December 15, 2008: Morning Call

December 15, 2008: Morning Call

Fair Value: SP500 – 876.85; NDX: 1210.42; DOW – 8595.09


Technical Levels:

SPX: 685, 752-755, 848-852 support/ 899-908, 998-1002 resistance


Events:

Post-market EPS: TITN (.23/163.8M)
05:00: Euro-zone Employment
08:30: Empire Manufacturing (December): -27
09:00: Net Long-term TIC Flows (October): 40.0B
09:15: Industrial Production (November): -0.8%; Capacity Utilization: 75.7%
13:00: NAHB Housing Market Index (December): 9
22:00: BIDU Annual Meeting


Foreign Market Summary/Key Macro News/Commentary:


The S&P futures and NASDAQ futures are both trading 5 points above fair value at 8am ET. Optimism for a swift rescue of the automakers is mitigating financial concerns over exposures to beleaguered Madoff Securities. Asian markets closed higher (Nikkei up 5.2%; Hong Kong up 1.9%, Australia up 2.3%, South Korea up 4.7%, India up 1.4%) with shippers and automakers among the strongest sectors. European markets are up 0.40% but off the highs of the session. Mining and Energy shares were amongst the leading groups. Advancers on the FTSE 100 lead decliners 7-3. Electrolux (ELUXB.SS) fell after cutting 2008 outlook and announced a further 3000 job cuts. DSM (DSM.NA) cuts full year operating profit guidance. H&M (HMB.SS) trades lower after reporting Nov same store sales (4%).


Impact Research Calls/Market Moving News:

AAPL (98.27): Apple downgraded to neutral from buy at Goldman Sachs: Price target decreased to $115 from $125. “We downgrade Apple to Neutral from Buy on concerns about consumer spending in the seasonally softer 1H’09 and Apple’s valuation premium. Although our checks in Asia for the December quarter were better for Apple than for the other PC and smartphone vendors, some nicks have started to emerge. Specifically, shipments of MacBooks, iPod nanos, and iPhone were all slightly lower than what was expected going into the quarter and Apple should face a tougher environment in the March and June quarters as consumer demand takes another leg down. Since adding Apple to the Buy List on 7/20/06, it is up 62% versus the S&P 500’s -30%.”

GOOG (315.76): ThinkEquity lowers estimates and price target on GOOG shares: “We are lowering our estimates and reducing our price target from $450 to $350 following conversations with leading search engine marketers in the United States and Europe that suggest the global search market is slowing faster than we anticipated. We are now forecasting 3% Q/Q net revenue growth (down from 7%) for 4Q08 and 10% Y/Y growth (down from 16.5%) for 2009. We are lowering our 4Q08 pro-forma EPS estimate from $5.15 to $5.01 and from $21.35 to $20.40 for 2009. While our sensitivity analysis suggests more upside than downside from here, we recommend buying shares in the $250 range.”

JPM (30.94): JPMorgan Chase downgraded to underperform from neutral at Merrill Lynch: Price objective reduced to $27 from $44.

T (28.18): AT&T downgraded to neutral from buy at Goldman Sachs

DVN (68.05); RRC (36.15); SWN (28.78): Devon Energy (DVN), Range Resources (RRC), Southwestern Energy (SWN) downgraded to hold from buy at Deutsche Bank

MS (13.85): GS (67.74): Morgan Stanley (MS) and Goldman Sachs (GS) Q4 loss expectations discussed by NY Post: MS is expected to report losses of about $1B when it reports on 17-Dec. Emerging markets and interest rates were particularly impactful. GS is expected to report losses in the range of $2-3B. The article also cites many are predicting further writedowns for both in 1H09

BIDU (114.00): Baidu.com initiated sell at Pali Reseach: Target is $90.

BBY (24.42): Best Buy downgraded to sell from hold at Rochdale Research: Price target decreased to $16 from $25. Firm notes a narrow margin of safety in the event of declining same store sales and deleveraging of SG&A.