Market Preview: Feeling the Fear?
The surge got its mojo from a rather perfunctory statement from Europe's leaders ahead of their informal dinner meeting. More wishful than weighty, the sentiment boils down to a desire for everything to go right from here on in: Greece quickly forms a new government, decides to stick with the austerity program, stays a part of the single-currency bloc.
No word on eurobonds. No detail on what contingency plans may or may not be being made for a Greek exit. No real substance.
Yet it was enough to bring stocks back for an hour, a day at least. That means there just isn't enough fear out of there yet. Analysts at JPMorgan Chase addressed the subject in a strategy note earlier Wednesday.
Pavan Wadhwa, global rates strategist with the firm, puts a 50% chance on Greece exiting the European Monetary Union within the next two months and he sees "severe negative consequences" should this come to pass, including a continued deposit and capital flight from the country; a drop in access to capital markets for other sovereigns, most notably Spain and Italy; and good old debt contagion as he estimates "the Euro-area's exposure to peripheral countries is about ¿2.5T
Wadhwa expressed surprise that the potential direness of the situation didn't seem to be reflected in the current environment.
Now Wednesday at least saw some real volatility and the swings across asset classes were notable. The yield on the 10-year Treasury revisited record lows; the euro hit a 22-month low; oil settled below $90 for the first time in more than six months; gold is close to correction territory; and the U.S. dollar's strength continued.
S&P Capital IQ sees signs that a bottom could be close for stocks but warned that the greenback's continued robustness -- a sign of its growing safe-haven status -- presents a hurdle to dreams of a snap-back.
"We think the stock market is close in both time and price to a bottom, but we think there will be more volatile, sideways trading as stocks hammer out a bullish reversal pattern," wrote Sam Stovall, the firm's chief equity strategist. "Market sentiment is quickly tilting toward the bearish side of the street, and from a contrarian viewpoint. We think this represents a positive for stocks."
Stovall continued: "The U.S. Dollar Index is making a new recovery high today
As for Thursday's scheduled news, Costco Wholesale
The warehouse retailer is lauded for its efficiency but top-line growth has stalled out and the stock is now roughly flat for 2012. The shares hit a 52-week high of $92.10 on April 2, and though they've pulled back 9.5% since then based on Wednesday's close at $83.31, the forward price-to-earnings ratio is still a relatively pricey 19.1X.
Compare that to 12.1X for Wal-Mart
Guggenheim is generally bullish on the company but it does believe slowing sales growth will take a toll on the valuation.
"Our thesis continues to be that moderating 'core' U.S. comps--to 2-3% from 4-5%--in the face of tougher compares and disinflation will create compelling entry points for longer-term investors," the firm said. "As a reminder, we regard Costco as one of the few (perhaps only) consumables retailers capable of growing earnings at a 10%-plus rate over the next 10-15 years as a substantial international expansion opportunity is taken advantage of."
Check out TheStreet's quote page for Costco for year-to-date share performance, analyst ratings, earnings estimates and much more.
Thursday is a light earnings day featuring Barnes & Noble
The economic calendar brings weekly initial and continuing jobless claims at 8:30 a.m. ET; and durable goods orders for April also at 8:30 a.m. ET. The consensus estimate is for initial claims to dip down to 365,000 from 370,000 last week, while durable goods orders are seen up 0.3%.
Excluding transportation, durable goods orders are projected to rise 1%. Briefing.com's own view is more negative as it sees a 1.5% decline in total durable goods orders, and a flat performance excluding transportation.
And finally, Hewlett-Packard
Fears that HP would echo the "challenging environment" sentiment of Dell
The expected news of a major restructuring plan that will reduce the company's workforce by 8%, eliminating 27,000 jobs, was also cheered as Wall Street is on board with the idea that HP needs to make decisive moves to fuel a speedy turnaround. The stock was last quoted at $23.17, up 10%, on extended volume of nearly 9 million, according to Nasdaq.com.
The big loser in late trades was NetApp
--Written by Michael Baron in New York.
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