Ahead next week: Wal-Mart, Target, Dell . . . and Italy
The third-quarter earnings season ends this week with results from Wal-Mart, Home Depot and others. But as has happened so often recently, Europe will move markets, too. Can Italy form a new government?
Updated: 11:44 p.m. ET Sunday
These are exciting, scary and, admit it, exhausting times to be an investor.
It seems like every week, there's a crisis that generates lots of pronouncements that the world as we know it is a goner.
That's followed by a sense from the market that maybe a lot of people with money in a lot of places were, well, overreacting.
Article continues below.
And lastly, there's a thrilling whiff that the world would really muddle through all its crises.
You saw it this past week when the markets went up Monday and Tuesday and utterly fell apart on Wednesday. And then rebounded solidly on Thursday and nicely on Friday. Futures trading suggests a strong open Monday after Silvio Berlusconi resigned as prime minister of Italy Saturday and economist Mario Monti was asked to form a new government on Sunday.
You may see it again in the week ahead, as Monti moves on with his task in Italy, earnings from Wal-Mart (WMT), Target (TGT), Dell (DELL) and others, and reports on inflation, retail sales and housing starts.
If you haven't gotten used to all this drama by now, you'd best start. But before you throw up your hands and say, "It's insane!" look at the record.
The Dow Jones industrials ($INDU) and the S&P 500 are higher so far in November. The Nasdaq Composite Index ($COMPX) is flat.
The weekly reports on new jobless claims show weekly claims may drop below 400,000, despite nasty cuts in state and local government jobs. Manufacturing is perking along. Auto sales aren't bad.
So, maybe, for a while, things may not be as bad as everyone thinks. Put it another way: The markets may be crazy -- but crazy like a fox. The trendline is telling the story.
The stock market went up nicely through April. The summer lull hit (OK, it was more like a head slap), and the fall rally began.
- Check the S&P 500 chart since March here.
Italy's new government has to perform strongly. The government that Mario Monti has been asked to form needs to have the strength and imagination to get its debt problems under control without sinking its economy -- continental Europe's third-largest and the eighth-largest in the world.
If the new government fails in this task, things could get tricky. That's because much of the sovereign debt in Europe is held by banks. If the debt goes bad, credit markets could freeze up.
Congress has to come up with a debt-reduction plan over the next two weeks. It probably will take longer than that. So far, the supercommittee that is supposed to come up with a plan is deadlocked. Taxes, as usual, are the hangup.
On the Italian and U.S. issues, it's fair to be very skeptical. China's bond-rating agency is threatening another downgrade of U.S. debt. It's possible Moody's or Standard & Poor's could downgrade the U.S. as well.
What a downgrade would mean practically is a different question. Since S&P downgraded U.S. debt in August, interest rates have gone down.
|Markets for the week|
|11/11/2011||11/4/2011||% chg.||YTD chg.|
|U.S. Dollar Index||77.13||77.16||-0.04%||-2.72%|
|The bond market was closed Friday for Veterans day.|
The last big week of earnings season
Every earnings season has a specific pattern. It starts basically with Alcoa (AA) and ends with Wal-Mart. Wal-Mart reports before Tuesday's open. But it's not reporting in a vacuum.
The big question is whether the holiday shopping season will be weak or OK because of a lot of discounting. IHS Global Insight is projecting a 4.2% sales gain, down slightly from a year ago's 5% gain. Discounting has already begun by many retailers. Still, a gain is better than 2008 and 2009 when sales fell.
Many of this week's reports will shed light on what retailers really expect.
Here's the lineup of the important reports.
Monday: JC Penney (JCP), Lowe's (LOW) and Urban Outfitters (URBN). All should give us a sense of consumer confidence. Urban Outfitters has been struggling of late; October same-store sales fell 7%.
Tuesday: Dell, Home Depot (HD), Saks (SKS), Staples (SPLS), TJX Companies (TJX) and Wal-Mart. Dell has been looking stronger in recent months. Wal-Mart shares are up 14% this month and 9.8% for the year. Listen to how these companies view the holiday shopping season.
Wednesday: Abercrombie & Fitch (ANF), Applied Materials (AMAT), NetApp (NTAP) and Target. Abercrombie and Target will have a lot to say about the holiday season as well.
Thursday: Dollar Tree (DLTR), Gap (GPS), Salesforce.com (CRM), Marvell Technology (MRVL). Dollar Tree will have a sense of how the bargain-conscious shopper feels. Salesforce.com will be a good indicator of whether business expects to invest in technology.
Friday: Ann (ANN), formerly known as AnnTaylor. Its guidance will tell us a lot about affluent shoppers.
Ahead for the economy
It's a busy week in terms of economic reports. Here's a rundown.
Retail sales for October: due Tuesday from the Commerce Department. Look for a small gain for sales overall and minus auto sales. Lower fuel costs will pull sales gains lower.
Producer Price Index for October: due Tuesday from the Labor Department. Look for a decline because of falling energy prices. (Look for a gain in November because of higher energy prices.)
Empire Manufacturing Index, due Tuesday from the Federal Reserve Bank of New York and the Philadelphia Manufacturing Index, due Thursday from the Federal Reserve Bank of Philadelphia. Both should show some improvement from lows this summer. But Nomura Securities says both reports will reflect business wariness about the near-term future.
Consumer Price Index: due Wednesday from the Labor Department. Expect little change. Rising food and housing costs (mostly higher rents on apartments) will be offset by lower prices for autos, energy and apparel.
Housing starts: due Thursday from the Commerce Department. Look for a small decline, mostly because starts moved higher as people replaced homes damaged in this year's hurricanes and tornadoes.
Initial jobless claims: due Thursday from the Labor Department. This past week showed claims at a seasonally adjusted 390,000. But revisions after an initial reading tend to boost claims. If the revision this week is under 400,000, that's good news.
Leading economic indicators for October: due Friday from The Conference Board. Look for a gain because of slightly higher interest rates, a longer week and gains in the S&P 500. The index rose 10.8% in October.
A very sound indication on how our American economy is doing is to track corporate trends and investments.
The dire economic conditions of the world have undoubtedly hit hard at home and have had a devastating effect on many of our iconic businesses and investors everywhere seem to be stumbling around in the dark not knowing where to invest their money.
It’s been recently alleged that the dire economic conditions have hit one iconic business, Hotel 6, exceptionally hard; in fact, it’s been assumed that this was the reason they will no longer be able to “keep the lights on for you”; and could also be the reason why many investors are stumbling around in the dark.
I agree with this article that we might just muddle through all this. I am still just looking preserve capital here but their is hope. We need a few things to happen.
1. No more wars These last two cost us 8-9 trillion dollars and counting (when you add in all the rebuilding and use of subcontractors ) Unless someone attacks Pearl Harbor we have to stay home for a decade and terrorists are just criminals we track down one at a time
2. The Bush era tax cuts where nice while they lasted but they have to end
3. We need to keep domestic spending at the 2009 levels until 2019
4. We should focus on rebuilding Infrastructure ( especially energy dependancy lowering infrastructure) at the federal Level and education at the state level as best we can honestly must be an extra 500 billion floating around somewhere
And we should appreciate that austerity for us will be alot nicer than it is in Greece
well-off people already living above the world-wide standard of living due to debt do not need SS payments
Active, there you go again changing the rules to steal from the well prepared to subsidize the ill prepared. Social Insurance is a promise of compensation for specific potential future losses of wage income in exchange for a current periodic payment. If you retire you have no wage income. Socialism is to each according to his needs from each according to his ability.
Social Security is an insurance system promising to pay a specific potential return for a current contribution. Nowhere in the sales literature were contributors told their future specific returns would be reduce based on their ability to invest and save to accumulate wealth. If that were put into the literature then I and millions of other Boomers would have voted the system out of existence long ago. How well someone prepares for their retirement should not determine what they get from the system. I know plenty of peers that have wasted their life time earnings on fancy cars, multiple marriages, failed businesses and child support. That is not my problem, it is their problem. I will get my promised Social Security returns or I will not fund or support local, state and federal governments.
H.R. 1148: Stop Trading on Congressional Knowledge Act, 112th Congress: 2011-2012, To prohibit commodities and securities trading based on nonpublic information relating to Congress, to require additional reporting by Members and employees of Congress of securities transactions, and for other purposes. Sponsor: Rep. Timothy Walz [D-MN1], Status: This bill is in the first step in the legislative process. Explanation: Introduced bills and resolutions first go to committees that deliberate, investigate, and revise them before they go to general debate. The majority of bills and resolutions never make it out of committee. [Last Updated: Nov 5, 2011 6:13AM]Wow, a bill to prohibit Congressional members from trading on insider information?
Max and Jeremy
Super , Super Posts.The possible solutions you suggest are realistic, viable and doable. The opposition to these potential remedies is 100% political. Simply put, we have to get rid of the career politicians in both parties but notably republicans , who from day 1 made it their agenda to oppose everything and anything that might make the democrats look like problem solvers of the mess the repulicans created.
China’s Dagong Global Credit Rating Co. may cut the U.S.’s sovereign rating for the second time since August if the world’s biggest economy conducts more large- scale asset purchases. Dagong, based in Beijing, lowered the U.S. sovereign rating one level to A on Aug. 3, on par with Russia and South Africa, after saying America’s decision to raise the debt ceiling will precipitate a national crisis. Investors have been speculating the U.S. will conduct a third-round of quantitative easing, or QE3, to boost an economy hurt by job losses Gee, what would happen if the interest rate on US debt started going up from 2-3% to 5-6%? Existing US Treasuries prices would plummet as the US sovereign debt bubble would burst. The stock market would fall as everyone desiring fixed income would buy CDs and Treasuries at 6% or better and the US would have to spend a large portion of taxes of debt interest. The US is following the ill conceived ways of the EU. Which is worse 6-7% interest rates, 4-5% inflation rates or 8-9% unemployment? Greece has all three that are higher!
Max, you're right on.
The republicans are all for big large corporations. They think the world revolves around them. When many businesses were and still somewhat are the majority of business in the US-- I believe small business employ about 1/2 of non-farm workers and represent 99.7% of employer firms from 2007 US department of commerce and 2003 bureau of labor statistics.
We need to stimulate smaller businesses, more competition provides more jobs (more wages and earnings opportunities for consumers), and more products and services (provides more quantity of goods provided lowering prices and providing more options). Unfortunately, the many of the republicans are all bought and sold by huge corporations-- instead we get consolidation after consolidation in every industry-- we have banks too big to fail, cell phone companies consolidating charging huge prices reeking in huge profit margins, box stores especially wally world, all getting monopsony powers.
And to add insult to injury, most of these large corporate monopsonies and oligopolies all engage in "globalization" or what is really exploitation of labors in foreign lands either to manufacture their stuff and/or service their stuff (call centers). All going to decrease competition which makes prices higher, fewer options, lower wages with fewer jobs, and a spiral that keeps feeding on itself. Until there is no middle class or consumer spending. All the wealth consolidates into a few hands, and the rest are stuck at slave wages, making only enough money to get food, but forego living expenses like rent, utilities, and other bills (transportation, recreation, communication, etc).
Talk about spread the wealth. All of it has been consolidated into a very few hands. This is not sustainable. The result will be stagnation, massive bankruptcies of the "too big to fail" business and banks, potential starvation, and civil war.
from the site chlodo recommended
i find the starting point in 1981 with Reagan's (AND like-minded conservative Democrats in Congress) not-so-brilliant idea to increase spending and decrease taxes. this began the thirty year march of wealth transfer where at this point the top 400 have more wealth than the bottom 120,000,000. Reagan was impressive as a communicator and foreign policy stalwart and i helped vote him in and thus in effect shot myself in the foot. great resource.
"During his presidential campaign Ronald Reagan proposed three fiscal policies: 1) increased defense spending; 2) cuts in non-defense appropriations; and 3) tax cuts. In 1980 Reagan appointed David Stockman, a young Congressman from Michigan and committed supply-sider, to head the Office of Management and Budget. Soon after Reagan entered office Stockman proposed a budget for the 1982 fiscal year that would implement all three policies.
At the time the U.S. Senate was controlled by Republicans and the House by Democrats. However, the Democrats included a number of conservative southerners who agreed with many of Reagan's proposals. In response to Stockman's budget, Representative James Jones (D-Ok), chairman of the House Budget Committee, tried to draft his own budget to keep the Democratic coalition together. However, Representative Phil Gramm (D-Texas) leaked information to the Reagan administration about Jones' plan, which led the administration to propose a counter-budget, cosponsored by Gramm (he later lost his position on the Budget Committee, resigned his seat, and ran as a Republican for his vacant seat) and Representative Delbert Latta (R-OH), that passed Congress via reconciliation in the summer of 1981. Perhaps the centerpiece of Reagan's budget was the tax cut, officially known as the Economic Recovery Tax Act but better known as the Kemp-Roth Tax Cuts, named after the bill's sponsors: Representative Jack Kemp (R-NY) and Senator William Roth (R-DE). The tax cuts slashed marginal rates for individuals and made deep cuts to corporate taxes.
The Omnibus Budget Reconciliation Act of 1981 included steep increases in military spending, steep cuts in non-defense expenditures, and a large tax cut (legislated through ERTA 1981). Although the Reagan administration predicted that the combination of spending and tax cuts would reduce the federal deficit, the deficit exploded under Reagan."
excellent post praecautus (one advocating precaution for those non-latin students out there). i read every word and chart and found your logic and writing style excellent from a technical perspective. we are right with you and not beating ourselves up about getting out at two inflection points along the way down from the summer highs. we were shocked by the dynamic snap-back rally from the 20% decline but are sticking with our overall strategy based on both technical and fundamental research.
we have practiced Tactical Asset Allocation since 1999 and did in fact get out at the highs and back in at the lows. this took a lot of time and research and nerve and poker-sense.
i have added your blog site to our market research favorites. we have considered using a research service such as Schaeffer's in the past, so put a note on your blog if you decide to offer a "premium" service level for a fee, we would find a powerpoint or the like presentation package for seminars useful as well.
nice research and well written/explained.
really great post max. for a VERY top notch overview of both our economic problems and the solutions - see the series of vids from cnbc squawk box featuring jack welch and pimco's mohamed el-erian. his starting pont is BOLD LEADERSHIP to end the housing market overhang. this would require bank haircuts and taxpayer haircuts. he has a five point plan that would work, but will anyone listen and implement?
And the majority of people posting here are Doom and Gloomers mantra....Maybe not some here today....But the BIG majority most days.
I would agree Re-TOG. One of the better days where there has been some excellent discussion. We may not agree with each other, but most everyone today has been civil when posting. I for one, really appreciate the civility exhibited today.
this blog has its share of creative discussions stockpumper ... what we do NOT need in our neck of the woods is an obvious stock pumper who comes around here trying to pump up some lame dog so that he can dump it for a profit later in the day ... you are not the new gordon gekko sir ... please go away and make your millions on that casino stock in the quiet of your own den .....
the nerve ....
well-off people already living above the world-wide standard of living due to debt do not need SS payments .. they want them but don't need them. the situation is drastic and, if you are not a "math person" almost beyond comprehension due to the size of the debt, the time value of money (inflation) and the demographics (declining population/workers with increasing retirees all wanting SS).
Can’t agree without a bit of discussion. My Mom Passed in September at the age of 95. My Dad passed away in 2004 at the age of 88. My Father-in-law passed away in 1997 at the age of 92. My Mother-in-law is 98 years of age, and I’m sure in her present condition, she will out live me and my wife. Of the 5 children of these two couples, four are living and all are on SS. For obvious reasons (their life span), my parents used up their savings (in 2007). For two years, I supported by Mom while she was in a Nursing home by paying what her SS income and Teachers pension could not cover. In 2009, concerned about the rate of my savings withdrawal, I made application to Medicaid and moved my Mom to where I live and the Nursing Home had a Medicaid bed. Mom’s pension and Teachers pension paid about 1/3 of her total monthly cost, the rest being paid by Medicaid. As you say, the math is staggering, and as a retired mathematician, know its complicated when human needs are entered into the equations.
What is happening now, is not only what you mentioned, but that we now have, in many cases, two generations drawing SS and one those generations, in many cases, drawing Medicaid & SS. Your proposal on means testing to withdraw SS can be a easy decision (Warren Buffett for example). However, if the decision to cut-off a retired persons SS causes an increase in their withdrawal from savings, they could deplete those accounts sooner and be placed on Medicaid and, and not drawing SS. What I’m saying, any decision today to withdraw SS from individuals must and has to take into account how the Government would take care of persons who deplete their savings quicker than occurs today. For these reasons, I'm against withdrawing SS from anyone who qualifies unless done very, very, carefully.
Actice..The 'Balance the Budget" part was kind of and
But there is enough PORK in the Military Industrial Complex and the NASA Space program.
To fund a multitude of other programs, much more beneficial to the American Citizens.
AND the rest could be used towards paying down the debt.
I didn't realize there are 10,000 "Boomers" retiring per day and I know damn well they aren't going to be boomers retiring in 15-20 yrs....Different group of people and Generation.
Kind of wonder how many "Boomers" are dying everyday at this time?? I know of a few I hear about or know personally.
I'm aware of illegals paying into the system, but believe there is a "good chance" they are taking it out "somewhere else."
I agree we have to change entitlements and how they are disbursed, BUT THERE IS A HUGE AMOUNT OF FRAUD IN THE SYSTEM, it might be as high as 25-35%, they really don't even have a clue.........THAT HAS TO BE ADDRESSED "FIRST"
As far as the "means testing" you might be or sounded like you might be proposing?
What would be the reason to work,save or invest? Only to use it all up and go to the "poorhouse" anyway....That part of what you wrote really didn't make any sense at all.
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[BRIEFING.COM] The S&P 500 ended this week with a bang, roaring to a new all-time high on the back of stronger-than-expected economic data, influential leadership, and an ongoing appreciation for the Fed's monetary policy support.
The bullish bias was evident in premarket action as the S&P futures pointed to a higher start without the benefit of any definitive news catalyst. Stocks indeed benefited from a blast of buying interest at the opening bell on this ... More
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