Wall Street Breakfast: Where's The Value These Days?

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Economy

China's factory activity declined at its fastest pace in a year, according to HSBC/Markit's Purchasing Managers Index. PMI fell to 49.2 (est. 49.6) in April, beneath the 50-point watermark that separates growth from a contraction. In Japan, manufacturing fell to 49.7 (est. 50.8), dropping below 50 for the first time since July 2014.

Stocks ended higher Wednesday after a steady advance, with the Nasdaq finishing fewer than 15 points away from its all-time high, lifted by better than expected earnings and an upbeat report on the housing market. All 10 S&P sectors registered gains, with tech (+1.1%) leading the way.

Gold tumbled to its sharpest single-session loss in more than six weeks Wednesday after strong U.S. existing home sales raised expectations for a Fed interest rate hike in June. Gold futures fell $16.20 (-1.4%) to settle at $1,186.90/oz., while silver fell 1.3% to $15.77. Metal miners fell in sympathy:ABX -3.4%, AU -4%, GG -2.8%, SBGL -6.8%, GOLD -1.5%, AUY -3.7%, NG-1.9%, GFI -5%, SLW -2.1%, PAAS -3.5%, NEM -3.1%, EGO -1.4%, RGLD-2.1%, FNV -3.4%, KGC -1.7%, IAG -4.1%, BTG -2.5%, HL -3.8%, AGI-5.4%, AUQ -4.4%.

Boston Fed chief Eric Rosengren cautioned that weak growth data could delay interest rate hikes. "There has definitely been a weakness to the tone of the data. The employment report was weak. That was little bit of a surprise... Certainly what is happening globally with Greece and China would indicate that there may be more softness elsewhere in the world than we might have anticipated a few months ago. That is not a particularly positive development."

Now might be a good time for U.S. investors to pick up relatively cheap overseas assets, Research Associates' Michele Mazzoleni says. People are buying dollars in anticipation of higher U.S. rates, but there is no certainty, and some Fed officials appear to be having misgivings about tightening policy too soon, in part due to the strong dollar.

Existing homes sold at the fastest pace in 18 months in March - a seasonally adjusted annualized rate of 5.19M, up 6.1% from February and 10.4% from a year ago. The median existing-home price of $212.1K is up 7.8% Y/Y.

22% of hybrid and electric car owners trading in this year opted to go for a SUV, up from 18.8% a year ago and 11.9% three years ago, as lower gas prices shift the breakeven point. The rate at which hybrid and EV car owners bought another green car fell below 50%.

What's value these days? "We have consumer staples (NYSEARCA:XLP) and healthcare stocks (NYSEARCA:XLV) trading on average at 20x earnings and five times book value - while these stocks aren’t often thought of as value, they actually comprise 20% of the Russell 1000 Value (NYSEARCA:IWB) index," Richard Pzena said on the company's (NYSE:PZN) earnings call yesterday. Add REITs and utilities to the mix and it's pretty hard to call that value index "value" anymore. "The natural question: Is it different this time? Does this era of low interest rates presage something permanently different... We believe that the odds of such an outcome are low." Pzena presumably remains bullish on the large-cap financial sector names (NYSEARCA:XLF) which continue to be weighed down by ZIRP.

Stocks

The FCC recommended that the proposed Comcast (NASDAQ:CMCSA)/Time Warner Cable (NYSE:TWC) merger undergo a hearing, seen by some as a "deal-killer." A hearing would put the merger in the hands of an administrative law judge, a strong sign the FCC doesn't see the merger to be in the public interest.

Shares of NCR jumped 6% in post-market trading following a report it (NYSE:NCR) is exploring strategic alternatives such as asset divestitures, buybacks, and a dividend; a full sale of the company is a less likely option. The report comes two months after activist Jana Partners disclosed a 7.1% stake and ahead of NCR's April 28 Q1 report.

Less than three years after striking a deal to buy Motorola Home for $2.35B, Arris (NASDAQ:ARRS) announced it's buying U.K. set-top hardware/software provider Pace (OTC:PCMXF) for $2.1B in cash and stock. Pace shareholders will own 24% of the post-merger company. The fragmented nature of the global set-top industry could help secure regulatory approval. The deal is expected to close in late 2015. ARRS +28% AH.

Wall St Week Ahead - Investors look to earnings for market direction

NEW YORK (Reuters) - Investors attempting to determine whether U.S. equities will rebound from Friday's selloff or continue to sink will look to a deluge of earnings next week for a clearer picture of the economy.

The S&P dropped 1.1 percent on Friday, its biggest decline since March 25. Equities lost ground after industrials Honeywell International and General Electric took hits from the strong dollar, while concerns over new trading regulations in China and Greece's place in the euro zone dented sentiment.

Since hitting a high of 2,119.59 on Feb. 25, the S&P has held in a range of about 80 points. Investors have grown concerned about the impact of a strong dollar on quarterly results, even as they remain leery of missing out on any rally.

"Our markets will get kind of quiet again as we wait for some of those earnings and what is going to happen on the 24th with Greece," said Keith Bliss, senior vice-president at Cuttone & Co in New York. Euro zone finance ministers meet April 24 to try to reach a deal for Greek debt repayments.

Next week is among the busiest of the earnings season, with results expected from companies including Amazon.com Inc, General Motors, Boeing and Morgan Stanley. The results could help investors gauge the impact of the rise in the greenback and assess the strength of the economy after a string of lackluster economic reports.

"Most companies have been able to beat on the bottom line and miss on the top line, and that has been the story now for quite a while," said Rick Meckler, president of Liberty View Capital Management in Jersey City, New Jersey, referring to companies' ability to beat profit estimates while falling short of sales expectations.

"Their ability to make numbers keeps their stocks from really selling off, but their inability to show top line growth keeps their stocks from really taking off."

According to Thomson Reuters data, of the 59 companies in the S&P 500 that have posted earnings to date, 74.6 percent have topped profit expectations, above the 70 percent beat rate for the past four quarters and 63 percent rate since 1994.

Early returns on revenue have been disappointing, however, as 45.8 of companies have topped estimates, well short of the 58 percent rate for the past four quarters and 61 percent rate since 2002.

"Next week you get everybody, you get a much better picture of what corporate America looks like in the first quarter," said Art Hogan, chief market strategist at Wunderlich Securities in New York.

Although earnings season is typically choppy for stocks, traders in the options market do not seem to be raising many red flags about volatility for companies set to report results.

Wall Street Breakfast: Must-Know News

|  23 comments |  Includes: AA, ALLY, BR, C, GIII, JRCC, LLY, LQ, MRETF, PATCA, PBYI, Q

Economy

The Bank of Japan has kept its key interest rate at 0.1% and left unchanged its program of expanding the monetary base by ¥60-70T ($580-680B) a year. The BOJ refrained from further easing and maintained its optimism about the economy despite concerns about the impact of a rise in sales tax that took effect last week.

Ukraine's security forces have been attempting to clear Kharkiv, the country's second-biggest city, of separatists as the government tries to counteract what it sees as Russian schemes to engineer more annexations. Violence has flared amid pro-Russian demonstrations in Ukraine, with the latter accusing its neighbor of using separatists to seize administration buildings in Luhansk and Donetsk. The increasing tension has weighed on European shares today.

The Senate has passed a bill that would extend benefits for 2.8M people who have been out of work for at least six months, with the measure receiving support from several prominent Republicans. The legislation would restore the payout for five months retroactive to December, when it expired. The bill now goes to the House, where approval may be harder to come by due to concerns about costs.

Puerto Rico has hired restructuring lawyers from Cleary Gottlieb Steen & Hamilton, prompting speculation that the commonwealth is about to revamp its $70B of debt. Puerto Rico wouldn't be drawn on what the law firm's specific role is. Cleary has represented a who's who of debt-laden countries, including Greece, Iceland and Argentina. News of the hiring comes after Puerto Rico raised $3.5B in bonds last month.

Stocks
A jury has ordered Japan's Takeda to pay $6B and Eli Lilly (LLY) $3B in punitive damages over allegations that they hid the cancer risks associated with the diabetes therapy Actos. However, Eli Lilly could be off the hook, as Takeda (OTCPK:TKPYY) agreed to indemnify Lilly for any legal liability connected to Actos. In addition, the award may well be cut on appeal.

Samsung's operating profit fell for the second quarter in a row in Q1, dropping a preliminary 4.3% to 8.4T won ($7.96B) vs consensus of 8.5T won. Sales rose slightly to 53T won from 52.87T won. Samsung (OTC:SSNLF) released its Q1 estimates ahead of the global launch of the Galaxy S5 on Friday amid criticism that the device doesn't have any overly interesting new features.