Market Insider: Looking to Friday--and Beyond

Dismal data gave stocks a one two punch, knocking the wind out of the year-end Santa rally. Very little data is due between now and year-end, and investors are turning their focus to the year ahead.

All sectors finished lower on Thursday with financials the worst, off 2.3 percent. Even tech darling Apple, which traded in record territory earlier in the day, finished lower, beneath the $200 per share milestone crossed earlier this week.

Weak durable goods Thursday and negative jobless claims pushed stocks lower in a move made worse by geopolitical uncertainty after the assassination early Thursday of former Pakistan prime minister Benazir Bhutto. The Dow finished down 192 points or 1.4 percent to 13,359. The Nasdaq, a bright star this year, fell 46 or 1.75 percent to 2676 while the S&P 500 lost 21 points or 1.43 percent, closing at 1476.

Bhutto was killed in a gun and bomb attack following a political rally in the city of Rawalpindi. She was the country's front runner for prime minister in upcoming elections and her death creates uncertainty about the stability of Pakistan and who will lead it. On Friday, new home sales data is reported at 10 a.m. as is Chicago purchasing managers' data. New home sales are expected to come in at at 720,000, compared to 728,000 last month. The final piece of major data before the year end is existing home sales, reported Monday.

The news weighed on what would have been an already weak stock market, also dragged lower by a new warning from a Goldman Sachs analyst that Citigroup may have to cut its dividend and it and other banks may have to take bigger writedowns.


Citigroup's chief U.S. equities strategist Tobias Levkovich appeared on "Street Signs" Thursday where he discussed a survey he did of Citigroup's big institutional clients. Interestingly, he said the institutions had expectations for five percent earnings growth for the S&P 500, compared to current street expectations of about 13 percent. He also said institutions were signaling that they see a bottom coming in the dollar and a turn in global markets, where the U.S. stock market may start to outperform.

As sectors go, he said the investors are optimistic on tech, financials, and health care. He understandably would not discuss Citigroup specificially but said the bad news in the financial stocks is out, or is at least already built into expectations.

"Valuations are extremely compelling right now for these stocks and I think people are looking at that. To a great degree in 2007, a lot of investors ignored valuations and just looked at fundamentals, and I think you've got to look at fundamentals against valuation and expectations," he said. "...You've got attractive valuations. Yeah, the fundamentals aren't that great but everyone kind of knows that already."

Levkovich said tech was the favorite of investors and his firm particularly likes software and semiconductors.

"In the semiconductor space, the real reason for our bullishness there is capacity constraints and free cash flow. What you're seeing is a lot of the semiconductor companies telling you they are going to cut capital spending and as a result of that they are going to have a lot more free cash flow," he said.

"While doing the capital sending cuts they also limit the amount of new capacity coming into the market which tends to help in margins."

Questions? Comments?