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TRADERS TAKE AUGUST OFF because they won't miss much, but these days the market stasis owes nothing to calm and everything to nervous paralysis.
The stock-market rally off its mid-July low was lubricated by falling oil prices, but its momentum has stalled now that oil's retreat has slowed. Aggressive government action may have turned the nation's "financial crisis into a crisis in the financials," according to Brown Brothers Harriman managing director Charles Blood. But continued mortgage losses and the uncertain fates of Fannie Mae (ticker: FNM) and Freddie Mac (FRE) remind investors how far the financial system is from rehabilitated.
Fannie shares, for example, tumbled 37% last week as a potential government bailout threatens the value of existing shares (See "Final Test for Fannie and Freddie"). Goldman Sachs cut estimates of big banks and brokerages and warned of intensifying mortgage-related losses in the third quarter -- a decline with no end yet in sight as mortgage rates remain above levels needed to revive the housing market.
Meanwhile, producer prices increased in July at the fastest annual pace in 27 years, and while this is a lagging indicator, and hopes run high that inflation will subside as oil pulls back, the differential between inflation felt by producers of goods and services and what they could pass on to consumers had reached 4.2 percentage points, its widest in more than three decades. "This is a serious cause for concern," notes Devina Mehra, chief strategist at First-Global Securities, since producers unable to pass on higher costs ultimately suffer compressed margins and weaker profits.
But if investors see little impetus to buy as the elusive economic recovery recedes further into the future, there is at least some comfort in stocks' marked-down prices and their relative value compared to overseas stock markets that have only just begun to grapple with slowing growth and still-tight monetary policies. For all their recent tumult, the U.S. stock indexes haven't fallen far below their January lows, as the increasingly drawn-out bottoming process eats up more of 2008.
Given the time it takes to repair household balance sheets and for prices of homes -- one of the slowest-moving assets -- to stabilize, the eventual U.S. recovery will be "lackluster" and is "unlikely to be driven by the consumer," says Ben Halliburton, chief investment officer of Tradition Capital Management. But he expects oil's recent retreat to hold, given increased Saudi production and the recent signs of demand destruction.
Last week's stock-market pullback might have been more severe if it weren't for Friday's bounce, which came after Ben Bernanke suggested that moderating inflation may allow the Federal Reserve to hold off raising interest rates. The looming prospect of a Lehman Brothers (LEH) takeover also lifted the stock and steadied the sector.
The Dow Jones Industrial Average ended the week down 32, or 0.3%, to 11628, its eighth decline in 10 weeks. The Standard & Poor's 500 gave up 6, or 0.5%, to 1292 and is 17% off its October peak. The Nasdaq Composite Index ended its five-week winning streak and fell 38, or 1.5%, to 2415, while the Russell 2000 halted its six-week run and surrendered 16, or 2.1%, to 738.
RADIOSHACK SHARES (RSH) have surged 57% in just six weeks, but what really has changed?
A sharp slide in oil prices might boost discretionary spending, but when was the last time you saw a good crowd at RadioShack? A 6.9% rebound in same-store sales surprised analysts and helped beat second-quarter estimates, but it remains to be seen if the knack for moving digital converter boxes at the height of tax-rebate season will translate into sustainable long-term growth.
A recent plan to buy back $200 million of shares prompted some short covering that helped nudge the stock higher. Speculation and high hopes that the Fort Worth company might begin selling Apple 's (AAPL) 3G iPhones were doused only so slightly after Best Buy (BBY) was recently given first crack at carrying the popular devices outside Apple and AT&T (T) stores. Its respected CEO, Julian Day, has cut costs, and the wireless business has improved. But it could still be a while before the turnaround turns RadioShack into a destination, if at all.
At almost 19, shares fetch 10.7 times 2008 profits, a justified discount to the 13.4 times for electronic retailers. Like the two parts of its throwback name, RadioShack is good for a little nostalgia, a reminder of what consumer electronic retailing once looked like. But unless cash-strapped, credit-deprived Americans begin buying up computers and stereos and batteries in droves -- and doing so at RadioShack! -- the only thing to marvel at in time might be the height of this dead cat bounce.
EXCHANGE STOCKS HAVE been hammered this year as investors brace for an extended spell of financial deleveraging, risk aversion and mousier trading. But this new age of fiscal propriety has been particularly harsh on the IntercontinentalExchange (ICE), a young, brash electronic commodities market so modern it dispensed with proper grammar when spelling its name.
ICE shares have lost nearly 60% of their value this year as lawmakers threaten to increase regulation of the energy market, and ICE is a big player in energy futures. ICE also ceded market share to rival Nymex (NMX) as oil companies hedged against a pullback using Nymex-traded options. And while second-quarter net income surged 58% amid a big jump in trading volume, the momentum appeared to have fizzled in July as the oil rally lost its sizzle.
Anxious Times: Friday's 1.7% bounce cut last week's loss in the Dow to 0.3%. Stocks perked up after the Fed's chief said that he expects inflation to moderate.
Still, has the pullback gone too far? At about 88, ICE shares fetch 13.5 times projected 2009 earnings. This, quite remarkably, is now on par with the valuation of Nasdaq OMX Group (NDAQ), a fine exchange that has made great strides with cost cuts and expansion but whose stocks can easily trade at rival markets -- unlike "non-fungible" derivatives that can only be bought and sold at the same futures market. The stock also trades at 17.6 times 2008 profits, compared with more than 20 times for specialized finance stocks.
Sandler O'Neill analyst Richard Repetto argues that ICE faces comparable risks as other U.S. exchanges. Yet its stock has suffered bigger declines, even with better growth so far this year in transaction revenue, operating income and per-share earnings.
To be sure, ICE may never see the staggering multiples it once commanded back when growth was unfettered and booming. But a pesky hurricane season could easily goose energy trading this fall and arrest the stock slide. So could mounting geopolitical tension surrounding Russia.
Helping to put a floor under the stock is the company's recent plan to buy back $500 million worth of shares over the next 12 months, which Repetto estimates would cover more than 8% of diluted shares outstanding. His price target: $165.
The stock-market rally off its mid-July low was lubricated by falling oil prices, but its momentum has stalled now that oil's retreat has slowed. Aggressive government action may have turned the nation's "financial crisis into a crisis in the financials," according to Brown Brothers Harriman managing director Charles Blood. But continued mortgage losses and the uncertain fates of Fannie Mae (ticker: FNM) and Freddie Mac (FRE) remind investors how far the financial system is from rehabilitated.
Fannie shares, for example, tumbled 37% last week as a potential government bailout threatens the value of existing shares (See "Final Test for Fannie and Freddie"). Goldman Sachs cut estimates of big banks and brokerages and warned of intensifying mortgage-related losses in the third quarter -- a decline with no end yet in sight as mortgage rates remain above levels needed to revive the housing market.
Meanwhile, producer prices increased in July at the fastest annual pace in 27 years, and while this is a lagging indicator, and hopes run high that inflation will subside as oil pulls back, the differential between inflation felt by producers of goods and services and what they could pass on to consumers had reached 4.2 percentage points, its widest in more than three decades. "This is a serious cause for concern," notes Devina Mehra, chief strategist at First-Global Securities, since producers unable to pass on higher costs ultimately suffer compressed margins and weaker profits.
But if investors see little impetus to buy as the elusive economic recovery recedes further into the future, there is at least some comfort in stocks' marked-down prices and their relative value compared to overseas stock markets that have only just begun to grapple with slowing growth and still-tight monetary policies. For all their recent tumult, the U.S. stock indexes haven't fallen far below their January lows, as the increasingly drawn-out bottoming process eats up more of 2008.
Given the time it takes to repair household balance sheets and for prices of homes -- one of the slowest-moving assets -- to stabilize, the eventual U.S. recovery will be "lackluster" and is "unlikely to be driven by the consumer," says Ben Halliburton, chief investment officer of Tradition Capital Management. But he expects oil's recent retreat to hold, given increased Saudi production and the recent signs of demand destruction.
Last week's stock-market pullback might have been more severe if it weren't for Friday's bounce, which came after Ben Bernanke suggested that moderating inflation may allow the Federal Reserve to hold off raising interest rates. The looming prospect of a Lehman Brothers (LEH) takeover also lifted the stock and steadied the sector.
The Dow Jones Industrial Average ended the week down 32, or 0.3%, to 11628, its eighth decline in 10 weeks. The Standard & Poor's 500 gave up 6, or 0.5%, to 1292 and is 17% off its October peak. The Nasdaq Composite Index ended its five-week winning streak and fell 38, or 1.5%, to 2415, while the Russell 2000 halted its six-week run and surrendered 16, or 2.1%, to 738.
RADIOSHACK SHARES (RSH) have surged 57% in just six weeks, but what really has changed?
A sharp slide in oil prices might boost discretionary spending, but when was the last time you saw a good crowd at RadioShack? A 6.9% rebound in same-store sales surprised analysts and helped beat second-quarter estimates, but it remains to be seen if the knack for moving digital converter boxes at the height of tax-rebate season will translate into sustainable long-term growth.
A recent plan to buy back $200 million of shares prompted some short covering that helped nudge the stock higher. Speculation and high hopes that the Fort Worth company might begin selling Apple 's (AAPL) 3G iPhones were doused only so slightly after Best Buy (BBY) was recently given first crack at carrying the popular devices outside Apple and AT&T (T) stores. Its respected CEO, Julian Day, has cut costs, and the wireless business has improved. But it could still be a while before the turnaround turns RadioShack into a destination, if at all.
At almost 19, shares fetch 10.7 times 2008 profits, a justified discount to the 13.4 times for electronic retailers. Like the two parts of its throwback name, RadioShack is good for a little nostalgia, a reminder of what consumer electronic retailing once looked like. But unless cash-strapped, credit-deprived Americans begin buying up computers and stereos and batteries in droves -- and doing so at RadioShack! -- the only thing to marvel at in time might be the height of this dead cat bounce.
EXCHANGE STOCKS HAVE been hammered this year as investors brace for an extended spell of financial deleveraging, risk aversion and mousier trading. But this new age of fiscal propriety has been particularly harsh on the IntercontinentalExchange (ICE), a young, brash electronic commodities market so modern it dispensed with proper grammar when spelling its name.
ICE shares have lost nearly 60% of their value this year as lawmakers threaten to increase regulation of the energy market, and ICE is a big player in energy futures. ICE also ceded market share to rival Nymex (NMX) as oil companies hedged against a pullback using Nymex-traded options. And while second-quarter net income surged 58% amid a big jump in trading volume, the momentum appeared to have fizzled in July as the oil rally lost its sizzle.
Anxious Times: Friday's 1.7% bounce cut last week's loss in the Dow to 0.3%. Stocks perked up after the Fed's chief said that he expects inflation to moderate.
Still, has the pullback gone too far? At about 88, ICE shares fetch 13.5 times projected 2009 earnings. This, quite remarkably, is now on par with the valuation of Nasdaq OMX Group (NDAQ), a fine exchange that has made great strides with cost cuts and expansion but whose stocks can easily trade at rival markets -- unlike "non-fungible" derivatives that can only be bought and sold at the same futures market. The stock also trades at 17.6 times 2008 profits, compared with more than 20 times for specialized finance stocks.
Sandler O'Neill analyst Richard Repetto argues that ICE faces comparable risks as other U.S. exchanges. Yet its stock has suffered bigger declines, even with better growth so far this year in transaction revenue, operating income and per-share earnings.
To be sure, ICE may never see the staggering multiples it once commanded back when growth was unfettered and booming. But a pesky hurricane season could easily goose energy trading this fall and arrest the stock slide. So could mounting geopolitical tension surrounding Russia.
Helping to put a floor under the stock is the company's recent plan to buy back $500 million worth of shares over the next 12 months, which Repetto estimates would cover more than 8% of diluted shares outstanding. His price target: $165.
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Old fashion barrons.
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