Evening Update

Light Trading Ahead of Start to 4Q Earnings Season

Traders appeared cautious during most of today’s trading session as stocks moved in and out of positive territory. However, equities were able to pick up steam in late-afternoon action and close near session highs ahead of the 4Q earnings season which unofficially began after the closing bell with Alcoa reporting lower-than-expected earnings. Equity news was light as Jarden Corp modestly increased its 4Q and full-year revenue forecasts and Colgate-Palmolive announced estimates of the impact of currency devaluation by the Venezuelan government. Elsewhere, shares of McMoRan Exploration and Energy XXI surged after announcing a major discovery, while Associated Banc-Corp came under heavy pressure after posting an unexpected loss and slashing its dividend. Treasuries were mixed as there were no economic reports slated for release today.

The Dow Jones Industrial Average rose 51 points (0.5%) to close at 10,670, the S&P 500 Index added 2 points (0.2%) to 1,147, but the Nasdaq Composite fell 5 points (0.2%) to 2,312. In light volume, 967 million shares were traded on the NYSE and 2.1 billion shares were traded on the Nasdaq. Crude oil was $0.23 lower at $82.52 per barrel, wholesale gasoline fell $0.01 to $2.14 per gallon, and the Bloomberg gold spot price increased $13.86 to $1,152.13 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—was down 0.6% to 77.01.

Unofficially kicking off the start to 4Q earnings season (earnings calendar), Dow member Alcoa (AA $17) reported 4Q earnings after the closing bell of $0.01 per share ex-items, below analysts’ expectations of $0.06. Revenue rose to $5.4 billion, higher the $4.84 billion forecast by analysts. Shares closed higher.

In other earnings news, Jarden Corp. (JAH $33) reported that it expects to post 4Q revenue of $1.35 billion, slightly up from its previous guidance of $1.30 billion, and full year revenue to be approximately $5.10 billion. Analysts are expecting the company to report 4Q revenue of $1.33 billion and full-year revenue of $5.08 billion. The consumer product provider said that during 2009, it exceeded the financial goals it set despite the challenges in the macro environment, and it expects to return to organic revenue growth in 2010. Separately, JAH proposed a $400 million bond offering aimed at repaying debt. Shares of JAH were modestly higher.

Colgate-Palmolive (CL $81) was lower after announcing that its preliminary assessment of the Venezuelan government’s steep devaluation of its currency—the bolivar—would result in a one-time gain of about $60 million, or $0.12 per share, in 1Q 2010. The consumer product maker added that there will also be ongoing charges of approximately $0.04-0.06 per share per quarter in 2010 to the extent the company is able to take action in Venezuela to mitigate the effect of the devaluation. On Friday, the Venezuelan government moved to a two-tier exchange structure, with the rate increasing from 2.15 bolivars per US dollar to 2.60 bolivars per dollar for essential goods and 4.30 for non-essential goods, which CL’s product’s are expected to fall into the non-essential classification.

Shares of McMoRan Exploration (MMR $14) were up over 50% and Energy XXI (EXXI $4) was almost 40% higher after the two companies reported that it had a major discovery of gas-bearing sands on its Davy Jones ultra-deep well in the Gulf of Mexico.

Shares of Associated Banc-Corp (ASBC $11) were down nearly 7% after the company reported a 4Q net loss of $1.41 per share, compared to a gain of $0.03 per share that Wall Street analysts had forecasted. The company reported that it took 4Q credit-related charges of $405 million—“up significantly” from the $95.4 million in credit-related charges it took in 3Q—due to provisions for loan losses and an increase in its reserves for unfunded commitments. Additionally, the Wisconsin-based regional bank cut its quarterly cash dividend from $0.05 per share to $0.01 per share, and announced that it will offer up to $400 million of its common stock, to boost its capital position.

Economic calendar dormant today

Treasuries were mixed as no major economic releases were on today’s docket. The yield on the 2-year note fell 2 bps to 0.94%, the yield on the 10-year note decreased by 1 bp to 3.83%, while the yield on the 30-year bond gained 2 bps to 4.74%.

The only report on tomorrow’s economic calendar is November’s trade balance, expected to widen to a deficit of $34.5 billion, according to economists polled by Bloomberg, after showing a gap of $32.9 billion October.

However, a busy week on the economic front remains in store for traders to aid in their quest to better determine the economy’s direction, and if it can balance itself and move forward on its own once the Fed begins to remove the “training wheels” of the unprecedented stimulus deployed to combat the financial crisis. The keynote report this week will likely be Thursday’s report of advance retail sales for the pivotal month of December for the sector. Sales are forecast to rise 0.5% and excluding autos, sales are expected to increase 0.3%. These projected advances will come on the heels of November’s much stronger-than-expected report, which showed sales more than doubled economists estimates at the headline level, while stripping out the more volatile component of autos, sales tripled the Street’s forecast. Based on last week’s generally better-than-expected same-store sales reports in the sector, which showed traffic in stores for the month was strong and internet sales soared, the report could help confirm that the consumer caught the shopping spirit and could be poised to contribute further to the economic recovery.

Record day for China electrifies markets early, but brings caution

Exports in China jumped 15% month-over-month in December to $130.7 billion, the fourth-largest on record, according to the customs bureau, moving it ahead of Germany as the world’s No. 1 exporter of goods in 2009, and imports during the same period soared an unprecedented 18% m/m to $112.3 billion. On a year-over-year (y/y) basis exports rose 17.7% and imports rocketed 55.9%, exacerbating concerns of resurgent inflation. Shipments to the US and Europe rose 15.9% and 10.2%, respectively, while delivery of goods from Australia and Malaysia more than doubled. Additionally, the China Association of Automobile Manufacturers reported that 13.6 million cars, buses, and trucks were sold in the nation during 2009, a 46% jump and the fastest pace in at least 10 years, helping China surpass the US, which sold 10.4 million vehicles, as the world’s largest auto market.