Since 1950, September is the worst performing month for the S&P 500 index.» Read More
Talk about the "Road Less Traveled". With the dollar at all-time lows against major currencies and the continued rise of crude oil prices, many Americans may be rethinking the summer vacations they have been planning. Domestically, we are only two months away from the start of the summer driving season where rising gasoline prices will take its toll. The weak dollar makes international travels much more costly too. As Maria Bartiromo pointed out this morning on Squawk Box, groceries alone cost 25% more in London than they do in New York.
Offsetting this, of course, will be foreigners choosing to visit the USA at what they see to be bargain basement prices. According to the US Department of Commerce, 2007 set an all time record for international visitors. A record of 56.7 million international visitors traveled to the United States in 2007, an increase of 11% over 2006. International visitors also spent a record breaking $122 billion on travel and tourist related activities within the US.
Top countries with international visitors traveling to the United States in 2007 were:
Canada - 17,735,000
Mexico – 15,089,00
United Kingdom – 4,497,858
Japan – 3,531,489
Germany – 1,524,151
France – 997,506
South Korea – 806,175
Australia – 669,536
Brazil – 639,431
Italy – 634,152
While we welcome our foreign guests, the markets are not sure that the inflow will offset American declines in travel. In the last month and as oil prices shattered records, the Dow Jones Travel & Tourism Index turned negative.
As Visa’s expected public offering approaches, will the company’s IPO draw the attention that was anticipated? Visa’s initial public offering could potentially be the biggest IPO in the history of the US. Visa plans to offer 406 million Class A shares with a price target between $37 and $42 / share which could value the IPO at approximately $16 billion. The offer is expected to take place next week on March 19th under the ticker symbol V, and could surpass AT&T Wireless’ $10.6B IPO in 2000, and Kraft’s $8.7B IPO in 2001.
Visa’s IPO comes at a time of economic uncertainty. The Renaissance IPO Index which reflects IPO’s activity and their performance for two-years from their first day of trading is down 21% year-to-date. So will the IPO be successful?
Visa’s business model relies on its strong brand recognition and its reputation for the world’s largest payment network, handling $1.8 trillion in total volume of goods, services, and cash access transactions in the United States. According to its SEC S-1 filing , 99% of Visa’s revenue comes from card service and processing fees making it less sensitive to the defaults in payments that rise during economic downturns. It largely acts as a liaison between the banks issuing the credit and merchants without taking on risk itself.
Federal Reserve data also shows that consumer revolving credit continued to grow even during the last recession, albeit at a slower rate. Visa's S-1 shows operating revenues for the 9 month period ending June 2007 were $2.6 billion. Year over year revenues for the same period grew by 18%. According to Visa, card purchases in the United States have increased at an annual compound growth rate of 12% from 2000 to 2006 as this trend is expected to continue at an annual compound growth rate of 8% through 2012.
Governments, corporations, and merchants continue to incorporate electronic payment systems in order to increase efficiency, security, and control. Jupiter Research predicts that online retail spending, as a portion of total retail sales will increase to over 50% by 2010, which could potentially lead to greater profits for Visa through more transaction fees.
Visa is the market leader in card transactions, with close to double its next closest competitor, MasterCard . MasterCard had a successful IPO in 2006, valuing the company at $2.4 billion. Since the IPO, MA shares have risen over 300% in nearly two years and it now has a Market Cap of $25 billion.
The markets continue to rally after yesterday's huge gains. As of 11:30, the Dow is up ~530 points or 4.5% in the past two days. The last time the Dow had a 2 day move like this was nearly 6 years ago in 2002.
Leading the Dow today are:
With Oil touching a new intraday record high price of $109.72 a barrel yesterday, which are the companies with the highest percentage gain year-to-date (YTD) in the S&P 500 Energy Sector?
Although the S&P 500 Energy Sector is down 5% YTD, the Oil & Gas Exploration and Production sub-sector has advanced 14% in the same period. The biggest winner in the Energy Sector and the S&P 500 Index has been EOG Resources . Six of the seven leading companies for the S&P 500 Energy Sector with the highest percentage gains in 2008 are part of the Oil & Gas Exploration and Production classification, except for Nabors Industries , which is part of the Oil & Gas Drilling category.
The Fast Money traders suggest considering XTO Energy and Chesapeake Energy as two interesting plays for the bullish trend in crude oil.
Beware the Ides of March? Not if the Markets say so. With the markets soaring today, I looked up some of the biggest gains ever. Interestingly, the Dow and S&P have had their best days in points and percentage in mid-March. The NASDAQ had its best day ever in January 2001.
The last time all three major indices were all up over 3.5% in one day was March 17, 2003.
Historically, on the Ides of March itself (March 15), the Dow has been up 56% of the time and has had an average percent gain of 0.3%. Within 6 months of March 15, the Dow has gained an average of 4.2% and has been up 68% of the time.
Even in years when the markets are down from the start of the year through March 15, the markets historically have rebounded. In those down starts to the year and within 6 months of March 15 of those years, the Dow has gained an average of 4.2% and has been up 67% of the time.
The Dow has gained 400+ points in a single day five times in its history, two of them in March.
As oil hits new record highs for the fifth straight day, these costs trickle down to its distillates such as gasoline and diesel fuels, and to the consumer.
Oil for April delivery hit a new intraday high of $109.72 and a new record close of $108.75, and some analysts are predicting $115 - $120 per barrel costs in anticipation of the summer driving season. Last week oil broke through the inflation adjusted high of $103.76 hit in 1980, when oil traded at $38 per barrel in 1980 dollars.
The cost of one gallon of gas hit a new record high with a national average of $3.2272 a gallon up 27 cents in a month, according to AAA and OPIS \(Oil Price Information Service\). The previous record of $3.2265 was hit last May at the start of summer driving season.
The Energy Information Administration \(EIA\) has stated that national average may hit $3.50 per gallon this Spring, and possibly even $4 per gallon. The EIA current weekly average stands at $3.225 per gallon for retail gas, and $3.819 per gallon for diesel as of 3/10/08.
Some energy plays in ETFs that have done well this year:
Pure play oil ETFs are the US Oil Fund and the PowerShares DB Oil Fund are both up over 13% in 2008 and over 71% and 50% respectively over the last 12 months.
The PowerShares DB Energy Fund composed of energy futures contracts including Light Sweet Crude, Heating Oil, Brent Crude, RBOB Gasoline and Natural Gas is up almost 14% in 2008, and over 55% in the last 12 months.
The RJ CRB tracks prices of 19 commodity futures, including oil, gas, natural gas, heating oil, gold, aluminum, nickel, silver, copper, wheat, cotton, soybeans, sugar, frozen orange juice, cocoa, corn, coffee, live cattle and lean hogs is up almost 16% year-to-date.
The Dow futures surged this morning on the news of a liquidity injection from the Fed. On the open, the Dow jumped ~275 points. This is the 7th highest point move on the open in history. Here are the top 10 opens of the Dow prior to today's move:
Last week, the dollar fell to new lows. Looking back at the past 30 years, the dollar seem to be moving in pattern with its historical cycles. The chart below shows the Trade-Weighted US Dollar Index on a 12 month moving average. While on the downtrend, the dollar is still higher than it was in the mid 90's and the late 70's. Those periods followed with significant rises in the dollar. So should we be concerned?
For the week ending Friday, March 07, 2008 the US Markets all ended the week down close to 3% or greater. The Dow closed below 12,000, the NASDAQ breached its 52-week low, and the S&P 500 closed below 1300 for the first time since September 11, 2006. In contrast commodities continue to hit new record highs, and the US dollar fell to record lows on a weak economy. Bernanke hinted at further rate cuts, the ECB held rates steady, and jobs unexpectedly fell, heightening fears that the US economy has hit a recession. Many economists are no longer questioning a recession, but how long it will last.
Next week, the markets will watch for Retail Sales on Thursday and earnings from some of the smaller retailers, while inflation watchers await the CPI report on Friday, seen rising again in February. If consumer prices rise beyond comfort levels, the spectre of stagflation, price inflation amidst weak economic growth, will again rear its head.
- The Fed announced emergency measures to improve liquidity by increasing the size of its auctions which should "address heightened liquidity pressures in term funding markets."
- Nonfarm Payrolls reported a loss of 63,000 jobs in February compared to a revised loss of 22,000 jobs a month ago, the steepest decline in 5 years, since March 2003, suggesting that the housing and credit crunch is spreading.
- ISM Manufacturing Index depicted a contracting factory sector with a reading of 48.3 for February from 50.7 in January, the lowest level since April 2003.
The Housing Crisis and Mortgages: For the first time since World War II, Americans have less than 50% equity in their homes due to plunging real estate prices and rising mortgages.
- Mortgage Bankers Association (MBA) announced that foreclosures rose to record highs in the 4th quarter of 2007 spurred by failing subprime loans.
- Thornburg Mortgage disclosed that it had "substantial doubt" about its survival, and failed to meet creditors' demands for a margin call of about $610 million. Thornburg shares lost more than 80% this week.
- The bond insurer Ambac Financial raised almost $1.5 billion in capital, in majority by selling stock, in order to maintain its debt ‘AAA’ ratings with credit rating agencies Moody’s and S&P.
- The Commerce Department’s nonresidential construction spending report showed a monthly decline of 1.7% in January, the steepest drop in 14 years.
Sectors & Indexes: Only the S&P Utilities Sector managed a slightly positive gain for the week, led by Exelon up 4.2% on the week, and only 6 Dow components were positive for the week (see detail below)
- Crude Oil for April delivery continued to hit record highs with a record close of $105.47 per barrel on Thursday and a new intraday high of $106.54 hit on Friday.
*Oil surpassed the inflation adjusted value of $103.76 per barrel from 1980 when oil was $38 a barrel. OPEC decided to maintain production levels, lower weekly inventories and conflicts between oil producers in Venezuela and Colombia all contributed to oil's rise.
*The Department of Energy EIA data shows the national average for a gallon of gas at $3.162 as of 3/3, and AAA and Oil Price Information Services sites the national average at $3.189 per gallon.
- Natural Gas for April delivery hit a new record high of $10 rising 4.30% for the week and settling at $9.769
- Gold for April delivery continued its record setting pace, though falling short of the $1000 mark hitting an intraday high of $995.2 as investors look to gold as a defensive play against a weakening economy.
- Silver for May delivery jumped above $20 an ounce for the first time, reaching an all-time high of $21.32 an ounce on Thursday.
Dollar Woes: The dollar sank to new lows against the euro, pound, yen, and Swiss franc, though it rallied off its lows by Friday afternoon
- The euro rose to an all-time high against the dollar on Friday with the cost of one euro hitting $1.5462
- The Japanese yen strengthened to new highs against the dollar breaking below the 102-yen level for the first time since January 21 2005, with the dollar only purchasing 101.45 yen at its low on Friday.
- The dollar tumbled to a new all-time low against the Swiss Franc with the US dollar only purchasing 1.0137 Swiss Franc at its lowest point.
**The CurrencyShares Swiss Franc ETF was up 1.39% this week, and almost 11% in 2008.
- The British Pound rose to $2.0215 per pound on Friday, after breaching the $2.00 level for the first time this year on Thursday.
**Though gaining against the dollar, the pound has also suffered against he euro losing 3.59% this year on continued fears of the UK economy entering recession.
Market Stats:The Dow ended down -372.70 or -3.04% for the week, and negative on Friday
-The Dow is Negative YTD down -10.34%
-The Dow is off by -2,270.84 or -16.03% from the market peak on October 9th of 14,164.53
The NASDAQ ended down -58.99 or -2.60% for the week and negative on Friday
-The NASDAQ is Negative YTD down -16.58%
-The NASDAQ is off by -646.63 or -22.62% from the market peak on October 31 of 2,859.12
The S&P 500 ended down -37.26 or -2.80% for the week, and negative on Friday
-Friday the S&P 500 closed at 1,293.37 down -10.97 or -0.84%
-The S&P is Negative YTD down -11.92%
-The S&P is off by -271.78 or -17.36% from the market peak on October 9th of 1,565.15
S&P Sector Performance for the week ending Friday, March 7, 2008:
S&P 500 Utilities Sector (.GSPU) Up 0.12 or 0.06%
S&P 500 Consumer Staples Sector (.GSPS) Down -1.43 or -0.51%
S&P 500 Telecomm Services Sector (.GSPTS) Down -1.54 or -1.12%
S&P 500 Information Technology Sector (.GSPT) Down -4.17 or -1.21%
S&P 500 Industrials Sector (.GSPI) Down -7.47 or -2.28%
S&P 500 Health Care Sector (.GSPHC) Down -12.11 or -3.19%
S&P 500 Consumer Discretionary Sector (.GSPD) Down -7.86 or -3.20%
S&P 500 Materials Sector (.GSPM) Down -8.20 or -3.23%
S&P 500 Energy Sector (.GSPE) Down -19.13 or -3.34%
S&P 500 Financials Sector (.GSPF) Down -20.54 or -5.95%
S&P Top 10 Performers for the week ending Friday, March 7, 2008:
Big Lots Inc (BIG) Up 3.91 or 23.20%
National Semiconductor Corp (NSM) Up 1.78 or 10.81%
Dillards Inc (DDS) Up 1.58 or 10.68%
Tyson Foods Inc (TSN) Up 1.40 or 9.72%
Ciena Corp (CIEN) Up 1.97 or 7.63%
SUPERVALU Inc (SVU) Up 1.80 or 6.86%
Clear Channel Communications Inc (CCU) Up 2.14 or 6.69%
Kroger Co (KR) Up 1.41 or 5.81%
BMC Software Inc (BMC) Up 1.55 or 4.80%
Applied Materials Inc (AMAT) Up 0.92 or 4.80%
S&P 10 Worst Performers for the week ending Friday, March 7, 2008:
Washington Mutual Inc (WM) Down -4.09 or -27.64%
CIT Group Inc (CIT) Down -5.30 or -23.85%
Freddie Mac (FRE) Down -5.53 or -21.96%
Countrywide Financial Corp (CFC) Down -1.24 or -19.65%
Fannie Mae (FNM) Down -4.88 or -17.65%
Novell Inc (NOVL) Down -1.26 or -16.91%
King Pharmaceuticals Inc (KG) Down -1.70 or -16.04%
Lennar Corp (LEN) Down -2.90 or -15.58%
Ambac Financial Group Inc (ABK) Down -1.64 or -14.72%
Circuit City Stores Inc (CC) Down -0.58 or -13.12%
Dow Top Performers for the week ending Friday, March 7, 2008:
Microsoft Corp (MSFT) Up 0.67 or 2.46%
Coca-Cola Co (KO) Up 0.39 or 0.67%
Wal-Mart Stores Inc (WMT) Up 0.31 or 0.63%
AT&T Inc (T) Up 0.18 or 0.52%
Intel Corp (INTC) Up 0.10 or 0.50%
International Business Machines Corp (IBM) Up 0.08 or 0.07%
Procter & Gamble Co (PG) Down -0.38 or -0.57%
Johnson and Johnson (JNJ) Down -0.45 or -0.73%
Hewlett-Packard Co (HPQ) Down -0.46 or -0.96%
ALCOA Inc (AA) Down -0.54 or -1.45%
Dow Worst Performers for the week ending Friday, March 7, 2008:
Citigroup Inc (C) Down -2.80 or -11.81%
American International Group Inc (AIG) Down -3.98 or -8.49%
JPMorgan Chase and Co (JPM) Down -3.09 or -7.60%
Bank of America (BAC) Down -3.00 or -7.55%
The Boeing Co (BA) Down -6.19 or -7.48%
Merck & Co Inc (MRK) Down -2.55 or -5.76%
General Motors Corp (GM) Down -1.32 or -5.67%
Exxon Mobil Corp (XOM) Down -4.52 or -5.19%
The Walt Disney Co (DIS) Down -1.65 or -5.09%
United Technologies Corp (UTX) Down -3.02 or -4.28%
Pfizer Inc (PFE) Down -0.93 or -4.17%
Key Earnings next week:
Monday: Texas Instruments (TXN), Blackstone (BX), Six Flags (SIX), Foot Locker (FL)
Tuesday: Dick’s Sporting Goods (DKS), Liz Claiborne (LIZ), Take-Two Interactive (TTWO)
Wednesday: Flotek Energy (FTK), Gymboree Corp. (GYMB), Men’s Wearhouse (MW)
Thursday: Noven Pharmaceuticals (NOVN), Aeropostale (ARO), Dillard's (DDS)
Economic Data next week:
Monday: Wholesale Inventories
Tuesday: Trade Balance
Wednesday: Crude Inventories, Treasury Budget
Thursday: Retail Sales, Jobless Claims (Initial), Business Inventories
Friday: CPI, Core CPI
The European Central Bank holds rates steady on Thursday and Bernanke suggests further rate cuts in the US, all sending the US dollar lower, and the euro and pound higher. According to Reuters, Bernanke indicated in his testimony before congress that he was more concerned about US economic growth than inflation, which erodes confidence in U.S. assets and the demand for dollars to buy them.
The US Dollar is at new lows against the Euro, at its lowest point Thursday it cost $1.5365 to buy a Euro , and also hit a lifetime low against the Swiss Franc , down almost 10% in 2008 alone.