Fed’s little helper; low, low prices; Apple vs. BlackBerry
Recapping the day's news and newsmakers through the lens of CNBC.
The Fed brought out the big guns Thursday to convince the market that its expectation of earlier rate hikes was "quite out of sync" with the Federal Open Market Committee's policy statement last week. New York Federal Reserve chief William Dudley said publicly that a rise in short-term rates is probably a long way off, that the Fed could wait until unemployment is at 6.5 percent to hike rates and that quantitative easing could be increased if unemployment doesn't improve. The policy depends on the outlook rather than the calendar, he stressed. Fed Chairman Ben Bernanke said last week that it would be appropriate to moderate QE later this year and end it toward the middle of next year.
The markets reacted well to the Fed's calming words.
"There is a clarification process in the works here. The message is, I think, this: Yes, the outlook is as we said, and if the forecast comes true the way we believe it is going to play out, then we are going to be tapering later this year and probably ending in mid-2014. But that's asset purchases. What we want you to understand, the Fed is saying, is that what we are doing with the asset purchases has no bearing really on the plan to hike interest rates. The plan to hike interest rates is one that is a long way off. It is tied to a 6.5 percent unemployment rate, and that, they say, is a threshold and not a trigger."
—CNBC's Steve Liesman
"What this tells me as a corporate bond market is very much concerned that the economy is not yet strong enough to shoulder a 2.5 percent, 10-year Treasury yield. There is really no convincing evidence that we are about to enter a period of persistently faster economic growth. We have gotten some good signs on the economy here or there, but the reality is that of late, both business sales and corporate profits are rising at rates that are well under their long-term averages. This is no time for higher borrowing costs."
—John Lonski or Moody's Capital Markets Research Group
Low, Low Prices?
You know the joke: Someone asks, "Do you have any stock tips?" and the response is "Buy low, sell high."
After last week's stock pullback, 90 percent of companies are likely to rate as a buy for one market watcher. So buy low—and do it now—some are saying. Segments garnering attention include energy, and property and casualty insurance. Of course, not everyone has such a rosy outlook (or short time frame).
"If you give me a list of companies where people are throwing in the towel, I'll buy 90 percent of the time because you saw Oracle come down under $30 a share. It was my final trade yesterday. Today you're seeing the stock rally up 2.3 percent on the day. So I'm going to be adding to the Oracle position today, raising a stop-loss order on it."
—Mike Murphy of RoseCliff Capital
"I'm not sure we're out of the liquidation cycle. It's very important for people to understand equity flows tend to follow performance, and that works both ways. When these statements come out for the second quarter and people look at some of the damage that's been done to their portfolio, I wouldn't be shocked if that triggered another wave of selling, specifically in some of the bondlike stocks that everyone plowed into and tend to be overweight. I'm of the assumption that this correction is still continuing."
—Josh Brown of Fusion Analytics
Apple vs. BlackBerry
Quick: What's a better buy, Apple or BlackBerry?
BlackBerry's problems have been well-documented, but its share price has surged over 25 percent year-to-date. And Apple has sagged mightily this year, down over 30 percent. According to a pair of analysts, the answer could be both. Apple should hit $550 next year, propelled by a big new product category (Apple shares closed below $400 on Wednesday). And BlackBerry, which closed at $14.91 the same day, should exceed $20 on the strength of Z10 sales. So similar gains are expected, but from wildly different starting points.
"Clearly, what is the happening is that as we are getting into the quarter end, and the people are adjusting for what we should expect on the [Apple] earnings call. ... It seems that the new products have finally launched, so they could rescue the September numbers—and that is where the people are adjusting the expectations."
— Abhey Lamba of Mizuho Securities
"We are really differentiated versus the street, as we expect the BlackBerry 10 to boost the margins for the company. We are expecting the gross margins to go to 44 percent from 40 percent last quarter, and as a result, we are expecting a material beat on the number. The street is at 3 cents a share, and we are expecting the company to come in better than that. This thing can start to go north of $20."
—Gus Papageorgiou of Scotia Capital
Cantor Fitzgerald has reiterated its buy rating on Facebook at $35 a share, saying the valuation is attractive and that the company will benefit from strong mobile ad sales, where it is seeing increased usage. So much for not being "sticky" enough.
"The knock against the stock has been engagement, meaning that fewer and fewer people are using the site. That said, if you look at the data, that's one of the reasons we came out this morning to say that if you look at April, if you look at May, the total amount of minutes used on the site keep growing."
— Youssef Squali of Cantor Fitzgerald
Pimco's Bill Gross (who knows a thing or two about bonds) says not to worry about the $67.1 billion in outflows from bond funds so far this month. Sure, the recent selloff in Treasurys has pushed yields on the 10-year to 2.55 percent, and led many speculators to predict yields will hit a new normal of 3 percent. But Gross, in his July newsletter, says that yields on the 10-year have risen too much and should actually be trading at 2.2 percent.
"Liquidations is a function of fear and fear can take hold of markets at various points in time. That certainly happened in terms of the bond market, but in terms of value, 2.50 [percent] on the 10-year is certainly a value to us. Based upon the interpretations by Fed officials in the last few hours and last few days, the last week or so, walking back that Bernanke press conference, I would suggest that there's lots of value at the front end of Treasury curves and therefore attractive value on 10-year Treasuries at 2.50 […] and that the new normal is 2.20."