Markets To Open Lower - Worse Than Expected Economic Data - Microsoft Cutting 5,000 Jobs

January 22, 2009 – The futures are indicating lower openings for the broader markets. Apple’s financial results were helping to buoy the Nasdaq, until Microsoft announced dismal results and job cuts. Housing starts for December fell 15.5% to 550,000 on an annualized pace, below estimates of 605,000. Building permits missed also. Initial jobless claims came in higher than expected at 589,000. Expectations were for 543,000. Futures headed further south after the economic data was released.

The housing number was probably already factored into the markets and the fact that starts are down is probably a good thing in light of the fact there is so much inventory out there. On the other hand, the jobless claims continue to surprise, and erosion in the labor markets is the much more troubling data, in our opinion. Some argue, on the other hand, that housing starts are more fundamental than the job data and give us a better picture of what is happening in the economy.

The dollar is slightly higher against the euro, which is getting 1.2979 this morning, while gold is down $1.30 to $848.80.

Oil prices are higher this morning, at $43.68. The key factors which media is attributing to the recent rebound in oil prices include expectations of growth in China and India. This shouldn’t be new news, and we have been reporting for some time that in light of the fact that China, the world’s second largest automotive market only draws down about 6% of global oil supplies (contrast that with the U.S. which draws down 25% of global oil supplies), we should expect that oil prices move higher. To be sure, China’s economy is slowing, like the rest of us, but it is still growing at a pace greater than 7%.

In international markets, forecasts for growth in France are expected to be close to flat in 2009. Singapore unveiled a stimulus plan this morning worth $20.5 billion in Singapore dollars ($13.5 billion). Japan’s central bank cut its outlook for the economy and announced it would be purchasing up to ¥3 trillion ($33.6 billion) in commercial paper to try and shore up its markets. Japan’s exports fell for the third straight month, by 35% the same month on a Y/Y basis to ¥4.83 trillion ($54.27 billion). Belgium’s KBC bank received a €2 billion ($2.6 billion) government bailout. The jobless rate in Taiwan has hit a five-year high of 5%. British manufacturing optimism is at a 30-year low.

On the corporate front,

·         Healthcare – Unitedhealth (NYSE:UNH) reported a 40% decline in Q4 profit Y/Y to $726 million, or $0.60 per share on a 9% increase in revenue (Y/Y) to $20.45 billion. For FY08, profit declined 36% to $2.98 billion on an 8% increase in revenue to $81.2 billion.

·         Telecom – Nokia (NYSE:NOK) reported lower profit of €576 million ($743.62 million) in Q4, down from €1.84 billion reported for the same period last year. Revenue declined 19.5% for the period to €12.7 billion. It’s market share declined to 37% for the Q.

·         Technology – Apple (Nasdaq:AAPL) reported Q1 revenue of $10.17 billion and profit of $1.61 billion, or $1.78 per diluted, both increases on a year-over-year basis. LG Electronics reported a Q4 loss of 671.3 billion won ($487.2 million), down from a profit of 621.3 billion won for the same period last year on a 12.3% increase in sales to 6.59 trillion won. For 2008 profit fell 60.5% to 482.8 billion won against a 17.6% increase in sales to 27.64 trillion won. Microsoft (Nasdaq:MSFT) reported Q2 revenue of $16.63 billion up 2% Y/Y, and income of $5.94 billion, down 8% Y/Y.

·         Airlines – Southwest (NYSE:LUV) reported a Q4 loss of $56 million, or about $0.08 per share, compared with a gain of $111 million, or $0.15 per share last year. Fuel costs were up 23% on average.

·         Auto Industry – Hyundai said Q4 profit fell 27.9% to 243.6 billion won ($177.6 million) on a 1.1% increase in sales to 8.83 trillion won. For 2008, profit declined by 13.9% to 1.45 trillion won on a 5.1% increase in sales to 32.2 trillion won.

·         Wind – American Superconductor (Nasdaq:AMSC) announced a multi-million order for 100 sets of wind-turbines core electrical components from China’s CSR-ZELRI.

·         Lowered Outlook – Lockheed Martin (NYSE:LMT), Sony (NYSE:SNE)

·         Job Cuts – Intel (Nasdaq:INTC) announced 6,000 jobs cuts; Huntsman (NYSE:HUN) announced 1,175 jobs. Microsoft (Nasdaq:MSFT) announced up to 5,000 job cuts, 1,400 jobs today.

In terms of what we expect in today’s session, we think stocks will resume the downward trend on the heels of this morning’s economic data. Yesterday’s 279 point rally to 8,229 was nice, but keep in mind volume was lackluster at 6.4 billion shares traded. Investors were thanking God Apple’s report was so upbeat, because a big miss and downward guidance there would have darkened the clouds and then Microsoft reported, turning the mood completely sour. What continues to be remarkable to us is that the experts keep missing their expectations so drastically when it comes to forecasting economic data. This morning’s miss on jobless claims was off by 8%, which isn’t as bad as it has been, but still.

Our recommendation continues to be proceed with caution. There is still distinct downside for the broader markets, though we see certain sectors as being dramatically oversold – like solar. We are also bullish on energy efficiency and clean technologies, as well as on wind. We like energy and utilities, which should be getting a boost from the uptick in oil prices.

Sector Watch

An average IT employee made $78,035 in 2008, a 4.6% increase from 2007, according to Dice.com. Security analysts got the biggest raises in 2008, with an average salary increase of 8.4% to $86,778. Software engineers were next, with an increase of 7% to $90,031. Application developers got a 6.6% raise to $84,672.Fast Facts·         The national debt is at $10.86 trillion this morning.