NEW YORK (
) -- Stocks are
as investors and market strategists alike struggle to recalibrate expectations in this new world of never-ending QE.
The mood is such that even a boost of a year-end
target can have an almost begrudging feel to it. UBS lifted its outlook by 11% on Thursday to 1525 from 1375 but the commentary around the move was hardly gushing.
"While we're raising our year-end price target, we continue to believe that macro headwinds will hamper stock performance over the intermediate term," the firm said. "These include a coordinated global economic slowdown, weak earnings growth, potential negative side effects from unprecedented monetary easing, the fiscal cliff, uncertain election outcomes, the future of the Euro, and a burdensome regulatory environment. We believe the current market rally will continue until these issues grab headlines once again."
UBS thinks ultimately this round of quantitative easing is likely to play out the same way as previous programs.
"While central bankers' actions to avoid financial catastrophe have been very successful, efforts to spur economic growth have been far less effective," the firm wrote. "Looking at the market's responses to the extension of QE1, QE2, and Operation Twist, it's clear that stocks respond for a period of time, before rolling over when macro concerns move to the forefront and fundamentals ultimately lag elevated expectations. This has resulted in a "risk on, risk off" trading environment, primarily driven by multiple expansion and contraction, rather than a sustained improvement in underlying fundamentals."
In the near-term, UBS is expecting a rotation into "the most volatile and economically-sensitive stocks" with outperformance from "early-cycle cyclicals, such as Energy, Materials, Autos, Homebuilders, and Diversified Financials" while non-cyclicals like consumer staples, health care, telecom and utilities lag.
The firm also made the argument that so much bond buying by central banks can potentially hamper economic growth by adding to the macro fears that have stunted job creation.
"For companies, additional Fed stimulus undoubtedly lowers borrowing costs and provides a temporary boost to stock prices," the firm said. "However, we believe the primary culprit holding companies back from hiring and making long-term investments is tremendous uncertainty around a number of macro issues, including large fiscal imbalances, interest rates, inflation, commodity prices, currency values, tax rates, and regulation. Arguably, an unprecedented increase in the size of central bank balance sheets creates even more uncertainty around these issues."
It's a fair point. You can lead a company to cheap money but you can't make it borrow, or for that matter, spend. With the S&P 500 sitting at 1460, UBS is projecting 4.5% appreciation from here, not bad for a little more than three months, especially when the yield on the 10-year Treasury is still well south of 2%, but after the mega-rally stocks have enjoyed since early June, there seems to be some fear of topping out creeping in as well.
As for Friday's scheduled news,
reports its fiscal first-quarter results before the opening bell, and the average estimate of analysts polled by
is for a profit of 84 cents a share for the three months ended in August on revenue of $2.03 billion.
Shares of Darden, the operator of the Red Lobster and Olive Garden restaurant chains, are up more than 20% this year, hitting a 52-week high of $55.84 in mid-May. Sterne Agee maintained a buy rating on the stock ahead of the print and said it's expecting hear more commentary about the earnings impact of the company's Yard House acquisition on the conference call.
"While we believe that SSS
same-store sales likely remained soft during the qtr, we remain confident in our L-T
long-term view for DRI given upcoming new menu items/advertising for Olive Garden, superior marketing power, differentiated brands and what we believe to be dividend support given a ~3.7% yield," said the firm, which is expecting earnings of 84 cents a share on revenue of $1.94 billion with blended same-store sales seen declining 0.5%.
Sterne Agee also sees the success of the various promotional programs the company is running or plans to run as topics for the call.
"Currently in 2Q13, Olive Garden is running its 'Never Ending Pasta Bowl' priced at $9.99 (priced $1.00 above last year)," the firm noted. "Looking out over the next several weeks, we believe that Olive Garden will introduce a new promo which features a 'buy one take one feature.' For Red Lobster, DRI started their 'Endless Shrimp' promo on Aug. 13 (roughly 2 weeks earlier than last year) which is priced at $15.99."
The sell side is only mildly bullish on Darden with 17 of the 30 analysts covering the stock at either strong buy (7) or buy (10), and the median 12-month price target at $57.50 vs. Wednesday's close at $54.72.
Check out TheStreet's quote page for Darden for year-to-date share performance, analyst ratings, earnings estimates and much more.
Other companies reporting Friday include
TICKER TYPE="EQUITY" SYMBOL="KBH"/> and
TICKER TYPE="EQUITY" SYMBOL="PKE"/>.
The economic calendar is empty.
endured seesaw trading in Wednesday's after-hours session after the software giant
for its fiscal first quarter but fell short on revenue. The shares dropped as low as $31.05 but have since recovered enough to tip-toe into positive territory, trading last at $32.31, up 5 cents, on volume of more than 3 million, according to
was also in the late headlines, announcing a 10% boost to its dividend. The company is bumping its quarterly payout to 77 cents a shar. The forward annual dividend of $3.08 per share implies a yield of 3.3% based on Wednesday's close at $93.15.
"Today's announced dividend increase brings our 2012 expected total cash return to shareholders to at least $5.5 billion through dividends and share repurchases," said Don Thompson, the company's chief executive officer, in a statement.
Written by Michael Baron in New York.
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