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Market Insider with Patti Domm Trader Talk with Bob Pisani

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  Tuesday, 21 Oct 2008 | 12:01 PM ET

Why Today Is So Important

Posted By: Bob Pisani

Here is one of the more important trading days we have had in this tumultuous month. Any close that is near break even or positive would be a sign that stocks are discounting a lot of bad news.

Today, we get generally poor guidance on 2009 and the markets do...nothing. The VIX, down 25 percent yesterday (biggest drop in years) does nothing. Dow moves in a 150-point range, it's narrowest range in weeks.

Don't let the quiet trading fool you: beneath the turmoil the market is struggling to find new leadership. It has not yet clearly materialized, but that's because we are in an uncertain transition.

Just because the big names--DuPont, Caterpillar, Texas Instruments, American Express, Lockheed Martin, have all been out trying to talk down 2009 in the last 24 hours doesn't mean these stocks are dead in the water.

The markets have already discounted a doozy of a recession. AmEx was at a 10-year low, DuPont at a 13-year low, Lockheed 2 year low, Texas Instruments5 year low, get the point?

Yes we are down, but not much, midday. Bulls will crawl out of their hole if we get anywhere near break even at the close.

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- The Dow 30 at a Glance

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  Tuesday, 21 Oct 2008 | 9:07 AM ET

Market Test--Can It Move Up On Bad Earnings?

Posted By: Bob Pisani

Futures are down in reaction to the poor earnings guidance we have seen from Dupont,Texas Instruments, Sandisk, and Sun Micro, among others, but the swing in the futures pre-open has been only 18 points, well below the 50-point spreads we have seen in the past few weeks.

Overnight, three month Libor dropped below 4 percent to 3.83 percent. The dollar index rallied to a new 18 month high, which is hurting commodities again. Copper is down 5 percent this morning.

While lower copper is good news for many industries like home builders, it is a huge problem for a firm like Freeport-McMoran, which this morning reported earnings and revenues a bit below expectations.

They did not give guidance, but noted "significant uncertainty" about the near-term price outlook for copper and gold. Down 6 percent pre-open.

"Significant" is an understatement. Freeport said copper prices averaged $3.49 a pound during the third quarter, dropped to $2.89 at the end of the quarter, and this morning is $2.01.

Other than earnings, the most important event today is that the Lehman credit default swaps are supposed to be paid off--we have no idea how much was actually bought as insurance, how much as speculation, nor the exposure of the big firms.

On earnings:

1) Caterpillarmissed earnings, revenues above expectations, however stock is up because they reiterated 2008 full year guidance (about $6.00), however the expectations for 2009--flat with 2008--are a bit below expectations of $6.15. CEO Jim Owens said, "the timing and strength of the recovery are very uncertain."

2) Dupont beat, but lowered guidance for the full year (to $3.25-$3.30, from $3.45-$3.55), based on weakened demand in North America and Europe, which is two-thirds of their business. Down 5 percent pre-open.

3) MMMbeat, full year estimate is $5.40-$5.48, in line with estimates of $5.45. This was a good report given the environment, with continued growth in international operations. Up 2 percent pre-open.

4) Lockheed-Martin beat, and their guidance for the rest of the year is above their prior guidance, but 2009 guidance is below expectations. Down 5 percent pre-open.

4) American Express beat expectations and is trading up about 4 percent pre-open. Mastercard and Visa are both trading up in sympathy. But don't get too excited: AmEx was at a 10-year low on Thursday, so this is just a small bounce from a dramatically oversold level. Amex saw a further slowing in October and said the difficult economic environment will extend into 2009.

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  Monday, 20 Oct 2008 | 8:41 PM ET

After the Close, a Series of Lowered Outlooks

Posted By: Bob Pisani

There was good news during the day, but several companies provided very poor guidance after the close.

So here’s a great test of the markets: can stocks stabilize on bad news?

Bad news after the close:

--many companies reducing Q4, 2009 estimates

--weak tech reports from Texas Instruments, Sandisk, and Sun Micro

The good news:

--credit markets improving

--less signs of liquidation

--buying interest perks up

--stocks (and traders!) calmer

Texas Instruments reported earnings and gross margins below expectations and guided lower on both revenues and earnings . Wireless is the weak link here, the CEO said he saw continued weakness in chip sales through the first quarter of 2009. New orders were "declining rapidly" in all areas. Down 6 percent after the close.

Sandisk, which makes data storage products based on flash memory, reported a loss ($0.59) well beyond expectations (loss of $0.27) as price cuts appear to be cutting into margins. Revenue guidance for the fourth quarter is substantially below estimates. They are making substantial cuts in manufacturing investment. The company said they were still open to negotiations with Samsung.

More from CNBC:

Sun Micro guided revenue for their first quarter slightly below expectations ($2.95-$3.05 b vs. expectations of $3.14 b). Down 10 percent after the close.

American Express beat expectations and is trading up about 6 percent after the close. Mastercard and Visa are both trading up in sympathy. But don't get too excited: AmEx was at a 10-year low on Thursday, so this is just a small bounce from a dramatically oversold level. Amex saw a further slowing in October and said the difficult economic environment will extend into 2009.

Questions? Comments? tradertalk@cnbc.com

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  Monday, 20 Oct 2008 | 5:16 PM ET

Volatility Continues, But Here's The Good News

Posted By: Bob Pisani

The bad news is that the large price swings in stocks continue, with the Dow gapping up at the open, moving in a 300 point trading range with ease.

But the good news is that stocks — and traders — are a lot calmer, despite the price swings.

And there's one reason for the markets slow move up today: credit markets are improving. Stock traders are noting that Libor rates continue to decline across all maturities — and in case you're wondering, stock traders have not normally paid attention to Libor, except in the last few weeks.

For example, 3-month dollar-denominated Libor rates have dropped to 4.06 percent, down from 4.8 percent a couple weeks ago, and traders feel it will drop below 4 percent by tomorrow.

How much calmer are the markets? Traders have begun noting the slow emergence of leadership: For the past several days, defensive names like utilities, telecom, and healthcare have outperformed, but today we saw energy come roaring back on a gutsy call from Oppenheimer to BUY OIL AND GAS STOCKS.

Financials are lagging, but that is not agitating anyone.

This is only the third day in the month of October the Dow and the S&P have closed up.


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  Monday, 20 Oct 2008 | 3:52 PM ET

Does France's Sarkozy Seek 'State Capitalism'?

Posted By: Bob Pisani

Is a second Bretton Woods coming? Mr. Sarkozy, the French president, met with President Bush over the weekend. They agreed to a series of summit meetings in the next few months to discuss common strategy for the global economy, but don't kid yourself: behind that innocuous goal, Mr. Sarkozy is clearly pushing for a change in the way capitalism is practiced.

"Those who led us to where we are today should not be allowed to so once again," Mr. Sarkozy told Mr. Bush. "This sort of capitalism is a betrayal of the sort of capitalism we believe in," he also said.

What kind of capitalism does he believe in? A highly regulated state capitalism — and now he will be pushing for new international bodies to regulate financial institutions.

This is likely to take two forms:

1) a new global fund that will invest directly in financial institutions in exchange for preferred stock; and

2) a global, likely Brussels-based regulator for all international banks, including U.S.-based.

Proponents say that ad hoc national solutions have not worked, that in an era of globalism we need global regulation.

Opponents say that national regulators were not effective, why would global ones be? Why not strengthen existing national regulation, in coordination with other nations?

But the most important point is that we are now going in the other direction: having erred on the part of diffuse or too little regulation, we are now getting to the other extreme.

Mr. Bush agreed to a series of summits, which will apparently start in November. No word on what the exact dates are, but they are likely to involve most developed and many developing countries.

For those of you with bad memories: Bretton Woods was the 1944 meeting held in Bretton Woods, New Hampshire, that established the economic face of the post-World War II world. It set up the General Agreement on Tariffs and Trade (GATT) (later replaced by the World Trade Organization) and the International Monetary Fund, as well as the International Bank for Reconstruction and Development (IBRD).

Out of these agreements came, among many thing, convertible currencies and the espousal of open markets, specifically lowering barriers to trade and the movement of capital.

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CNBC's Names in the News:

- Apple - Mac Sales Leap in Sept.

- General Motors - GM's Chrysler Juggernaut

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  Monday, 20 Oct 2008 | 1:03 PM ET

Dow Weakness: Are Bernanke or Paulson to Blame?

Posted By: Bob Pisani

The Dow has swung in a 250-point range this morning, but it barely feels like it. We did see the usual short, sharp rally which took the Dow up 200 points — followed by another short, sharp decline that took it back down 200 points. Get the message? It's very difficult to sustain a rally.

Don't blame it on anything Ben Bernanke or Hank Paulson said. Both emphasized that the purpose of all these plans is to shore up capital in the banking system and, as Mr. Paulson said, "to increase confidence in our banks and increase the confidence of our banks, so that they will deploy, not hoard, their capital."

Meanwhile, the White House says it is open to the idea of a second stimulus package, but it depends on the details proposed by Congress.

For the record, the mid-morning selloff was led by techs and financials like IBM , JPMorgan Chase , and Microsoft .

Energy stocks are having a great day, as Oppenheimer upgraded all the big oil and gas names this morning with a bullish piece entitled, "Now Is The Time to Buy Oil and Gas Stocks."

Expect more attempts to call bottoms, as long as the credit markets continue to show signs of improving.

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- The Dow 30 Today

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  Monday, 20 Oct 2008 | 9:38 AM ET

Oppenheimer Likes Oil, Gas; Europe Backs Its Banks

Posted By: Bob Pisani

Recapitalization of European banks is continuing: ING took a 10 billion euro ($13.5 billion) cash influsion from the Netherlands and is up 10 percent in the U.S. pre-open. French banking giant Societe Generale was down in early trading on concerns it may be too thinly capitalized. Sweden outlined a $205 billion plan to support its banks.

Secretary of the Treasury Paulson will speak at 11:30am ET, giving details of the application process for the capital purchase program.

Elsewhere:

1) We are seeing some signs of bottom-picking emerging: Oppenheimer is upgrading all the big oil and gas names this morning, with a bullish piece entitled, "Now Is The Time to Buy Oil and Gas Stocks." They upgrade Anadarko , Apache , Cabot , Exxon , XTO , Sunoco , and others. Oppenheimer believes the upside potential of the shares in the next 12 months could significantly exceed the downside risk from a further decline in oil and gas prices.

At the same time that Oppenheimer is encouraging traders to buy commodities, Deutsche Bank, Credit Suisse and UBS are lowering their targets on various commodities. Deutsche Bank, for example, cut its crude oil price outlook for 2009 from $92.50 to $60, and said it could go as low as $50.

2) Speaking of commodities: oil services giant Halliburton beat estimates by a small amount ($0.76 vs. $0.74), but like its competitors, the stock is sitting near 52-week lows on concerns that capital spending will slow significantly in 2009. CEO Dave Lesar acknowledged this in his reporting, noting that the announced reduction in some customers' capital spending will result in a decline in rig counts below those previously anticipated.

3) Diversified manufacturer Eaton also beat by a small margin ($1.95 vs. $1.88), but more importantly, they lowered fourth quarter earnings estimates to $1.55-$1.65, vs. estimates of $1.91. Eaton is a global player in manufacturing; they noted that while the North American markets were weak all quarter, Europe, Brazil and China weakened "dramatically" toward the end of the quarter.

4) Goldman downgrades insurers MetLife and Prudential (Pru to a "sell"), saying that a number of companies could face significant unrealized losses or impairments on various mortgage related assets.

5) Circuit City is considering closing 150 stores, according to The Wall Street Journal. They are in the middle of developing a turnaround plan but financing is proving difficult.


Questions? Comments? tradertalk@cnbc.com

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  Friday, 17 Oct 2008 | 3:43 PM ET

Traders See Year Ending Around 10,000

Posted By: Bob Pisani

It is not surprising that today's rally has been met with selling: that has been the pattern for the past week and a half.

Few traders think we will be off to the races any time soon. In a poll of several dozen buy-side traders this week, most felt that we would end the year somewhere near 10,000, but no one was more optimistic than that, and a few were considerably more pessimistic.

However, if Libor continues to come down, and the commercial paper market continues to unfreeze, the odds become longer that the market will be able to hold modest gains.

If this happens, then by the middle of next week we can expect that shell-shocked fund managers and analysts will begin the process of distinguishing between those stocks and industries where dramatic selloffs may have been warranted and those where there are real values.

The theory being floated around is that some sectors are discounting dire circumstances that may not materialize, even if a notable recession is factored in.

For example: commercial real estate investment trusts have been clobbered under two theories: 1) companies have significant short term debt that they will have trouble rolling over in 2009, and 2) commercial real estate will slow down significantly, and rents will be dropping.

There is certainly something to 2), but the assumptions around 1) may be wrong if the commercial paper market starts going back to something near normal.

Corporate paper rates may be higher, but it may not be impossible to roll over debt. If that is the case, we are talking about a hit to margin, not a catastrophic event.

With big names like Brookfield down 50 percent this year, it is possible this group may show some improvement when the CP market improves.

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  Friday, 17 Oct 2008 | 12:17 PM ET

Downturn In Oil Demand--Just How Much Worries Investors

Posted By: Bob Pisani

Sell on the news. Oil services giant Schlumberger, which reported earnings in line with expectations, down 10 percent this morning to a 3-year low, taking the whole oil services industry down.

What's the problem? 2009. We are at peak earnings now. The concern is that the global recession will dramatically reduce demand for oil services. Indeed, with some firms talking about $35-$50 oil next year, it's little wonder that investors are bracing for a downturn in demand.

Demand will turn down, but how much? Over 70 percent of their revenue is international. Analysts have noted that much of that is tied to offshore rig contracts that are unlikely to be terminated.

    • Short-Term Libors Collapse as Money Markets Thaw

Other parts are more problematic, however. Schlumbergerhas a unit that provides seismic services (Western Geco). They make a lot of money: while they are only perhaps 15 percent of revenue, they have margins of 35-40 percent.

These Western Geco guys are the advance guard of the oil services business: they're hired to prospect for oil. And it's this end of the business that could see the biggest turndown.

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- The Dow 30 at a Glance


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  Friday, 17 Oct 2008 | 9:15 AM ET

Why Traders Are Calmer--So Far

Posted By: Bob Pisani

Although futures are down (we routinely move in 50 point ranges in the morning), there is a calmer, more even tone to trader talk this morning:

1) Libor rates, both overnight and the three-month rates, are declining.

2) oil is declining

3) corporate and municipal bond issuance seems to beginning to unfreeze:

--Calif. raises $5 billion.

--PG&E doubled the size of its planned bond sale, from $300 million to $600 million.

--Occidental Petroleum increases size of its bond offering from $750 m to $1 b, and priced at Treasury plus 437.5 basis points.

And while housing starts and building permits were well below expectations (we are at the lowest levels since 1991), that is good news--we want construction down and we want sales up. Unfortunately, with a few exceptions, we have not seen a notable uptick in sales.

Option expiration today, the key number is the first print of the S&P 500, because that is the settlement price.

Elsewhere, earnings are light, but three major companies reported earnings in line or above expectations. This follows the trend from yesterday, when several big financial firms also reported earnings roughly in line with expectations. Boring is good.

1) Oil services giant Schlumberger came in in line with expectations. Still, we are at peak earnings for this group; in their report they said "we expect a slowing in the rate of increase of customer spending." This is wishful thinking: there is great concern that capital expenditures in the energy sector will be DECREASING compared to 2008, and that is why the oil services sector has underperformed both the S&P 500 and the Amex Oil Index.

2) Honeywellreported earnings slightly above expectations ($0.97 vs. $0.95 expected), full year guidance was narrowed slightly, from $3.76-$3.80, versus prior estimates of $3.75-$3.85, and consensus of $3.81

3) AMD also reported earnings better than expected, in fact much better than expected, on strength in graphics chips. Shares up 10 percent pre-open.

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New from CNBC.com:

- The Dow 30 at a Glance

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Questions? Comments? tradertalk@cnbc.com

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About Trader Talk with Bob Pisani

  • Direct from the floor of the NYSE, Trader Talk with Bob Pisani provides a dynamic look at the reasons for the day’s actions on Wall Street. If you want to go beyond the latest numbers— Bob will tell you why the market does what it does and what it means for the next day’s trading.

 

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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