Afternoon Review

News pertaining to Acropolis securities was relatively light on Friday…

IBM confirmed 3Q EPS increased 22 percent to $2.05 per share, in line with last week’s pre-announcement, and the company said it sees “very strong opportunities” in developing markets over the next six months. It has had no problems issuing commercial paper, liquidity is very strong, and short-term signings picked up in September. Services and software were solid, but very weak hardware numbers show a clear industry slowdown. In this environment, I think it is safe to assume that no technology business segment is immune to macro pressures.

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Russian stocks continued their steep slide (on Friday) as the Financial Times reported modest runs on medium-sized banks. The near collapse in commodity prices, including the more than 50 percent drop in oil in recent months, is also darkening the outlook. Central Europe and Russia Fund (CEE) is down 47.99 percent since 8/28/2008.

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What happened today…

China’s economic growth (9.0 percent in 3Q) slowed more than expected. This data is likely to prompt Beijing to shift to looser monetary policy and step up fiscal spending (especially as inflation concerns cool). It is unclear to what extent Olympic-related factory closures and transport disruptions affected GDP, but it is no surprise that export growth took a hit considering the state of other developed economies. All in all, China’s economy is in a good place compared to the U.S. and Europe. There is confidence in their financial system, no liquidity problems or risk of bank insolvency, low levels of external debt and very minor exposure to foreign mortgage-related investments.

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Energy related stocks rallied on the earnings release from Halliburton (HAL) who said that unconventional activity throughout the U.S. and Canada accelerated. HAL said a worldwide recession would have negative short-term implications for demand, but current prices still support most projects under way. International business has not yet been impacted by economic troubles and the drop in commodity prices, the CEO said.

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One of the biggest news stories today may be Fed Chief Ben Bernanke’s support for a second fiscal stimulus package. Bernanke said that because the economy is “likely to be weak for several quarters,” including the risk of a “protracted slowdown,” a fiscal stimulus package seems appropriate. Bernanke would not provide a specific dollar amount but said any potential package should be “significant.” However, he did suggest that fiscal package should include “measures to help improve access to credit by consumers, homebuyers, businesses, and other borrowers.”

Commentary as well as video of Bernanke’s address to the House Budget Committee can be accessed by clicking here.

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The upcoming election has highlighted some major obstacles for U.S. coal stocks. Coal powers half of the U.S. electricity supply, but also is the country’s largest source of carbon dioxide emissions. This article on WSJ.com examines how politicians are responding to the coal industries concerns.

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At this point, it’s hard to put any credence into analyst estimates on housing prices (look where that got us today). That being said, Fitch Ratings projected prices will start to stabilize after falling 10 percent more.

“Fitch’s analysis shows that the 29 percent rise in prices realized between 2004 and 2006, representing one of the largest price growth periods ever recorded, has been reversed. With prices returning to early 2004 levels, Fitch believes that most of the additional 10 percent decline, which will bring prices back to levels seen in 2003, will occur over the next eighteen months. Fitch then expects declines thereafter to moderate.”

In case you missed it, WSJ.com posted a great interactive graph that shows the housing pains in the U.S.

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139 of the S&P 500 companies are reporting earnings this week, so we should get a pretty good idea of which sectors are best suited to weather the storm. Companies reporting tomorrow that are of interest to Acropolis clients: Lockheed Martin (LMT), Pfizer (PFE), 3M (MMM), Quest Diagnostics (DGX), DuPont (DD), Caterpillar (CAT), Cerner (CERN), Raymond James Financial (RJF), and First Cash Financial (FCFS).

Prepared by:

Peter Lazaroff, Junior Analyst