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Be wary of dire market forecasts

The most likely scenario is that the markets will begin to rise from here -- and that bounce is just beginning to take hold.

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Strategists outline their views on financial stocks after S&P's downgrade of US credit.

By TheStreet Staff Aug 8, 2011 12:57PM

By Shanthi Bharatwaj, TheStreet

 

Bank stock investors may be feeling some déjà vu, with shares of Bank of America (BAC) and Citigroup (C) plummeting Monday and bringing back memories of 2008.

 

However, Goldman Sachs (GS) analysts noted in a report that as bad as things are, this is not the 2008 crisis all over again.

 

"While the '2008 all over' comments have increased, we believe the situation is different -- bank balance sheets have much higher liquidity, better funding mixes (almost no reliance on short term funding), improved capital and reserve levels and less exposure to leveraged losses. All of these should help reduce excess volatility near term," the analysts noted.

 

Goldman believes banks should still be able to meet their funding needs, although rating downgrades for major banks remain increasingly likely after the U.S. downgrade.

 

What are the consequences of the downgrade?

By V.N. Katsenelson Aug 8, 2011 12:00PM

I have received many emails and a few calls from friends, asking one question: What are the consequences of the downgrade? So I decided to put my thoughts on paper.  I break up the consequences into three categories: fundamental (the impact on the economy), emotional (the short-term impact on the market), and political (will it change anything in Washington DC?).

 

Fundamental: AA+ is the new AAA.

 

The Fed and the FDIC set bank reserve requirements; they decide what is quality and what is not on banks’ balance sheets.  To little surprise, a few hours after the downgrade, the Fed and FDIC announced that AA+ US debt is as good as AAA, and thus banks’ reserve requirements will not change and bank lending should not change either.  Though we’ll probably get a few downgrades of financial companies holding US treasuries, the direct impact on financial institutions should be negligible.

 

It's time to trim your portfolio, but make a watchlist of what to buy later.

By Jim Van Meerten Aug 8, 2011 11:58AM

Recently I had to delete 2 stocks from my Wall Street Survivor portfolio for very negative price momentum and Barchart technical sell signals.

 

Two of Big Pharma’s finest are looking quite oversold at current levels, and while risk remains, both pay handsome yields and maintain sky-high cash positions.

By MoneyShow.com Aug 8, 2011 11:47AM
By Tom Aspray, MoneyShow.com

As more details emerge from last week’s selling in the US stock market, there are some hints of a panic selloff as some money managers who cater to high-net-worth individuals reported their clients told them to “Get out of everything.”

The sentiment numbers are also turning more negative, as the American Association of Individual Investors (AAII) sentiment survey showed a jump to 49.8% bearish, up from 31% bearish the prior week. Only 27% of participants are bullish, but these numbers can still get more extreme, as less than 21% were bullish just a year ago.

Financial advisor sentiment has seen less of a drop, but the latest poll did not reflect a reaction to the plunge in the stock market late last week. The number of bullish advisors dropped to 46.3% from 49.5%. This number was under 30% bullish a year ago.

It should be no surprise that many individual stocks are getting quite oversold, and while this does not mean they can’t get even more oversold, it does suggest that some are now worth watching more closely.
 

Faith in Treasurys remains strong as investors seek out safer assets.

By TheStreet Staff Aug 8, 2011 11:17AM

By Chao Deng, TheStreet

 

Despite Standard & Poor's downgrade of U.S. debt from triple-A to double-A status, faith in T-bills is still strong.

 

Uncertainty about the health of the global economy has rattled investors, heightening the attractiveness of Treasurys as a haven asset. The benchmark 10-year note was last rising 25/32, diluting the yields to as low as 2.48% in early trading Monday.

 

The market had anticipated the move by Standard & Poor's before the ratings agency made its downgrade announcement late Friday. Many analysts are noting that the decision does not make a fundamental difference to how investors view Treasurys.

 

Pervasive pessimism calls for the brave to consider purchasing shares that have been punished too harshly.

By TheStreet Staff Aug 8, 2011 11:04AM

thestreetBy Chris Stuart, TheStreet

 

Standard & Poor's downgraded America's triple-A credit rating for the first time Friday, almost $1 trillion was wiped off the benchmark S&P 500 Index ($INX), and a key jobs report confirmed the economy is limp.

 

With stocks having strongly rebounded from their March 2009 lows and the Federal Reserve predicting accelerating economic growth in the second half of this year, expectations had been high just a few months ago. Instead, stocks are now down more than 10% from this year's peak -- producing the first correction in more than two years -- throttled by Thursday's 500-point-plus nose dive in the Dow Jones Industrial Average ($INDU) that did as much emotional damage as financial.

 

Sure, the news is grim. But it would be foolhardy not to take a step back and see if there are any opportunities in the stock market. And even though confidence in Fed chief Ben Bernanke, President Barack Obama and Congress is shaken, chief market strategists at 13 big banks forecast the S&P 500 will rise 17% through Dec. 31, the average estimate in a Bloomberg survey taken Friday.

 

So let's step away from the scary R-word -- recession -- for a minute and assess the damage that has been done. I screened stocks over the past 10 days that have fallen more than 10% and may have been unfairly punished. Here are at least four companies that are worth another look:

 

As markets tumble, a fund manager recommends shares of 10 companies, including AT&T, Verizon and McDonald's.

By TheStreet Staff Aug 8, 2011 10:44AM

the streetBy Robert Holmes, TheStreet

 

Oliver Pursche, the manager of the $20 million GMG Defensive Beta Fund (MPDAX), said one of his largest clients phoned him late Thursday, concerned about the sharp sell-off in equities. Like most individual investors who were lost and blindsided by the bleeding, Pursche's client was looking for direction.

 

"He was very nervous. He wasn't quite freaking out, but he said, 'Oliver, this is one of the times I need you to tell me everything is OK,'" Pursche said by phone Friday from his office in Suffern, N.Y.


In the time since that broad drop in stocks Thursday, uncertainty about the future has been ramped up after the decision by Standard & Poor's late Friday to strip the U.S. of its prestigious triple-A credit rating. 

 

Will a market collapse be followed by a recovery rally or a crash?

By Jamie Dlugosch Aug 8, 2011 10:09AM

A modest sell-off became a landslide last week as stocks lost more than 7% in the five days of trading. Soft economic numbers and concerns about debt issues in Europe trumped strong earnings. The coup de grace came after the market closed when S&P downgraded U.S. debt.

 

Some, especially those that believe the sky is falling, say the move was entirely predictable and the start of something worse (or a mere continuation of the collapse that began in 2008).

 

I disagree entirely. What we are seeing now is fear based selling. It is a manufactured crisis that may very well become a self-fulfilling prophecy. Whatever the case may be the reality is that stocks are falling, but now is not the time to panic.

 

I missed the sell-off for sure, but I don’t want to miss the recovery rally. Stocks are cheap and at the top of my buy list is the iShares Russell 2000 (IWM).

 
Tags: etf

Fight your instinct to call something big. Wait until the major indexes fall 2% to 3% before taking out your shopping list.

By Jim Cramer Aug 8, 2011 9:18AM

the streetjim cramerOperative terms: There will be no heroes Monday, and there are no medals for trying to be one. Buried within every trader's heart is a desire to call something big, to see things no one else sees and to recognize opportunity.

 

Those would all be good signs, but even seeing something no one else does requires the possibility of something new happening. As we look at the landscape from Friday's close of trading, nothing surprisingly good has happened at all. There's no coordinated policy shift in Europe beyond the much-rumored secondary-market bond buying. Further, of course, we have to deal with the panic stemming from the Standard & Poor's downgrade.

 

It's just more of the same, with the Congressional mess, the stock market's mess and the safe haven status of Treasury bonds remaining unchanged

By InvestorPlace Aug 6, 2011 4:41PM

By Jeff Reeves, Editor, InvestorPlace.com

 

jeff reevesAfter the S&P downgrade of U.S. debt, America now carries a rating of AA-plus instead of the coveted AAA rating on its Treasury bonds. Austria, Norway, Germany and Australia are no longer our peers ratings-wise – we are, instead, in the company of Japan, China, Spain, Taiwan and Slovenia.

 

Market watchers have suspected a downgrade was in the works for a while. Not to toot my own horn, but last week in my column about 5 ugly truths about the debt ceiling, one of my takeaways from the deal was that a credit downgrade was in the works regardless of the fact we avoided default. Looks like my prediction, and the prediction of other financial journalists who made the same call of a credit downgrade, didn’t take long to come true.

 

But now that the inevitable has happened, what does it mean for the market and for individual investors?

 

Standard & Poor's cuts the US credit rating from AAA for the first time in history on political bickering and budget largess.

By Anthony Mirhaydari Aug 5, 2011 8:59PM

We knew it was coming. But it was still a shock. Late Friday night, credit analysts at Standard & Poor's downgraded the U.S. sovereign debt rating to AA+ and warned that a cut to AA is possible within the next two years. The cut means that instead of ranking with most of the world's strongest economies -- those of Austria, Norway, Germany, Australia and others -- we now join AA credit risks including China, Bermuda, Kuwait, Slovenia, Spain and Qatar.

 

The problem was the debacle that was the debt ceiling debate. As part of the deal, analysts at Standard & Poor's were looking for $4 trillion in cuts over 10 years. Congress gave them a little more than half of that through gimmickry, untested "committees" and a political sideshow that didn't exactly instill confidence.

 

After S&P analysts took such a specific public position on the budget debate, I didn't see how they could walk away from their threats now. Not after the bugling of the rating agencies during the housing bust. Not after their poor performance heading into the eurozone crisis. And while competitors Moody's and Fitch reaffirmed their AAA ratings this week, S&P did the inevitable: It called us out. 

 

China lifts the ban on price increases in cooking oil. Believe it or not, that's significant.

By Jim J. Jubak Aug 5, 2011 6:07PM
Jim JubakI’m getting a ton of e-mail from readers asking whether to buy, when to buy, and what to buy. Being down 500 points on the Dow Jones Industrial Average does raise those kinds of questions.

I do have one concrete suggestion in answer to all that -- and it’s based on a bit of good news yesterday out of China.

The government in Beijing has lifted its ban on price increases in cooking oil.

Don’t laugh. This is huge. And I think it’s a signal that you can start to ease your way into (or deeper into) Chinese stocks.

Here’s my thinking...

China’s leadership is incredibly sensitive to the political effects of inflation.
 

Losing trades happen, especially in a crazy market like we had this week

By Jamie Dlugosch Aug 5, 2011 5:11PM

I have no problem shining a spotlight on earnings trades that have gone wrong. It doesn’t happen often, but losers are inevitable. Even this earnings season where my winners are beating the losers 2 to 1, you are destined to miss the mark when trading corporate profit news.

 

One earnings trade that went wrong was Priceline (PCLN).

 

The on-line travel reservation company is up an impressive 9% on Friday after reporting strong earnings results. This performance in the midst of a market meltdown is particular stunning.

 

When I make recommendations to trade a stock in advance of earnings I do so mostly on the long side. That said there is money to be made selling stocks short that I believe to be over-valued and likely to report weak results. Given the uncertainty in the market heading into the last week such an approach seemed to be the perfect way to go.

 

There are other safe havens for certain, but my focus is on earnings and there are only two ways to go when a company is set to report results: long or short.

 

Yahoo has a punctuation problem, nursing shares fall ill and Washington offers up a double dose of debt ceiling stupidity.

By TheStreet Staff Aug 5, 2011 4:10PM

By Gregg Greenberg, TheStreet

 

Here is this week's roundup of the dumbest actions on Wall Street.

 

5. Yahoo!'s punctuation problem

 

Are we alone or does anybody else think it's long past time to yank the exclamation point from Yahoo! (YHOO) and replace it with a question mark? Because it's a mystery to us how these guys continue to operate the way they do.

 

Alibaba Group, the Chinese internet giant which is 43% owned by Yahoo!, will potentially reap up to $6 billion in a spin-off of its Alipay e-payment division under a deal announced last Friday. Alibaba will pocket no less than $2 billion in proceeds if Alipay goes public or cashes out in some other type of "liquidity event." Shares of Yahoo! initially popped on the long-awaited transaction, but finished the day 3% lower as investors failed to figure out what's in it for them. And as we are constantly reminded, the market hates uncertainty.

 

As for us, we just hate stupidity. And from our vantage point this whole puzzling transaction seems tilted in that direction. Read more

 

Expectations of such a move after Friday's close helped pummel stocks in morning trading. Here's what it could mean.

By Kim Peterson Aug 5, 2011 2:03PM
Updated 8:30 pm ET

As many had expected, Standard & Poor's finally decided to cut the U.S. credit rating late Friday. The world's largest economy lost its perfect AAA status, tumbling by one notch to AA-plus.

The decision came after a day fraught with twists and turns, keeping everyone from President Barack Obama to individual investors on pins and needles. Rival ratings agencies Moody's and Fitch had already said they wouldn't downgrade the U.S., leading some observers to predict that Standard & Poor's wouldn't go solo on such a controversial position. 

But others thought a downgrade was inevitable, particularly after S&P placed the country's perfect AAA credit rating on "CreditWatch negative" on July 14. That status generally means the agency will make some ratings move within 90 days. The rumor was resonant enough that it helped punish stocks in early trading Friday.
 

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[BRIEFING.COM] The stock market ended the holiday-shortened week on a mixed note as the Dow Jones Industrial Average shed 0.1%, while the S&P 500 added 0.1% with seven sectors posting gains.

Equity indices faced an uphill climb from the opening bell after disappointing quarterly results from Google (GOOG 536.10, -20.44) and IBM (IBM 190.04, -6.36) weighed on the early sentiment. Google reported earnings $0.15 below the Capital IQ consensus estimate on revenue of $15.42 ... More


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