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Good morning,
Markets are called to open higher this morning. This is what's happening today:
Finally some good news out of the markets. Treasuries fell, headed for the steepest loss in almost two weeks, after President Barack Obama expressed confidence the US will avoid the automatic spending cuts and tax increases scheduled to occur at year-end. Nomura, (one of the 21 primary dealers that underwrite the US debt), is trimming its position as officials make progress on the so-called fiscal cliff. Treasuries also slid before an industry report that economists said will show sales of previously owned U.S. homes were within 2% of the most in two years in October.
Now I'd like to share with you a short article from Bloomberg and discuss it after.
'The post-election rout in US stocks has driven the Standard & Poor’s 500 Index down so far that it would have to advance 26% to reach the valuation of bull markets since John F. Kennedy was in the White House. Investors have seen $806 billion erased from the value of American equities since President Barack Obama was re-elected Nov. 6 in the biggest decline since May. The combination of falling stocks and rising profits as the economy recovers has left the S&P 500’s price-earnings ratio below the ending level of eight of the nine bull markets since 1962 and beneath the average of any since Ronald Reagan was in power.
Bears say the 4.8% drop in the S&P 500 and valuations show investors are losing confidence that Congress and Obama will reach a budget compromise that would keep the recovery from stalling. Bulls, including the top strategists at six Wall Street firms, say that the declines are another reason to buy and that stock prices from Apple Inc. to Dollar Tree Inc. are bound to improve as earnings increase.
“The stock market looks cheap because people are way too pessimistic about what growth looks like for the next 10 years,” said Brian Jacobsen, who helps oversee $208 billion as chief strategist at Wells Fargo Advantage Funds and predicts the S&P 500 will rise 47% to 2,000 in 2014. “You can get big and rapid moves in the market when expectations are so low.”'
I tend to be on the bulls side. The markets sold off way too much and are pricing in alot of negative news going forward. Now we know that the bears are incorrect in assuming that a compromise won't be reached. We heard it from the US President that he is optimistic that they will all agree on the way forward. The truth is that despite all the negative news that is coming out of the markets, the US is still doing well and growing at a good pace. Investors started putting risk back on the table when they heard that the US could go into recession in 2013. But this is probably the worst case scenario and the probability of it happening are much lower today then it was last week when the markets were selling off. The No. 1 mistake that is being made is the old proverb, ‘Once bitten, twice shy’. While the S&P 500 has doubled since Obama first took office, the index’s price-earnings ratio was lower than the 16.4x six-decade average. The multiple is up 35% since March 2009, compared with the average expansion of 55% in bull markets since 1962. I continue to believe that it is wise to be in the markets at this point in time. From both a fundamental and techical point of view, the markets are oversold.
Moving on to Europe, European finance ministers are due to meet in Brussels tomorrow as they aim to craft a plan for Greece’s next aid payout. In addition to a disagreement between the European Union and International Monetary Fund over softening Greece’s debt target, the ministers will attempt to re-engineer the current bailout without asking taxpayers to put up more money. I am confident that the outcome of this meeting too will set a positive tone in the markets and drive prices higher. I am also of the view that this week will mark the start of the Christmas rally. Time will tell.
Stock to watch: Las Vegas Sands (Price $42.27, Price Target $52)
Deutsche Bank Comments: While visible positive catalysts are less abundant than they were earlier this year, we believe negative investor sentiment, and an ever improving FCF story have become the key tenets to the LVS thesis. We continue to believe that one or all of the following are likely to be positive drivers for the stock in 2012/2013: 1) potentially shareholder friendly uses of capital, given the strong free cash flow generation, rapidly declining leverage, and limited current development pipeline, 2) a decision concerning the conversion of Four Seasons apartment units into hotel rooms, thereby adding an incremental 300 rooms to the property, 3) further discussion concerning gaming expansion in Asia, and Spain to a lesser extent, and 4) potential non-core asset monetization activity. We rate the shares Buy.
For further information on Vegas Sands or other stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
Kristian Camenzuli
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