WStreet Market Commentary

11/16/2009 1:01:30 PM Eastern Time

NEW YORK, NY Like a bull in a China shop the market has been rocking from the opening bell, running over so-so news, bad news, and indifferent news. Then, there were good bits of news including declining business inventories getting a little better or less worse, not sure how to phrase it. Sure, inventories are down for the 13th consecutive month and sales dipped for the first time since April, but the trend suggests builds could be on the near-term horizon. Keep in mind that the 2001 to 2002 rebalancing of business inventories saw 15 straight months of decreases. At some point inventory rebuilding will play a critical role in the rebirth of the U.S. economy, although it’s not an instantaneous thing and will happen gradually.

Checklist of Things to Watch this Week from Retailer Earnings Reports

Brian Sozzi

This week is the pinnacle of my earnings season, as retailers big and small announce 3Q09 financial results. The market has already received a taste of what may be heard on the conference calls, such as acknowledgement that consumers are ever so slightly returning to the malls and big box retail outfits. Below is a checklist of items that one should be looking for from the reports this week. If a company has more positives than negatives, and valuation (both trading comp and DCF-derived) is not out of whack, it may be an opportune time to accumulate shares pre-holidays.

* Traffic must have increased sequentially (I don’t care about y/y comparisons as trends dropped off a cliff post the Lehman Brothers fallout)
* Gross margin increased y/y and sequentially (markdowns didn’t start in earnest until 4Q08)
* Operating margin has risen for three consecutive quarters of 2009 (hints a new baseline is materializing and could trend even higher once sales return in 2010)
* Capital expenditure commitments for 2010 either curtailed (implies lower D&A expense, operating expenses, and interest expenses) or channeled into productive technology improvements
* Inventory still tightly controlled (don’t want to see builds right now pre-holidays; retailers must continue to be focused on gross margin maximization)
* 4Q09 EPS guidance must be in line to slightly ahead of consensus (consensus estimates have risen strongly last 90 days; any upside or in line report suggests conditions continue to become more favorable)

China Dominates the Talk

David Urani

There only continues to be evidence that the Asian economies, particularly China, will be the leaders in bringing the global economy out of its sinkhole. Over the weekend, an economic summit for APEC (Asia Pacific Economic Cooperation) was held and it only helped to continue to spur the Asian markets. Among the highlights of the meeting was a mutual pledge for the Asia-Pacific nations to continue economic stimulus programs. Japan, which reported 1.2% GDP growth over the weekend (versus a 0.5% consensus), noted that it plans to continue to spend on its economic recovery and is coming close to creating a new stimulus worth as much as $30.0 billion. Chinese President Hu Jintao also noted that he promises more stimulus measures for both China and the global economy, citing proof that its current measures are helping the world economies. I would have to agree that more stimulus out of China could be a real boon to global trade, and may also give that nation some real credibility and praise from the global community. On a side note, despite President Obama’s visit to China, there appears to have been no headway on the yuan-to-dollar currency issue, with China looking unlikely to budge; the dollar keeps sinking on the news.

Conley Turner

The price of crude oil has made a reversal today after posting losses in recent trading sessions. Today’s move is being precipitated by the fact that the value of the U.S. dollar is continuing its descent against a basket of other international currencies. Oil and other commodities have an inverse relationship with the value of the U.S. dollar. Given that the secular trend for the dollar points to additional losses, it appears that there is definitely more upside for the commodity long-term. However, there can be expected to be a fair amount of price volatility in the near- term for the commodity. The move today has caused that energy sector to rise by over 2.5% in the session. The price of oil is also being influenced by the rise in the broader equity market. It has been some time now that oil traders and investors have been looking toward the equity markets for direction, and today appears to be no different. The materials sector is also posting comparable gains and as such, they are two leading sectors this session.

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