“UPGRADE MONDAY” OFF TO A STRONG START
“Upgrade Monday” got off to a strong start this morning as a series of analyst upgrades drive the market higher to start the light holiday trading week. We have warned overly bearish investors about this phenomenon for several months now. Analysts still remain far behind the 8 ball in terms of their estimates and that means the upgrade cycle is not over yet. We should continue to see this trend into Q4 earnings when they’re reported in January.
Notable upgrades included Alcoa and Intel. Both names were upgraded at Barclays. Barclays sees Alcoa rising almost 50% to $22 while they see Intel jumping to $24. Morgan Stanley piled on the Alcoa bandwagon with a new “overweight” rating.
Goldman Sachs wasn’t to be left out of the upgrade charades as they added shares of Potash to their conviction buy list. They also upgraded shares of Mosaic to a buy as they see the potash industry picking up momentum into 2010:
Our view of a fundamental demand recovery in potash in 2010 remains unchanged, and we believe a near-worst-case scenario on 2010 potash pricing is now discounted in stocks. We see a very compelling risk/reward setup and encourage investors to buy shares of both POT and MOS before the market regains its confidence in the fertilizer outlook in 2010 and beyond.
Q4 earnings will be the first major catalyst of 2010. I fully expect this major market moving trend to be a near-term catalyst for equities.
Nice work TPC. Your personal analysis has been dead on. These outlooks from banks are far less helpful. I hope you’ll keep us updated as we enter 2010.
The expectation ratio hasn’t failed me yet. I think this BS rally is going to continue to frustrate the bears into early 2010. It’s difficult to be bullish when the underlying fundamentals appear so weak, but this trend in earnings is simply too powerful.
TPC,
You are right on this of course. However there are so many factors which they can’t control, and there are far too many plates in the air. Another Greece here, a Dubai there or almost anything is going to cause a cascade.Granted they have pulled this trick off for far longer than one would have thought possible, until you realize the years the housing ponzi scheme went on even after it was exposed. So I am with Leuthold in thinking we have a minor correction sometime in January. Unfortunately for him, that correction will start people asking questions that lead to the inevitable.
I don’t deny that things will roll over again, but in the near-term I believe the earnings catalyst is still far too strong. It’s not 2010 that worries me. In fact, I think 2010 could be quite a dull year. Think 2007. Things will get interesting again in 2011 & 2012 when the economy isn’t actually recovering and debt levels once again come to a head.
So how do you plan on playing a dull year?
Long high yield equities and sell covered calls?
That sounds like an excellent plan. I also believe there will be plenty of trading opportunities. I am working on my own 2010 outlook – to come when I am done with the bank outlooks. Expect it in the next week or so.
Just looked at your 2009 and 2008 investment predictions. Impressive stuff. I’ll be looking forward to hearing your 2010 ideas.
My bias is towards an expected path of strong / moderate first half results for risky assets, but balanced with a number of potential black (or perhaps I should say “grey”?) swan events akin to the Dubai / Greece crises.
The second half is where I would be really worried about the expected path for risky assets. This thinking is based on several factors, most notably withdrawal of emergency government aid, the end of the natural inventory bounce, and the looming mortgage resets mountain. That’s all without taking into account nasty grey swans, such as sovereign default risks and/or huge capital raises by large financial institutions (to account for the low coverage ratio embodying “extend and pray”), not to mention black swams out of left field (think something like an economic collapse from an oversupply bubble in China).
The confounding factor, as has been the case the past couple of years, will be the government’s response to events. So too strong of a recovery in the first half could lead to unanchoring of inflation expectations and subsequent withdrawal of liquidity, leading to 1937 again. Or weakness in the second half (perhaps spurred by crises) could lead to opening the liquidity taps again, in an even bigger way, resulting in risk rally 2.0…Good luck to everyone, stay nimble.