INTC). Six S&P 500 members will report this week.
After the closing bell on Monday, Alcoa is expected to report 5 cents a share in profits. Analysts will be closely watching for Alcoa to meet or beat the consensus earnings estimate to confirm that materials will continue to lead the world out of recession. Absent strong earnings for Alcoa, top-line revenues need to show growth to send a positive signal to the markets.
On Tuesday, H.B. Fuller (FUL) is expected to report earnings per share of 42 cents, nearly double the 24 cents reported for the same quarter a year ago.
Supervalu (SVU) will also post earnings on Tuesday with consensus estimates of 43 cents a share, down from profits of 62 cents for last year's fourth quarter.
Charles Schwab (SCHW) is expected to earn 15 cents a share compared to profits of 27 cents in the same quarter last year.
On Thursday, Intel will kick off the earnings season for the technology sector. The consensus estimate is 30 cents per share.
On Friday, JP Morgan Chase (JPM) will report earnings for the fourth quarter. Analysts are expecting the company to report 62 cents a share.
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