December 16, 2008: Morning Call

December 16, 2008: Morning Call

Fair Value: SP500 – 865.53; NDX: 1185.36; DOW – 8528.31


Technical Levels:

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


Events:

Pre-market EPS: BBY (.24/11.1B); GS (-3.48/1.26B); FDS (.63/155.4M)
05:00: Euro-zone PMI Manufacturing (December): 34.5; Services: 41.5 (better than expected)
08:30: Consumer Price Index (November MoM): -1.3%; Ex-Food/Energy: 0.1%
08:30: Consumer Price Index (November YoY): 1.5%: Ex-Food/Energy: 2.1%
08:30: Housing Starts (November): 730,000; Building Permits: 700,000
10:00: BBY Earnings Call
11:00: GS Earnings Call
14:15: FOMC Rate Decision: 0.50%
15:00: GE Investor Meeting
17:00: ABC Consumer Confidence
17:00: ADBE Earnings Call
Post-market EPS: ADBE (.57/919.1M); HOV (-1.63/711.6M


Foreign Market Summary/Key Macro News/Commentary:

The S&P futures are trading 11 points above fair value while the NASDAQ futures are trading 16 points above fair value at 7:45 am ET. The 10-year Treasury note yield is at 2.48%, the lowest level since the beginning of the Fed’s daily data in 1962. European markets are up 1.2% after reversing modest declines on the open. Euro-zone PMI Manufacturing and Services came in slightly ahead of expectations. Tech and automakers are outperforming while mining and steel are underperforming. Asian markets closed mixed in a quiet session ahead of the FOMC decision at 2:15 ET today. Japan was dragged down by a report that Toyota Motors (7203.JP) will ask steelmakers to cut prices sharply. Other exporters were hurt as investors showed concern about a strong yen. Resource stocks fell in Australia on broker downgrades and concerns about the outlook for coal prices. Macarthur Coal (MCC.AU) fell after slashing its profit forecast, suspend its dividend.


Impact Research Calls/Market Moving News:

BIDU (118.09): Baidu.com is upgraded to buy from neutral and added to Conviction Buy List at Goldman Sachs: “1) We expect concern that the China government has targeted Baidu for punishment will diminish; we doubt the government seeks to disadvantage Baidu to the extent it loses substantial query share to foreign rivals. (2) We believe paid search will outgrow China’s GDP given low penetration, rising query volumes on increasing broadband penetration, and secular demand from consumer-facing companies. (3) Baidu is trading at multiples comparable to slower-growing, more-cyclical businesses such as Alibaba.com and Ctrip, and its 2009 P/E multiple is about one-third above Google’s, while its growth rate is about double Google’s.”

GM (4.08): Treasury Department leaning toward granting GM, Chrysler $10B loan package - Detroit News: The amount would allow the companies to survive into February. No announcement of a deal is expected until tomorrow at the earliest.

AAPL (94.75): WSJ discusses slowing Mac sales at Apple: Citing data from NPD Group, the Journal notes that sales of Macs in US stores fell 1% y/y in November, while industry-wide PC sales were up 2%. NPD analyst Steve Baker cited a 35% drop in sales of desktop Macs for the weakness, as growth in the company's laptops continued to outperform rivals. According to the article, the November data suggest that competitor price cuts may finally be weighing on Apple (which has largely avoided meaningful discounting), particularly when considering heightened consumer price sensitivity.

POT (69.25); AGU (30.77); CF (47.83); TRA (14.73); IPI (18.67): Select fertilizer stocks upgraded at Merrill Lynch: AGU, POT, CF: upgraded to buy from underperform: Potash (POT), target raised to $90 from $80; Terra (TRA), target raised to $25 from $19; Intrepid Potash (IPI), target raised to $30 from $28; Mosaic (MOS), target raised to $49 from $45. CF upgraded to neutral from underperform: CF target raised to $57 from $50

House Speaker Pelosi suggests Congress will force Treasury to aid homeowners -- WSJ : Pelosi suggests the move would come if Treasury requests the second half of TARP.

APD (48.54): APD guides Q1 EPS lower to between .95 cents and 1 dollar vs. prior estimate of 1.15 to 1.21. Current consensus is 1.11.

UPS (51.85): UPS downgraded to underperform from neutral at Merrill Lynch

LEN (8.80): Lennar (LEN) downgraded to neutral from buy at UBS.

PGR (14.74): Progressive downgraded to sell from hold at Citi: Price target is lowered $12 from $13.50. The firm cites valuation.

Explosives disarmed in large Paris store, reports Reuters, citing French TV, which is quoting a police source.

WFR (14.75): MEMC Electronic Materials Q4 estimates reduced below consensus at Citi: Firm reduced its Q4 and Q1:09 estimates below consensus, citing ongoing semiconductor unit weakness, and reduced its target price to $30, but maintained its buy rating

BHI (31.08); WFT (10.31): Baker Hughes (BHI), Weatherford (WFT) downgraded to market perform from outperform at Bernstein: BHI target reduced to $39 from $66. WFT target reduced to $16 from $35. The firm expects EPS to be down 15% in each of 2009 and 2010. Halliburton (HAL) remains rated outperform

GPS (12.85): Gap Inc downgraded to market perform from outperform at Friedman Billings Ramsey: Firm cites macro concerns and valuation as rationale.