Stock market will tread water in 2010

Trading On Stock Market at 2010

If your faith in the stock market remained unshakable in 2009, toast your own good sense. It was a great comeback year, with the leading indexes up 20 percent to 45 percent. Most stocks are up about 50 percent from the year’s lows in March.

But don’t expect anything like a repeat in 2010.

A bull statue near the New York Stock Exchange may not symbolize how the market will fare in 2010.

Look for stocks to show little upside oomph over the next 12 months. A decline is possible, but a tight trading range is more likely. When stocks don’t show any direction, it’s usually because of confusion, something we’ll see plenty of in 2010. Investors will be preoccupied with measuring the conviction of any recovery, but the signals won’t be clear.

We will, indeed, see an improving economy in 2010. Production will ramp up. Hiring will grow. But it won’t look like the kind of recovery people are accustomed to.

For one thing, bank lending will remain tight. All of the incentives for banks are still on the side of retracting from risk and strengthening their balance sheets. Also, many are saddled with bad commercial real estate loans that will become bigger problems over the next couple of years. Commercial property values — now at a seven-year low — will drop more and could hit a total decline of about 50 percent from the decade’s highs, according to Foresight Analytics.

The other disappointment for people will be housing prices. Many equate an increase in home values with true prosperity, and government support for home-buying shows the industry’s populist importance. But tax credits have to end as the government turns its attention to deficits, and mortgage rates can’t fall any further.

The housing market is a ball of bad debts that will take years to unravel. It depended since the 1990s on people cashing in equity to trade up. But now there is no equity, and the pressure will be felt on higher-end homes. The Cook County assessor’s office is reporting that foreclosures in well-to-do neighborhoods are rising faster than in lower-income neighborhoods, where subprime mortgages were the culprits. Research from Barclays Capital and others say that over the next three years, the market will face a surge of adjustable-rate loans scheduled to reset at higher rates, increasing many people’s payments 50 percent or more.

STEP ON IT: Robert W. Baird & Co. analyst David Leiker suggests keeping an eye on Navistar International (NAV), which last traded at $40.62. Leiker wrote that if the stock slips, and especially if it gets back to recent values of around $35, it will pose a compelling opportunity. Leiker says several trends work in Navistar’s favor, starting with a cyclical recovery in commercial vehicle sales.

He also sees the company reporting higher profit margins on cost-cutting and on its decision to take engine manufacturing in-house.

Note that one of NAV’s businesses is manufacturing chassis for motor homes. And motor-home production is starting to pick up, though for the life of me I can’t understand why.

UNDER IT ALL: Which brands are causing a buzz these days? For people under 25, Under Armour (UA) has to be on that list. The maker of moisture-wicking sports apparel has identified itself with the youth market and appears ready for worldwide growth, reports Sharon Zackfia, analyst at William Blair & Co.

Zackfia wrote that Under Armour has the potential to quadruple its U.S. market share, currently at around 2 percent. The company relies less on international sales than Nike (NKE), but even there the sales growth will be in the billions of dollars if it merely maintains its current rate of increases, she said.

PERFECT PERFIDY? The New York Times reports that the Securities and Exchange Commission and the security industry’s in-house cop, the Financial Industry Regulatory Authority, are looking at whether Goldman Sachs Group (GS) and other big banks deliberately steered customers into bad investments on collateralized mortgages. While the banks were selling these securities, they also were taking positions that helped them profit from a decline in housing values. This may have been going on in 2007, when the housing markets first showed cracks.

The allegation sounds damnable, but it’s really just an extension of what Wall Street does. They trade and hedge regardless of customer interests. These are nonpartisan profit-mongers. They can even say taking the opposite side of the trade was prudent business.

The old saying in Washington is that if you want a friend, buy a dog. If you want a friend on Wall Street or LaSalle Street, feed a pigeon.

DATA MINING: A company that operates from Lake View, Ycharts, has a free online service for stock analysis. A founder, Shawn Carpenter, said investors have little choice if they want free or low-cost data services that measure a stock’s long-term financial performance and enable comparisons with other companies. Ycharts takes financial reports and puts them into easy-to-read graphics. The service relies on advertising for revenue. It’s just starting, and it links to other sites for some data analysis. But Ycharts is looking for feedback. It’s worth checking out if you can’t afford a Bloomberg terminal.

CLOSING QUOTE: “Apple [AAPL] may be on the verge of kneecapping the cable industry.” — a headline at seekingalpha.com on a piece about Apple negotiating with TV networks to offer subscription access over the Web.

If you’ve ever waited all day for the cable guy or been stuck in cable’s on-hold limbo, you’re probably rooting for Apple to the core.

Resource: http://www.suntimes.com