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Opening View: Stocks Poised to Rally as Congress Finds a Solution

By: Schaeffer's Investment Research
Posted: 8/1/2011 8:15:00 AM
Referenced Stocks: ALL;BXP;FST;HUM;L

Stocks are set for a strong open this morning, as futures on all three major indexes are pointing significantly higher. Over the weekend, word broke that Congress had finally reached an agreement on a debt deal that will essentially cut spending and increase the federal debt ceiling. "There are still some very important votes to be taken by Congress, but I want to announce the leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default," President Obama said. This is a 180-degree reversal from Friday, when buyers hit the exits after the all-important House vote over a debt solution had been delayed. As a result, the Street seems to have breathed a tremendous sigh of relief this morning, with futures on the Dow Jones Industrial Average (DJIA ) trading nearly 153 higher, while the S&P 500 Index (SPX ) is hovering some 15 points north of fair value.

Dow, S&P and Nasdaq futures

In earnings news, health insurance issue Humana Inc. (HUM - 74.58) reported a 35% jump in its quarterly profit as a result of increased revenue in its retail and health-maintenance segments. For the quarter, Humana said it earned $726.5 million, or $2.71 per share, including a one-time benefit to its reserves, compared to $535.9 million, or $2.00 per share, in the year-ago period. Excluding items, the firm earned $2.50 per share. Analysts, meanwhile, had expected HUM to report a much slimmer profit of $2.05 a share. Revenue for the quarter rose 8% to $9.28 billion from $8.59 billion. The insurance company also hiked its fiscal 2011 forecast to between $7.50 and $7.60 per share, significantly higher than its previous estimate of $6.70 to $6.90 per share. As a result of the upbeat report, HUM has added nearly 3% ahead of the open.

Meanwhile, The Allstate Company (ALL - 27.72) confessed to a second-quarter loss of $642 million, or $1.19 per share, from a year-ago profit of $441 million, or 27 cents per share, as the result of a series of catastrophic loss events including five tornadoes. In fact, catastrophe losses jumped to $2.34 billion, against $96.8 million in the year-ago period. Revenue rose 5% to $8.08 billion, compared to $7.66 billion a year ago. Analysts had predicted Allstate to report a loss of $1.46 per share.

In management news, Sandra Cochran, president and chief operating officer of Cracker Barrel Old Country Store, Inc. (CBRL - 45.11), will soon take the reins as chief executive officer. She will be replacing 10-year veteran Michael Woodhouse, who will remain chairman of the board. This management change follows Lawrence Hyatt being named as chief financial officer, with the CFO looking to "hand over the reins to a new generation." Cochran said she plans to outline CBRL's business plan for 2012 in the company's earnings report on Sept. 13. ( Editor's Note: A previous version of this article mistakenly said Cochran will become executive chairman. Furthermore, CBRL executives have asked that we clarify that the changes have been planned since last year. We apologize for any confusion. )

Earnings Preview

Today's earnings docket will feature reports from Boston Properties ( BXP ), Forest Oil ( FST ), Loews ( L ), Allstate ( ALL ), Humana ( HUM ), Alkermes (ALKS), Vivus (VVUS), Changyou.com (CYOU), Ctrip.com International (CTRP), and Sohu.com (SOHU). Keep your browser at SchaeffersResearch.com for more news as it breaks.

Economic Calendar

The economic calendar kicks off today with the ISM manufacturing index for July and construction spending for June. Tuesday brings the latest reports on personal incomes and spending, as well as auto and truck sales for July. Employment data starts to hit the Street Wednesday, when ADP releases its report on private-sector payrolls for July. Also on tap are the ISM services index, June's factory orders, and the usual report on weekly petroleum inventories. Thursday's lone economic report is the regularly scheduled update on weekly jobless claims. On Friday, all eyes will be on the Labor Department's nonfarm payrolls report for July. Later in the session, the Fed weighs in on June's consumer credit trends.

Market Statistics

Equity option activity on the Chicago Board Options Exchange (CBOE) saw 957,155 call contracts traded on Friday, compared to 750,290 put contracts. The resultant single-session put/call ratio docked at 0.78, while the 21-day moving average remained at 0.65.

NYSE and Nasdaq summary

Volatility indices

The summer 2011 issue of SENTIMENT magazine is now available here.

Overseas Trading

Most Asian stocks finished higher today, thanks to optimism over the end of the U.S. debt drama. However, gains in China were relatively muted, after data from both HSBC and the China Federation of Logistics and Purchasing showed a contraction in manufacturing in June. By the close, Japan's Nikkei added 1.3%, South Korea's Kospi gained 1.8%, Hong Kong's Hang Seng advanced 1%, and China's Shanghai Composite edged almost 0.1% higher.

In similar fashion, European stocks are higher at midday, after President Obama announced a bipartisan deal to raise the debt ceiling. In equities news, European Aeronautic Defence & Space was up roughly 1.4% after announcing plans to buy Vizada from private-equity fund Apax France, while Porsche Automobil Holding SE soared 1.5% after reporting stronger-than-expected first-half operating profits. At last check, France's CAC 40 and Germany's DAX have each tacked on 0.9%, while London's FTSE 100 is up just 0.02%.

Overseas markets

Currencies and Commodities

Crude futures have advanced this morning, as Congress' debt resolution has boosted the demand for black gold. Ahead of the open, crude oil is up 1.3 points, or 1.3%. Elsewhere, the greenback has given up a portion of its gains, down 0.2 point, or 0.2%, in pre-market activity. Meanwhile, the upbeat news over the U.S. debt situation has had an adverse effect on gold, with the "safe-haven" asset down 12.7 points, or 0.8%, ahead of the open.

Currencies and commodities

Unusual Put and Call Activity:

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Unusual options activity - puts

Unusual options activity - calls

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