May 20, 2009: Morning Call

May 20, 2009: Morning Call

Fair Value: SP500 – 906.86; NDX: 1398.13; DOW: 8462.43

Technical Levels:

SPX: 765, 788, 832, 875-880 support/ 935-943 resistance

Events:

Pre-market EPS: ANN (-.19/468.5M); BJ (.42/2.30B); DE (1.06/6.65B); TGT(.60/14.83B)
07:00: MBA Mortgage Applications
08:00: MSFT presents at the JP Morgan TMT Conference
08:30: BJ earnings call
08:40: JNPR presents at the JP Morgan TMT Conference
09:00: NDAQ Annual Meeting
09:20: MA presents at the JP Morgan TMT Conference
09:30: Treasury Secretary Geithner at Senate hearing on TARP
10:00: AXP presents on a conference call with Calyon’s Mike Mayo
10:00: DE earnings call
10:30: DOE Crude Oil and Gasoline Inventories
10:30: TGT earnings call
11:30: INTC Annual Meeting
14:00: TOL Q2 2009 Guidance Call
14:00: FOMC Minutes from the April 29 meeting
17:30: QCOM presents at the JP Morgan TMT Conference
Post-market EPS: CSC (1.47/4.17B); GYMB (.67/228.3M); LTD (-.04/1.77B); NTAP(.23/858.5M); SNPS (.40/335.7M)


Foreign Market Summary/Key Macro News/Commentary:

The S&P and NASDAQ futures are both trading 3 points above fair value at 7:30am ET. Asian markets closed mixed (Japan up 0.60%, Hong Kong down 0.39%, India down 1.69%, Shanghai down 0.96%, Australia 0.19%). Sentiment in Japan was helped by economic data that was not quite as bad as expected. Japan’s Q1 GDP shrank (4.0%) sequentially vs. survey (4.3%). European markets are flat. Advancers just edge decliners on the FTSE 100. Experian Group (EXPN.LN) gained as full year results topped expectations. Julius Baer Holdings (BAER.VX) rose after saying it's to separate its Private Banking and Asset Management businesses into two independently listed companies.

The S&P 500 will likely settle into a trading range between 875-950 for the next few months or until incoming information alters the consensus view of modest economic recovery in the second half. Even a modest economic recovery in the 2H could propel the S&P toward the 1000 level, which would likely be an interesting level to establish some core longer-term oriented short positions based on the thesis that a 2010 recovery will be less robust given that the US government would need to scale back the massive monetary and fiscal stimulus. The S&P would likely pull back 10-15% (775-820) if the economy fails to recovery in the 2H or if expectations for 2010 growth are revised lower. Current consensus is for growth of 0.50% in Q3 and 1.75% in Q4 and the recent revisions have been heavily skewed to the upside. Consensus for 2010 growth is 1.9%.


Research Calls/Market Moving News:

HPQ (36.58): Hewlett-Packard reports Q2 EPS $0.86 vs. Reuters $0.86: Company reports revenues of $27.35B vs. Reuters $27.46B. Guides Q3 EPS to $0.88-0.90 vs. Reuters $0.89. Reaffirms full year EPS to $3.76-3.88 vs. Reuters $3.72. Q3 (Jul) flat to down 2% sequentially; implies a range of $26.80-27.35B vs. Reuters $27.47B; heading into today, consensus was calling for flat sequential growth. Fiscal 2009 (Oct) down 4-5% versus prior down 2-5%; implies a range of $112.48-$113.63B vs. Reuters $113.60B. Hewlett-Packard not ready to call entire market "better" - conf. Call: Management highlights some areas of improvement, specifically highlighting China and the US consumer as better than expected, and says that there are many more stories they could tell of potential signs of a turnaround. However, they caution that there is still too much uncertainty around the globe to make a blanket statement that things are better than they were in February. They went on to highlight that the quarter played out largely as expected; there is no story or news on linearity, as April did not look much better or worse than March or February.

BAC (11.25): Bank of America concludes At-the-Market (ATM) stock offering; raises ~$13.47B: In a press release, BofA confirms that it has concluded its previously announced sale of common stock through an ATM issuance program. The company issued 1.25B shares since beginning the program on Friday, 8-May at an average price of $10.77, representing gross proceeds of approximately $13.47B.

MSFT (20.31): Microsoft is expected to show a new search engine next week – WSJ: Additional headlines say the search engine is a counter to Google and it will focus on simplifying searches.

DE (43.82): Deere & Company reports Q2 EPS $1.11 vs. Reuters $1.07: DE says company equipment sales are projected to be down about 19% for the full year and about 26% for Q3, including a negative currency translation impact of about 5% for the year and about 6% for the quarter. Net income for 2009 is expected to be about $1.1B with more risk to the downside.

TOL (19.51): Toll Brothers reports preliminary Q2 home building revenues of ~$398.3M vs. Reuters $392.4M: First Call is $386.7M. Chairman and CEO Robert Toll says it is not comfortable offering earnings guidance at this time, though says per-community (same-store) deposits have exceeded FY 2008's same-store deposits in seven of the past nine weeks. Conference call at 14 ET.

Treasury to announce additional $7.5B investment in GMAC - Detroit News: A person familiar with the matter says the deal, which could be announced today, could allow the federal government to hold a majority of the company if it chooses to

MGM (8.34): MGM Mirage may drop sales of casinos - NY Post: A source says that now that the company has raised $2.5B from stock and debt, the auctions of casinos in Mississippi and Michigan will probably be pulled. First-round bids did not meet targets, and no deadline for second-round bids has been set

COST (47.21): Costco upgraded to outperform from neutral at Credit Suisse: Valuation cited.

RF (5.24): Regions Financial announces $1.25B capital raise: Regions announced that it has commenced public offerings of $1B of its common shares and $250M of new mandatory convertible preferred shares. Goldman, Sachs and J.P. Morgan Securities will serve as joint bookrunning managers for the Offers and Morgan Keegan & Co. Inc., will be lead manager