Markets sold off sharply Thursday, only to rally on Friday amid low volume in a positive response to the latest outcome of the European Union (EU) summit in Brussels. As a result, the major U.S. markets managed a second-straight weekly gain. The increases reached 1.4% in the Dow, 0.9% for the S&P 500 and 0.7% in the Nasdaq. But global markets are looking skittish this morning as the positive impact of the European summit deal are fading and the S&P bumps up against its 200-day moving average. That’s why I think this week is one to sit out in the stock markets.
So, what was all the hoopla in Europe about last week? The 17 euro-zone governments and potentially nine others in the 27-nation EU agreed in principle to a greater centralization of their budgets and the passage of the equivalent of “balanced budget amendments.” Those amendments include automatic corrections, if the so-called “structural deficit” exceeds a certain level. These measures sound impressive on paper. And frankly, I’d be shocked if the U.S. Congress would agree to any measure that would tie its own fiscal hands nearly as much.
The summit also laid bare the deep divisions in Europe — particularly, the gap between the views of U.K. Prime Minister David Cameron and Europe’s “first couple,” Germany’s Angela Merkel and France’s Nicolas Sarkozy. Cameron rejected Friday’s agreement outright as he failed to secure an exemption for the United Kingdom’s financial industry.
Aside from nationalistic prancing, the elephant in the room is the practical issue of implementing and enforcing any agreement made in Brussels. As it stands today, 26 out of 27 prime ministers will have to fight domestic political battles to get Friday’s agreements confirmed. Good luck with that.
With Europe in crisis, and the Chinese and Asian economies slowing, you’re already seeing — through our picks in the ProShares Ultra S&P500 (SSO), MasterCard (MA) and Ford (F) — how we are slowly but surely shifting the emphasis in the Bull Market Alert portfolio back toward the United States. The U.S. markets today remain the best among a weak bunch in the world, with only the U.S. and Indonesian stock markets in the black as we head into the final weeks of 2012. You can expect to see more U.S.-oriented picks in the weeks ahead.
Portfolio Update
Alexion Pharmaceuticals (ALXN) fell 2.87% last week. Analyst firm Barclays Capital initiated coverage of Alexion last Friday and set a $77.00 price target. That’s a 16% upside, based on ALXN’s closing price on Friday. ALXN is back to a HOLD.
Bank of Ireland (IRE) continued its rise and added 2.07%. The European Central Bank (ECB) recently lowered interest rates by 0.25% (25 basis points). Notably, Bank of Ireland passed only 0.1% to 0.15% of this rate cut on to its lending customers. Such a move allows the balance of the rate cut benefit to go directly to IRE’s bottom line, aiding its recovery. IRE is currently a HOLD, but continues to inch closer towards its 50-day moving average.
National Bank of Greece SA (NBG) fell 5.51% over the past five trading days. The European Banking Authority announced Thursday that a planned 30-billion euro aid package would be enough to meet capital adequacy ratios. This aid package will ensure that major Greek banks maintain their ability to withstand a wider sovereign default. NBG remains a HOLD.
iPath DJ-UBS Livestock TR Sub-Idx ETN (COW) gave back 4.13% last week. The U.S. Department of Agriculture (USDA) released its world supply and demand report last Friday. The USDA report stated “Cattle prices are forecast higher for the remainder of 2011 and through 2012 as demand strength is expected to carry into 2012 in the face of tight cattle supplies.” COW is a HOLD.
Companhia de Bebidas Das Americas (ABV) jumped another 4.14%. AmBev hiked prices in late 2010, causing it to lose some Brazilian market share, but increasing its profit margin. That strategy paid off as Morningstar analysts note that ABV has now recaptured most of that lost market share. ABV is a BUY.
ProShares Ultra S&P500 (SSO) rose 1.69% over the past five trading sessions. The S&P 500 Index continued it’s upwards pressure on the 200-day moving average last week. SSO followed suit, and remains between its 50-day and 200-day moving averages. SSO is a BUY.
MasterCard Inc. (MA) remained flat, posting a slight 0.25% loss. Bank of America issued a “buy” rating for MasterCard last week and set a $430 price target. This target is 12% above MasterCard’s current price level. Bank of America stated that it expects MasterCard’s strong business momentum to continue, albeit at a more moderate pace, driven by secular payment volume growth, share gains and modest global economic growth. Bank of America anticipates MA continuing to generate attractive 18-20% earnings per share growth in this backdrop, leveraging a scalable platform, which will “propel MA shares higher.” MasterCard is a BUY.
Spreadtrum Communications, Inc. (SPRD) fell 13.29% last week. SPRD has endured some profit taking in recent days. This pullback may represent an excellent opportunity to purchase a stock that has a positive rating by 12 of the 14 analysts who cover it. Trading below its 50-day moving average, SPRD is a HOLD.
Ford Motor Co. (F) climbed 1.19%. Ford announced last Thursday that it would restore a regular dividend. Ford halted its dividend payment back in 2006 when markets were in turmoil. Restoration of a dividend payment is a good sign of financial strength and it will help to buoy Ford’s stock price. F is just above its 50-day moving average and is a BUY.