Gains ahead for financials? JP Morgan and Goldman Sachs both reported strong results, reflecting their success in taking significant market share from substantially weaker competitors. Cisco Systems, along with other leading technology players, was similarly able to take share from weakened competitors following the tech wreck earlier in the decade. Does this mean Goldman and JP Morgan are buys? Perhaps, but I’m not so sure. Cisco’s stock remains substantially closer to its ten year lows than its all time highs, in spite of all the share gains and its even greater market position. Valuations, of course, were much higher for technology companies at Nasdaq 5000 than financials were during the mortgage bubble, but the fact remains that both were at the center of their respective storms.
We’ll hear the word “jobless recovery” alot more in the months ahead, but don’t let it get you down. Noriel Roubini – Dr. Doom – and Merideth Whitney both made comments this week that strayed from their usually dour forecasts. While saying that they made positive comments might be a relative call for these two influential bears, they may nevertheless be acknowledging some green shoots in their tone. If bears are no longer able to use the words depression and recession to state their case, expect to hear the phrase ”jobless recovery” in its place. I’ll bet the term has been used in the early stages of most economic recoveries, so don’t necessarily let it get you down. Shifts in sentiment take alot of time and almost always lag the market’s performance.
Unemployment and continuing claims point to an improving outlook. New and continuing claims both declined this week, suggesting that the recession may be on its latter legs. Some economists are forecasting positive GDP growth in the third quarter.
China, China, China. It’s no secret that China has been a big driver of the world’s recovery. The country’s citizens will likely purchase 11 million cars this year, more than U.S. citizens, and GM may get as much as a quarter of its sales their this year. According to Francois Trahan at ISI Group, China’s stock market recently surpassed Japan’s as the world’s second largest. For those who are bearish on the U.S. consumer, perhaps the Chinese consumer will pick up some slack.
Corporate travelers still staying home. Intel and Goldman’s earnings releases got all the press this week, while Marriott Hotel’s was lost in the shuffle. Marriott’s revenue per available room rate (REVPAR) has stabilized, but corporate travel is still way down. Deep discount, leisure travelers are one of the few bright spots, with higher weekend occupancy rates than weekday rates reflecting this trend. Management still isn’t seeing any green shoots, but believes ”planting season” may be around the corner.
What’s on the docket for next week? Lots and lots more corporate earnings. So far, the markets have responded positively to the earnings news, confirming a more stable environment and perhaps providing some meaningful value to continued cost cutting efforts.
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