Stock prices are shifting into high gear as a GM upgrade and a dividend boost from McDonald's help sentiment.
The dollar is firmer and oil trades lower, just beneath record highs. Europe's stock markets turned higher with Wall Street, wiping out early losses. Asia's stock markets were mostly higher overnight. Better than expected jobs data also helped stocks.
Citigroup upgraded General Motors to buy. Citi says it is assuming coverage of GM with a trading buy and a $41 price target on the stock. The firm said its target reflects a favorable outcome of the United Auto Workers contract negotiations. GM's upgrade is also lifting Ford.
The UAW contract expires tomorrow and the union's president has signaled a willingness to create a union controlled health care trust, a cost saving for automakers. CNBC's Phil Lebeau is reporting that story today.
Stronger than expected jobs market data also helped.
It was a quiet day for stocks yesterday, but other markets were rocking, among them oil and currency. Oil crossed $80 for the first time on the NYMEX, touching $80.11 to settle back to a closing price of $79.91 per barrel. Gasoline climbed 1.8% to $2.016, and heating oil rose 1.7% to $2.2191 per gallon, a new exchange record close.
Energy prices were off and running yesterday after the Department of Energy released data showing a steeper-than-expected decline in crude supplies last week. Oil today is slightly weaker but traders are watching Hurricane Humberto, which is hitting the Texas coast and has caused the closure of shipping lanes.
"Obviously, it's the demand for oil continuing to push oil up," said Dennis Gartman of the Gartman Letter on "Fast Money" last night. Gartman said the market is "backwardated" and strong demand, including from China, will keep the pressure on.
"When the market is backwardated, what it's saying is demand is very strong. Demand is much stronger than supply and backwardated markets where the spot (price) is above the first futures contract, and the first is above the second, and so on is a market you don't wish to be short," he said.
Next Stop $100?
Any big round number is always a milestone for markets. Now that $80 per barrel has been notched in the oil market, we asked where the next big hoorah will be. Some traders are saying $100, but it's not because they necessarily expect it any time soon. (but we're guessing some of those would be the traders CNBC's Sharon Epperson heard cheering 'Go, go, go' on the floor of the NYMEX yesterday afternoon as oil hit $80 just before 2 pm New York time).
We asked MF Global energy vice president Mike Fitzpatrick why there doesn't seem to be a sense of panic about $80 per barrel oil.
People are just more used to it, he says. "$30 (per barrel) was going to be Armageddon, $40 was the end of the world. We sustained $30 and then $40 was going to bring the world crashing down around our ears, and it didn't. They invested their psychological and emotional capital at $30, $40, $60. The numbers are coming fast and they're nothing new," he said.
Fitzpatrick said gasoline isn't joining crude at record highs because of seasonal factors. The end of summer driving season takes the pressure off of gasoline demand. "You'd have to have crude sustained up here for a long time to have record gasoline," he said.
For the record, Fitzpatrick's colleague, MF senior vice president John Kilduff, a CNBC contributor, has been telling us since July that oil would get to $80. Yesterday, he warned us it would be this week.
CNBC's Larry Kudlow said he believes that some investors may not be paying heed to geopolitical risk right now. He said there were two overlooked factors this week that are a concern to the energy market -- the Russian bomb test and economic saber rattling against Iran in Washington. Kudlow says there's talk in the Bush Administration of "tightening the economic boycott on Iran, including preventing them from exporting oil to cut off their money."
Oil traders have been casting a wary eye on Iran all week. CNBC's Rebecca Jarvis reported earlier this week that Gen. David Petraeus' Congressional testimony on Iraq added to that anxiety when he mentioned Iran. In Russia, meanwhile, President Vladimir Putin fired his cabinet and named a bureaucrat, 66-year-old Viktor Zubkov, to be prime minister. The move is strikingly similar to former Russian President Boris Yeltsin's 1999 appointment of then obscure Putin to the same post.
How Big a Rate Cut?
CNBC senior economic correspondent Steve Liesman has been telling us that it's beginning to look like a half-point rate cut is possible when the Fed meets next Tuesday, up from the quarter-point cut the market had been expecting. More and more traders we talk to say they also see a half-point cut coming to the target fed funds rate.
Kudlow observed last night that the markets are now setting up for a 50-basis-point slice off the 5.25% fed funds rate. "If they cut by 50 basis points, stocks go up and will test the old highs. If it's only 25 points, the market will go down," he said.
Dollar and Gold
The dollar continues its downward spiral, hitting another low against the Euro overnight. Yesterday, the dollar was off 0.5% against the European currency and it fell 0.1% against the yen yesterday.
The Dow finished off 16 points lower yesterday after a seesaw trading day. The Nasdaq was off 5 and the S&P 500 slipped less than one point.
Traders have been nervously watching a run-up in metals and other commodities prices as the dollar flounders. Gold yesterday finished at $711.90, basically flat, but still up 5.9% since the start of September.
"As the dollar weakens, as I like to say, commodities move from the lower left to the upper right of the chart," said Gartman, also on "Fast Money." Gartman said gold appears to be related to reserve allocations and speculative buying.
In a new Wall Street Journal survey, economic forecasters raised the odds of a recession. The economists put the risk of recession at 36%, up from 28% last month. The survey was conducted after last Friday's negative jobs report. The European Central Bank, meanwhile, says in its monthly letter today that the U.S. subprime mortgage mess has increased risks to global expansion and there are fears it will spill over into other areas.
Kudlow made an interesting observation on the global economy and says the idea that it is strong enough to bail out the U.S. might be wrong. "The idea of global growth with a U.S. slowdown is being overestimated," he says. "Global growth is going to slow down. This idea that big-cap companies will continue to reap big foreign-based earnings is not realistic. That is peaking."
Main Street vs. Wall Street
Individuals surveyed in the latest NBC News/Wall Street Journal poll, however, are less worried about the subprime mess than the ECB or economists. Sixty-six percent see no problems making their mortgage payments over the next year, and in a list of economic health risks, subprime worries scored at the bottom. The top worry was rising gasoline prices, then health care costs.
Mortgage lenders also got blamed for the subprime lending problems. Forty-eight percent said lenders were at fault, while just 27% blamed homeowners. Another 22% said they were both at fault.
Why Buy Beaten Down Bear Stearns?
Maybe because your broker told you to. It's even more interesting if your broker also happens to work at Bear Stearns . Apparently, that was the case with investor Joe Lewis, who purchased a 7% stake in the firm during August and September. Sources tell CNBC's Charlie Gasparino that Lewis was pitched on the purchase by his broker Kurt Butenhoff who has developed close ties with the billionaire. The former currency trader spent $860 million buying 8.1 million shares of battered Bear stock.
Butenhoff is said to be in Bear Stearns CEO Jimmy Cayne's inner circle and has been identified with other Lewis investments. Lewis' main investment vehicle is Tavistock which operates from the Bahamas and Florida and has investments in more than 170 companies, including golf communities and the British soccer club Tottenham Hotspur.
Stocks in the News
McDonald's is getting a lift after saying it would raise its dividend by 50%. Alcatel-Lucent shares are falling sharply this morning after the company cut its full year revenue forecast to flat from single-digit growth.
Retailer Target stock moved up after it said late yesterday that it hired Goldman Sachs to review a future course for its credit card receivables and determine whether it is better off to have the card business inside or outside the company. That business has $7 billion in assets.