NEW YORK (
) -- Not to be a negative nelly or anything but Monday's
felt a bit flimsy. It was as if a host of traders returned from the long weekend and bought stocks just to feel like they were back to work.
Dow Jones Industrial Average
jumped nearly 300 points, its best day in a little more than a month, and the
snapped its seven-day losing streak in equally dramatic fashion.
Whether Cyber Monday's sales can keep the holiday hype machine cranked up remains to be seen. If not, U.S. stocks may still be in for a Turbulent Tuesday, a Woeful Wednesday or Tumultuous Thursday because Europe's headlines haven't actually improved yet. It's still all reports of plans yet to be implemented, short on details and long on innuendo. Speculating on what an actual plan will look like and where the money will come from has been a fool's game so far.
A bit of news that could spook the buyers came out after the close when Fitch
. The market is entering a lull with third-quarter reporting season over and year-end distractions looming so this news has the potential to deflate sentiment but Ian Shepherdson, chief U.S. economist at
High Frequency Economics
, is skeptical that stocks will pay much attention at all.
"We've long been baffled by the continued existence of the ratings agencies, given their astounding incompetence before the mortgage meltdown, and we give their opinions no more credence than the opinions of other analysts," he writes in commentary released late Monday. "We expect the market will more or less take the same view."
Shepherdson notes that Fitch itself doesn't expect to decide on a downgrade until late 2013, a fact that flies in the face of Wall Street getting too worked up beyond using the news as a one-day trading event.
"In any event, a move from stable to negative watch is not the same as a downgrade, even for people who care what agencies think," he continues. "And as S&P got in first with a downgrade, it's hard to see why Fitch's move should generate a significant adverse reaction."
Meantime, this week brings the end of what's been a terrible November, although Monday's jump took some of the sting out of recent losses. S&P Capital IQ looked forward to December in a research note on Monday, noting that the calendar favors a bullish finish to 2011.
"Indeed, since WWII, the S&P 500 rose an average 1.8%, which is more than twice the average amount for all 12 months of the year," writes Sam Stovall, chief equity strategist at S&P. "In addition, the S&P 500 rose most often in December than in any other month, posting a 77% frequency of advance in December versus an average 59% for all 12 months."
Stovall, who is always careful to add that history isn't gospel, also points out that a weak November typically gives way to a strong December.
"Also encouraging is that whenever the S&P 500 fell in November, it rose 1.7% in December, and advanced in price 77% of the time," Stovall said. "Even after declines in November of 5% or more, the S&P 500 managed to eke out a gain of ½ of 1% in December, rising 73% of the time."
The numbers are compelling with December delivering the best average gains of any month for the S&P 500 since 1945, 1970 or 1990, Stovall says, while also noting that it misses out only to July by one basis point (1.48% vs. 1.49%) since 1929.
When December does go poorly, the data shows the S&P 500 has "slipped less than 2% on 10 occasions, fell between 2% and 5% eight times, declined between 5% and 7.5% three time (1930, 2002 and 1937), and tumbled 14.5% once (1931)," he writes.
"So while history hints that we could get an acceptable reflex rally in the month ahead, don't forget that we could also be dealt 'a dirty one, like in '31,' Stovall concludes.
As for Tuesday's scheduled news, the economic calendar features the Case-Shiller 20-city home price index for September at 9 a.m. ET with the consensus expecting a decline of 3%; and the reading on consumer confidence for November at 10 a.m. ET with the average projection calling for a bump to 42.5, according to
; and the Redbook weekly chain-store sales report, also at 9 a.m. ET, which will reflect Black Friday.
The earnings docket is thin, as will be the case for the next few weeks.
Tiffany & Co.
is the biggest name opening its books on Tuesday. The high-end jewelry retailer is slated to report its fiscal third-quarter results before the opening bell, and the average estimate of analysts polled by
is for a profit of 61 cents a share in the October-ended period on revenue of $803.6 million.
The stock rallied during Monday's session ahead of the report, adding 6% to close at $73.62, and was already up more than 10% so far in 2011, solidly outperforming the broad market. The company has topped the consensus earnings view in its first two quarter of this fiscal year, delivering an average upside surprise of nearly 20% as strong global growth allowed Tiffany to absorb price increases for precious metals and gemstones.
Wall Street has gotten a little tentative on the shares, given their solid year-to-date performance. Eleven of the 21 analysts covering the shares are at either hold (10) or sell (1). Jefferies & Co. is in the hold camp with a 12-month price target of $70 on the stock. The firm previewed the report on Monday, saying it expects "another solid quarter and with impressive sales and margins" but it's still not a buyer.
We believe this strong momentum is largely baked into the stock and prefer to remain on the sidelines in light of increasingly difficult compares and a choppy macro backdrop," said Jefferies, which is anticipating earnings of 60 cents a share and same-store sales growth of 11%.
Tiffany's stock trades at a forward price-to-earnings multiple of 17X, based the consensus estimate for a profit of $4.18 a share in the fiscal year ending in January 2013, so it is a bit pricey. Jefferies is also concerned about gross margin pressure from rising material costs as well as how consumers will react if the company raises prices, and it notes that year-over-year comparisons are going to get tougher soon.
"On a 2-yr basis the SSS
same-store sales compare becomes more difficult in 3Q and even more so in 4Q," the firm said. "As such, since the margin expansion is due to topline leverage further margin gains will become increasingly difficult, especially in the current rising cost environment."
Sterne Agee, however, took a more bullish view, expressing confidence that Tiffany's customers won't be scared off by rising price tags and citing the success of competitor Signet in this area.
"TIF has met little resistance raising prices to offset higher raw material costs so far, which we expect to continue," the firm wrote. "Signet said average selling prices at Jared increased 13% in Q3, excluding a watch promotion. Signet also said that it had the most ease raising prices on higher-priced, branded product, which is a positive for TIF. Signet's U.S. merchandise margin increased 45 bp suggesting that it was able to offset higher costs with price increases, and we see no reason why TIF cannot do the same."
Sterne Agee maintained a buy rating and $90 price target on the stock, saying: "Weexpect Tiffany will benefit from healthy global demand from high-end consumers."
Other companies reporting their quarterly results on Tuesday include
China BAK Battery
And finally, Monday's after-hours session was bereft of corporate news beyond a report that
may file for a $10 billion IPO by year-end, aiming to go public in the April-June timeframe, according to
The Wall Street Journal
was hit with a
but the stock didn't really react in extended trading so maybe those good feelings from Monday's upgrade by Susquehanna, mostly due to valuation, will last.
Written by Michael Baron in New York.
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