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Five Things You Need to Know for Monday

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What you need to know (and what it means).

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Five things you need to know to stay ahead of the pack on Wall Street.

1. The 5% solution?

The benchmark 10-year Treasury Note is now within a whisper of 5%. Is this good or bad for stocks?

  • Yield on the 10-year Treasury Note reached a high of 4.965% on Friday, a level last seen in June 2002.
  • Since the Fed began raising its short-term target rate from a low of 1% in 2003, the long-end of the curve has remained stubbornly low... until recently.
  • This "conundrum" has been blamed in part on strong foreign demand for U.S. treasury bonds.
  • Now the 5% level for the 10-Year Treasury is being viewed as a significant "psychological" level.
  • According to the Wall Street Journal, however, some strategists believe stocks are perfectly fine with an increase in 10-year yields above 5%.
  • "It is a sign that the world is moving back to normal," Janna Sampson, director of portfolio management at OakBrook Investments told the WSJ. The 10-year yield would have to rise to 6% before it put a serious damper on stocks, she says.
  • On the other hand, the negatives of rising rates are that consumers may find it more expensive to buy homes, cars and other goods.


2. Please Allow Us to Speculate on Commodities

Many commodities – from silver, copper to orange juice and sugar – reached fresh nominal highs last week. Let the speculation begin!

  • The five-year commodities boom makes sense on paper.
    - Global economic growth is being lead by China's voracious appetite for raw materials.
    - A lack of capital investment in exploration, discovery and production is resulting in tight supplies.
    - Rising inflows of investment in commodities from hedge funds and even some pension fund allocations means more dollars chasing few opportunities.
  • Many believe commodities prices have further to rise because they remain far from their highs in real price terms.
  • According to Merrill Lynch's Richard Bernstein, commodities speculation is close to an historic high.
  • Commodities prices have always fallen year-over-year in the subsequent 12 months after such a peak in speculation.
  • The latest Institute for Supply Management report in March said there were no commodities currently in short supply, compared to last October when steel, copper, natural gas, and heating oil were all deemed by the report to be in short supply.


3. Gentlemen, Start Your Earnings!

Earnings season kicks off in earnest today. Wall of worry? Or walk of shame?

  • Apart from interest rates, gold, inflation, commodities, the dollar and nuclear war, the market is now gearing down to focus on what really matters: earnings.
  • For the first quarter of 2006 expectations are for 10.4% year-over-year growth in earnings, according to Thomson First Call.
  • As in the past few quarters, Energy is expected to lead the earnings parade by a wide margin.
  • Energy earnings have averaged close to a 60% profit growth rate since 2003.
  • We want to pay particularly close attention to Financials and Consumer Discretionary.
  • Those are the areas with the most downside risk given the combination of a flat-ish yield curve and possible downsizing in consumer spending.
  • Minyanville Professor Brian Gilmartin noted this morning on the Buzz and Banter that should this 10.4% growth rate come to pass, it would mark the 11th consecutive quarter of double-digit EPS growth for the S&P 500, and only the second time there has been a string of 11 consecutive quarters of earnings growth since 1950.
  • Quick, where's our hoola-hoop?


4. First United Bank & Trust of Bentonville?

Wal-Mart wants to open a bank in Utah. Let the damnation of capitalism begin!

  • Wal-Mart wants to open a "limited-purpose" bank in Utah and the FDIC is holding hearings on the proposal today and tomorrow in Arlington, VA, and later this month in Overland Park, KS.
  • The company applied in July for a so-called industrial loan corporation charter in Utah, saying it would use the bank only to process a small portion of its credit card transactions in hopes of saving a few million dollars a year.
  • Wal-Mart's application is not ground-breaking.
  • Both General Motors (GM) and Target (TGT) operate so-called industrial loan corporations.
  • The FDIC has received 2,400 letters on Wal-Mart's proposal - the most ever.
  • By contrast, Target's application received no letters.
  • Meanwhile, Wal-Mart has pledged not to use its bank to make loans or take deposits.
  • Among other things, opponents to the proposal worry that once Wal-Mart will find a way to morph into a retail bank.
  • Among those opposing the proposal is the National Association of Realtors.
  • Wal-Mart holds long-term leases with 300 financial institutions that operate bank branches in 1,150 Wal-Mart stores across the country.


5. Million Hombre March?

Today is National Day of Action on Immigrant Rights day.

  • The day of demonstrations is expected to involve 90 cities across the country and perhaps as many as two million people.
  • Besides demonstrations and speeches, groups are reportedly planning work-walkouts, and product boycotts.
  • Yesterday in Dallas, police estimated as many as 350,000 marched peacefully.
  • The demonstrations are related to changes to immigration law being considered in Congress.
  • Demonstrators are protesting a House of Representatives measure, approved last year that would create 700 miles of walls and fences along the Mexican border and make it a felony to aid anyone who is in the country illegally.
  • A Senate compromise that offered a path to citizenship collapsed in an April 7 vote.


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The views expressed on this website are solely those of the writers whose articles appear on this site and do not necessarily reflect the views of the Fund or of any other person except where expressly indicated.

Copyright 2006 Minyanville Publishing and Multimedia, LLC. All Rights Reserved.
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The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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