UBS, Barclays say ‘Buy! buy! buy!’

In a Bloomberg survey of a dozen financial strategist representing the likes of UBS AG, Barclays Plc and Oppenheimer & Co., the average estimate for the S&P 500 during the fourth quarter is quite bullish.

According to the report (find it here) the S&P 500 will climb 14 percent over the last three months of 2011 in response to excessively low values.

Analysts are saying (and rightly so, for what my opinion is worth) that the debt crisis in Europe combined with August’s haggling over the debt ceiling and subsequent debt downgrade by Standard and Poors is responsible for the third quarter’s huge drops in the major stock indexes. As such, many companies’ stock is under-valued, making this a major buyers market.

The last time the S&P 500 Index gained 14 percent over one single quarter was in 1998. Also from a historical perspective, often when the stock market approaches a bear market, there is a big rebound following what investors view as opportunistic market conditions.

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Opening Bell: 10/4 (Moody’s cuts Yonkers rating; IBM thrives; Manufacturing posts modest rise)

The lead story of the Wall Street Journal: “Market Nears Bear Territory.”

Good Tuesday Morning!

Driving the day: Moody’s Investors Service cuts Yonkers’ bond rating by two notches, down to Baa1, just three levels above “junk” status, and reduced Yonkers’ outlook to negative from stable (previously, the city’s bond rating had been A2, the sixth-highest investment-grade rating). In its report, Moody’s said that projected budget gaps through 2015 and unsettled collective bargaining contracts with city employees would continue to represent challenges for city government officials.

Two things of note to take from this news: (1) First, mayoral elections in less than a month, it presents brand new challenges to whoever takes over for Mayor Phil Amicone. Yonkers has been riding a hot streak as of late with its Ridge Hill development, waterfront development and activity around the County Center; this puts a bit of a damper on that. (2) Second, the report foreshadows more difficulties to come for many of the state’s municipalities, with Moody’s analysts pointing to the 2 percent tax cap, saying that they will continue to monitor the impact of the new cap on any municipal debt issuance.

Stock Outlook: European indicators are continuing to fall this morning, which means more bad news for U.S. stock indexes. Also, watch for a reaction to Fed Chairman Ben Bernanke’s testimony before Congress at 10 a.m.

As an aside, note that the stock market has been falling consistently on European woes and not on a perceived decline of U.S. companies’ values. Whenever Europe starts to turn itself around, U.S. markets will be poised for big gains with the currently undervalued state of many S&P 500 companies.

By the Numbers: 1.3% – as in, the increase in construction spending for the month of August, an encouraging sign given what we know about August job numbers. Notably, public construction spending rose 3.1 percent (with residential construction up 0.7 percent).

Headlines:

Small businesses that are hiring say the biggest challenge is finding qualified workers. In a survey of 133 executives who attended Inc.’s 500|5000 Conference (i.e., businesses that have posted strong growth numbers), 40 percent of those queried said that finding qualified workers was the biggest challenge, versus just 13 percent who cited the sluggish economy and 16 percent who cited difficulties securing capital. (Inc.)

IBM is targeting mid-sized acquisitions as it continues to post strong growth numbers, one executive told Bloomberg News. IBM recently passed up Microsoft Corp. as the world’s second-most valuable tech company behind Apple.  (Bloomberg)

U.S. manufacturing index rises unexpectedly in September on strong gains in exports. (Bloomberg)

Fannie Mae knew of abuses, report says, citing a lack of oversight at the Federal Housing Finance Authority (the report was authored by the FHFA’s inspector general).  (NY Times)

Sports Blink: With the Yankees on the brink of playoff elimination, A.J. Burnett will get the start in Game 4. Be sure to remove any sharp objects from the vicinity of the television…

Week in Review: How to stem confidence crisis; Big week for Hudson Valley tech firms

Driving the day: Another day in the red for S&P500, U.S. stock markets, but Westchester a bright spot – As of 2:30pm, the S&P500 – the broadest measure of corporate America – is down by 1.5 percent on the day and is likely headed for a negative week, barring any major developments. In the 3rd quarter, the index has shed 13 percent overall. While unrest in Europe is very clearly having a major bearing on the stock market and on many – if not all – of the S&P500, uncertainty in the labor market and in the housing market are continuing to deflate any shred of optimism for the economy to make a comeback.

In conversations with dozens of business owners and bankers, Westchester County is very clearly a bright spot. Unemployment is markedly below the U.S. average (6.5 percent vs. 9.1 percent) and there are major real estate, retail, and hotel developments ongoing in Yonkers, White Plains, Port Chester, and many places in between. One need look no further than this week’s $4.4 billion announcement (IBM, Intel, et al – more on that later in this post) that cemented the Hudson Valley as the state’s “intellectual capital” (hat tip: Larry Gottlieb) and state as a whole as the place to be for semiconductor research and manufacturing.

Yet there is still a lingering crisis of confidence – even in Westchester. The county’s businesses have become much more diversified over the years, and as such they are better suited to weather the effects of an economic slowdown. Few Westchester businesses are directly affected by the fluctuations of the stock market or by debt talks in Europe. But because those are the most visible indicators of the economy, that is what people look to. Additionally, people’s confidence is impacted by what they can physically see and relate to. Maybe IBM is creating 1,000 jobs in East Fishkill and Yorktown Heights, but all someone in Dobbs Ferry might see is that “For Sale” sign that has been in front of their neighbor’s yard for months, or a vacant store front that has been so for equally long.

What is needed, surprisingly enough, is more risk-taking. I’m not suggesting ill-advised risk-taking, but instead, for an environment where a strong business plan won’t be blunted by excessive regulations and ultra-cautious lenders. There has been an overcorrection following the recession, and businesses are paying the price. Until that is fixed, job growth will be slow, and confidence will continue to wane.  

They Said It: “Americans don’t like bad news, they prefer good news, but what they really, really can’t tolerate is a lack of certainty,” said Anthony J. Domino Jr., managing principal of Associated Benefit Consultants in Rye Brook, in an Aug. 22 interview with the Business Journal and repeated in a Sept. 23 interview.  

Westchester County Business Journal headlines:

Sprouting Hotels – Mixed developments that feature hotels and retail locations are becoming increasingly common in Westchester. Here, we visit Metro Plaza in White Plains.

Migration Taxes State’s Finances – While migration of taxpayers and their families from the state slowed dramatically after the recession, a recent report says the cumulative effects of the past decade’s departures have taken a toll on the state’s finances.

Tech Firms to Invest $4.4 Billion – In the much-publicized news of the week, a joint venture of five technology firms to refine computer chip technology in New York state has resulted in a combined $4.4 billion investment, including $3.6 billion by IBM Corp., with the projects yielding a projected 4,400 new jobs.

Clinton: Government, Companies Must Invest in the Future – At the “New York Open for Business” statewide conference in Albany on Tuesday, former president Bill Clinton said that in order to invest in the future, sacrifices – including in health care and entitlement spending – would be necessary in the present.