Gold advanced 2% to fresh record highs; and the price of silver jumped 5.9%.  The initial gains in the equity prices followed strength in Asian markets yesterday.  Strength in Asia was partly helped by reports that said Japanese economy grew at its fastest pace in over two years, up 1.2% during the third quarter.  To add to the bullish mood in the region, leaders of the Asia Pacific Economic Cooperation promised to keep the stimulus measures in place.

On Monday, the 30-stock Dow Jones industrial average rose 136.49 points, or 1.33%, to 10,406.96. The broad Standard & Poor's 500-stock index was up 15.82 points, or 1.45%, at 1,109.30. The tech-heavy Nasdaq composite index gained 29.97 points, or 1.38%, to 2,197.85.  On the New York Stock Exchange, 25 stocks were higher in price for every six that declined.

Bernanke warned of threatening headwinds from rising unemployment and tight credit but added comments supporting the government’s stimulus measures.  Yields on US Treasuries declined, with the yield on the 2-years touching its lowest since last January.  At session's end, Meredith Whitney questioned the fundamentals of the current stock market rally, and said she expected a double-dip recession next year.

Analysts, meanwhile, raised their ratings on number of firms.  Goldman Sachs (NYSE:GS) raised its rating on Nordstrom (NYSE:JWN) from "neutral" to "buy," saying the firm would be a "key beneficiary of a recovery in high-end consumer" demand.  Goldman's analysts also started their coverage on Dell (NASDAQ:DELL) with a "buy" rating, saying the company would benefit from the PC upgrade cycle.  JP Morgan's (NYSE:JPM) added US Steel (NYSE:X) and AK Steel (NYSE:AKS) to its focus list.

A number of key retailer results are slated for today's release, looked to for guidance on current consumer demand. Among companies reporting today are: Home Depot (NYSE:HD), Target (NYSE:TGT), TJ Maxx (NYSE:TJX), Saks (NYSE:SKS), Autodesk (NASDAQ:ADSK), and Salesforce.com (NYSE:CRM).

The Dow Jones industrial average, which hit an intraday high of 10,341, advanced 44 points, or 0.4%, to close at 10,291.26. The S&P 500 added 6 points, or 0.5%, to close at 1,098.51, and the tech-laden Nasdaq composite rose 16 points, or 0.7%, to end the day at 2,166.90.  On the New York Stock Exchange, 19 stocks were higher in price for every 11 that declined

Nine of the ten S&P500 industry groups ended in the green, with financials (+1.3%), basic materials (+1.0%) and technology (+0.7%) leading the gainers.  Utilities fell 0.2%.  On the DJIA, Bank of America (NYSE:BAC) led the advancing issues as the firm’s CEO noted the integration of Merrill was running ahead of schedule, and will result in greater-than-anticipated cost savings in 2009.  Wal-Mart (NYSE:WMT) advanced 1.3% ahead of this morning's results.

Shares in home building companies rose after Toll Brothers (NYSE:TOL) said late Tuesday that signed contracts for new homes in its latest quarter jumped 42%.  Toll rose $3.02, or 16.4%, to $21.41.  Pulte Homes Inc. (NYSE:PHM) advanced 77 cents, or 8.1%, to $10.23, while Beazer Homes (NYSE:BZH) advanced 63 cents, or 12.4%, to $5.73.

Meanwhile, the greenback plunged to its lowest level since 2008 and ended the day just below $1.50 against the euro.  The steady decline in the greenback has been precipitated by continuing suggestions from the Fed that interest rates will remain low for an extended period as the recovery strengthens.  Across the globe, markets have interpreted this language as suggesting a mid-2010 timetable for raising rates. 

However, gold prices steered clear of wavering sentiment and hit an all-time high Wednesday at $1114.60 per troy ounce, up $12.10.  China reported greater-than-expected industrial output and retail sales, sending resource-related shares higher. Commodity prices also rose, with the broad-based, DJ-UBS index up 0.6% to 133.408. Crude prices gained, up 0.3% to $79.28.

Today's retailers' results will be an indication of consumers' appetites for goods.  Although the third quarter is seasonally slow, the current quarter numbers will be closely watched as the holiday season approaches.  Yesterday's reported loss at Macy's (NYSE:M) was less than anticipated; however, its raised fourth quarter guidance failed to meet expectations. Companies reporting results today include: Kohl's (NYSE:KSS), Nordstrom (NYSE:JWN), Urban Outfitters (NASDAQ:URBN) and another key consumer-driven firm, Disney (NYSE:DIS).
 

Cisco Systems’ (NASDAQ:CSCO) CEO John Chambers said he now sees a global economic recovery, fueling a rebound in the company’s sales this quarter.  The Dow average jumped 203 points, or 2%, while the tech-heavy NASDAQ, riding high on Cisco’s forecast, bolted up 50 points or about 2.4%. 

All ten S&P 500 industry groups ended in the green, with banking shares advancing 2.6% as analyst Dick Bove of Rochdale Securities noted the group will double by the end of 2010.  Technology shares advanced 2.2%.  Qualcomm Inc. (NASDAQ:QCOM) jumped 5.4% to $43.85 and Microchip Technology Inc. (NASDAQ:MCHP) gained 3.9% to $25.37 after it was raised to “buy" from “neutral" at FTN Equity Capital Markets.  Research in Motion (NASDAQ:RIMM) jumped on news of its $1.2 billion share buyback plan as well as a Standard & Poor's ratings increase to "buy" from "hold."  A report on the semiconductor industry projected sales growth of 10% in 2010.

On the retail sales front, action was largely mixed.  About half of firms that reported numbers missed expectations as the growth proved selective. Costco (NASDAQ:COST) posted 3% same-store-sales gains excluding gasoline results; Gap (NYSE:GPS) registered a 4% sales growth and raised its third quarter guidance.  Luxury retailers Nordstrom (NYSE:JWN) showed surprising gains with its 6.5% sales increase.

On the political front, President Obama is expected to sign into law today an extension and broadening of the homebuyers' tax credits, to include both first-time buyers' credits of $8,000, and existing homeowners, in residence for over five years, of $6,500.  The measure also includes an extension of unemployment benefits by up to twenty weeks.

Chicago, IL – November 6, 2009 – Zacks Equity Research highlights Acorda Therapeutics (ACOR) as the Bull of the Day and Canon (CAJ) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Big Lots (BIG), Wal-Mart (WMT) and Nordstrom (JWN).

Full analysis of all these stocks is available at http://at.zacks.com/?id=5506

Here is a synopsis of all five stocks:

Bull of the Day:

Acorda Therapeutics (ACOR) is one of the more interesting biotechnology companies under our coverage. The company's key pipeline drug, Fampridine-SR, is currently under U.S. FDA review, with a decision expected in late January 2010.

Outside the U.S., Acorda has partnered with Biogen Idec under very favorable terms. Fampridine-SR has blockbuster potential worldwide in our view. Plus, the company is extremely well-capitalized with over $290 million in cash, and management has commercial experience with current approved product Zanaflex.

These are among the best fundamentals in all of biotech. We reiterate our Outperform rating on the stock.

Bear of the Day:

We believe the sharp appreciation of the yen is eroding Canon’s (CAJ) revenue and profits. The company expects to improve profitability through product launches and cost-cutting efforts, and Canon has maintained its revenue and earnings forecast even though the third quarter was below expectations.

We expect revenue in 2009 to be hurt by weak consumer spending and the poor global economy, and believe the company will struggle to meet expectations in fiscal 2010. We maintain our estimates for the full year 2009. 2011 estimates have been added.

We also maintain our Underperform recommendation on CAJ shares, but increased our six-month target price to $30.00. 

Latest Posts on the Zacks Analyst Blog:

Initial Jobless Claims Down

Initial claims for unemployment insurance fell by 20,000 this week to 512,000. Last week's numbers were revised slightly higher, so arguably the drop was 18,000, but that's still a nice improvement.

The four-week moving average dropped by 3,000 to 523,750. Since new claims can be volatile from week to week, the four-week moving average is generally considered a better gauge of where we are.

However, we remain above the highest levels seen in either of the last two recessions. The level indicates that we are still losing jobs, but at a slower rate than we had been. In the past we did not start to see actual increases in the number of jobs in the economy until after the average fell well below 400,000, so we still have some work to do. The good news, though, is that the decrease has been pretty steady, and we have not started to plateau the way we did after the last two recessions.

Most economists agree that unemployment benefits are among the most effective ways to spend stimulus dollars, since the money goes directly to people in need, and those people are highly likely to spend the money quickly, thus providing a multiplier effect. The problem, though, is that you don’t want unemployment insurance to become a permanent welfare program. The idea has to be that it is a temporary bridge during tough times, not a way of life.

Still, new job creation at historically low rates -- leaving millions of people with out any income at all -- not only would cause huge humanitarian problems, it also causes big economic problems. While most of the unemployed are likely to be far more frugal this year in their Christmas shopping, doing more buying at Big Lots (BIG) and Wal-Mart (WMT) than Nordstrom (JWN), without the extended benefits they would not be spending at all, not even for basics -- let alone Christmas presents.

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=5507.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous analyst coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=5508.

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Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5509.

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Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Mark Vickery
Web Content Editor
312-265-9380
Visit: www.zacks.com

Company Description

Nordstrom, a fashion specialty retailer, operates 179 stores located in 28 states. The company was founded in 1901 as a shoe store in Seattle. Today, Nordstrom runs 112 full-line stores, 64 Nordstrom Racks, 2 Jeffrey boutiques and 1 clearance store. In addition, Nordstrom serves customers through its online presence at http://www.nordstrom.com and through its catalogs.

Strong Momentum and Bullish Forecasts

The company has more than doubled the market's return over the past year. During the last 3 months, JWN saw even more bullish trading as shares nearly tripled the performance of the major averages.

Analysts are also bullish, lifting the full-year Zacks Consensus Estimate from $1.57 per share to $1.65 over the past month. The most accurate projection is more bullish at $1.68.

For the following year, the Zacks Consensus Estimate of $1.95 per share was increased from last month's $1.81. The most accurate estimate is even higher at $1.99.

Second-quarter forecasts of 34 cents per share climbed from 29 cents over the past month, which included a 1-cent bump in the last week.

Results for the third quarter are scheduled for release on November 12.

September Sales

Nordstrom recently announced that September same-store sales dipped by 2.4% year-over-year. Total sales of $720 million were up 0.3% from last year.

Strong Fundamentals

The company boasts a return on equity (ROE) of 25%, squashing the industry average of 7%. Nordstrom's net profit margin of 4% tops the industry average of 1.4%. The Growth and Income pick pays an industry-leading dividend yield of 2%. Zacks Investment Research

• Abercrombie & Fitch (NYSE:ANF) reported a second-quarter loss of 30 cents a share, compared with Zacks estimates of a 6 cents loss on inline revenues off 23.3% to $648 million

• Blockbuster (NYSE:BBI) reported a second quarter loss of 19 cents, a 7 cents miss, on revenues of $1.02 billion off Zacks estimates of $1.11 billion.  The firm said it now expects 2009 EBITDA of $3.05 to $3.25 a share, compared with its prior view of $2.70 to $2.90 a share

• JCPenney (NYSE:JCP) beat estimates of a 1 cent loss, posting breakeven results on inline revenues of $3.94 billion, versus $4.28 billion in the year-ago period. The company said it now expects full-year earnings of 75 cents to 90 cents a share, compared with its prior view of 50 cents to 65 cents a share

The Dow Jones industrial average retreated 32 points, or 0.3%. The S&P 500 index fell 3 points, or 0.3%. The Nasdaq dipped 8 points, or 0.4%. On the New York Stock Exchange, 1.09 billion shares exchanged hands and losers were ahead of winners by a narrow margin.

The two-day Fed meet that begins today is expected to keep interest rates near close to zero.  However, Bernanke and Co’s assessment of how the economy is faring could be decisive and therefore its moves would be closely watched. 

Seven of the ten S&P500 industry groups ended in the red, led by declines in basic material shares (-1.7%), industrials (-0.9%), financials (-0.8%), and technology stocks (-0.6%).  Health care (+0.7%) and utilities (+0.3%) showed strength as investors snapped up defensive plays.  Material stocks declined as the US dollar gained against a basket of currencies.  Basic material shares fell due to a decline in commodities.  Alcoa (NYSE:AA) shares retreated 2.4% and Freeport-McMoRan Copper & Gold (NYSE:FCX) dropped 1.6%.  Retailers also headed lower in the face of upcoming earnings reports by the majors, including Abercrombie & Fitch (NYSE:ANF), JC Penney (NYSE:JCP), Macy's (NYSE:M), and Nordstrom (NYSE:JWN). However, yesterday McDonald's (NYSE:MCD) reported a stronger-than-expected 4.3% rise in July same-store sales, reflecting its appeal to the value-conscious consumer.

Analysts’ adjustments also reflected on some stocks yesterday.  Eli Lilly (NYSE:LLY) dropped 3% after Goldman Sachs (NYSE:GS) downgraded the stock to "sell" from "neutral" and added the company to its Conviction Sell list, citing its risk at having the industry's largest "patent cliff." Merck (NYSE:MRK), however, rose 1.7% after being reinstated with a "buy" rating at Goldman Sachs (NYSE:GS).   Merck was also added to Goldman Sachs’ (NYSE:GS) American Conviction buy list on its current valuation and product pipeline.  Best Buy (NYSE:BBY) fell 5.3% after Goldman Sachs (NYSE:GS) downgraded the stock to "neutral." Research in Motion (NASDAQ:RIMM) shares plunged 4.9% as the possibility of an iPhone launch at Verizon (NYSE:VZ) led analysts at UBS (NYSE:UBS) to downgrade the shares from "buy" to "neutral."  UBS (NYSE:UBS) lowered its rating on Yum Brands (NYSE:YUM) to "neutral" from “buy" on concerns about "sluggish" sales.

Tuesday will also see the first of the $75 billion in Treasury auctions scheduled for the week. $37 billion in 3-years is slated for today, with $23 billion scheduled tomorrow and $15 billion on Thursday. The sales are not expected to find a lack of buyers.

The broad-based S&P 500 index rose 13 points, or 1.3%, to its highest point since October 6 as the Labor Department noted nonfarm payrolls tapered off in July.  Results from a separate survey showed an unexpected decline in unemployment rate, indicating an improving employment picture.  The Dow Jones industrial average rose 114 points to 9,370.07 and the technology-laden NASDAQ rose 27 points, or 1.4%, to 2,000.25.  Volume remained moderate as 1.5 billion shares exchanged hands on the New York Stock Exchange where winners topped losers three to one.

The S&P 500 is now up 49.4% from its twelve-year lows hit on March 9.  Last week, the DJIA advanced 2.2%, for a 6.8% year-to-date climb; the NASDAQ tacked on 1.1% for a 26.8% gain on the year; the S&P500 rose 2.3%, now standing on a 11.9% increase in 2009.

Better-than-expected earnings reports from companies, manufacturing data and growing signs that the economy is on a path to recovery have boosted sentiments on the Street and indicated that a recovery might indeed be underway.  Then, Friday’s employment numbers positively surprised and indicated that the most vexing issue of the economy, unemployment, is showing some sings of moderation.  As President Obama happily noted after release of Friday's employment numbers, "the worst may be behind us."     

With $95 billion in Treasury auction slated for this week and investors turning to equities, US Treasuries lost their safety appeal.  Treasuries dropped to their lowest levels since October as prices marked their sharpest weekly fall in six years.  After a broad decline on the week, the US dollar jumped 95 cents to close at $79.105 against a basket of currencies, following bullish economic news on the employment front.  In another development, the Senate provided a $2 billion extension of the "cash-for-clunkers" program.

The coming week will provide more data on the consumer, with key retailers' results and July monthly sales figures. Among those firms, Wal-Mart (NYSE:WMT) will report results.  The major discounter had decided to eliminate release of monthly comparable sales numbers, so its numbers will be closely watched. Also on the docket are: Abercrombie & Fitch (NYSE:ANF), JC Penney (NYSE:JCP), Kohl's (NYSE:KSS), Macy's (NYSE:M), Nordstrom (NYSE:JWN), and Urban Outfitters (NASDAQ:URBN).

Nordstrom Rack is Nordstrom’s off-price division. The first Nordstrom Rack was opened in the basement of the Downtown Seattle store in 1975 as a clearance department. With a huge initial response, it has since grown into a separate division of the company. Currently there are 61 Nordstrom Rack locations in 21 states.

The new store would be the first of its kind in Tampa and fifth in the state of Florida. Currently, Nordstrom has about 175 stores spread across 28 states in the US, offering a selection of branded and private label merchandise. The company sells its products through various channels, including Nordstrom full-line stores, Nordstrom Rack off-price stores, Last Chance clearance stores, Jeffrey boutiques, through catalogs and the Internet.

The new Nordstrom Rack is expected to open in the fall of 2010 and is set at a prime location. The store would offer merchandise at fire sale prices with discounts of 50% - 60% to regular prices.

Despite a reduction in disposable income and lower consumer discretionary spending due to the continued economic downturn, Nordstrom has continually opened new stores to attract more customer traffic. We maintain our Neutral recommendation of the stock.

Read the full analyst report on "JWN"
Read the full analyst report on "FDO"
Zacks Investment Research

Chicago, IL - June 16, 2009 - Zacks Research Director, Dirk Van Dijk says that S&P 500 earnings are continuing to show red ink. He tracks companies on the Zacks.com web site, naming names, while forecasting trends for the months ahead.

Key Points

• Estimate increases outnumber cuts by 5:4 margin
• Second Quarter total net income expected to be down 36.0% year/year
• Third quarter expected to be down 23.1% year/year
• Full year 2009 expected to fall 12.3%, implies strong growth in fourth quarter
• Staples only sector expected to post positive growth in second quarter
• Six sectors expected to decline more than 30%
• Financials expected to rebound after disastrous 2008
• Median EPS growth in second quarter expected to be -19.3%
• Bottom up estimate for S&P 500 now $57.27 in 2009 versus $57.25 two weeks ago.
• S&P 500 now expected to earn $72.49 in 2010 versus $72.61 last week

Total Net Income Growth

The expectations bar for the second quarter is set very low with total net income projected to fall 36.0%. This is even worse than the 27.3% decline posted in the first quarter. (Note that this is different than what was posted in the last report since the numbers always reflect the current members of the S&P 500 and there have been some noteworthy changes in the index, most importantly the deletion of GM).

Our first peak at the third quarter shows that earnings are still expected to be down year over year, but not by as much, dropping "only" 23.1%.

For both quarters the decline in total net income is expected to be widespread, with only Staples eeking out a small year over year gain (+1.2%). Health Care and Utilities are expected to hold up fairly well with only mid-single digit declines. Every other sector is expected to post a decline of at least 25%. Hardest hit will be 3 economically sensitive sectors: Materials, Energy and Industrials. The first 2 are also commodity oriented, and face very tough year ago comparisons. However, the prices of the underlying commodities have been rebounding, so with the bar set low, they have the potential to surprise to the upside.

Looking ahead to the third quarter, Staples, Health Care and Utilities are again expected to post flattish results. Financials are expected to post extremely strong year over year earnings gains, reflecting the very tough time they had a year ago. The commodity sectors are again expected to face a tough time, but then again with commodity prices on the rise (provided they can be sustained) they might do better than expected.

The Zacks Revisions Ratio: 2009

• Revisions ratio for full S&P 500 up to 1.25, from 1.09
• Steady climb in the ratio, was 0.32 three months ago
• Four sectors in positive territory; Consumer Sectors lead
• Revisions ratio is now into positive territory for the S&P 500 as a whole
• Industrials continue to see estimates being cut
• Ratio of firms with rising to falling mean estimates rises to 1.05 from 0.86
• Total number of revisions (4-week total) down to 1,758 from 3,023 (-41.8%)
• Increases down to 978 from 1,576 (-37.9%); cuts down to 780 from 1,447 (-46.1%)
• Total revisions activity approaching low for the quarter

There has been a steady increase in the revisions ratio, which is now up for 14 weeks in a row. Granted it started at absolutely horrific levels, with estimates being cut at more than 4:1 for the S&P 500 as a whole, and in individual sectors, the cuts were often in excess of 10:1.

This week we finally broke into positive territory, which we define as at least 5 increases for every 4 cuts. We have to conclude that the green shoots are taking hold, at least as far as analysts' projections for earnings.

While I still have my doubts about the group from a longer-term macro perspective, at least for the short term, the analysts disagree with me about the retailers, which have been some of the strongest performers in terms of estimate revisions. Some of the names that have gotten more than 10 estimate increases and no cuts are Gap (GPS), Nordstrom (JWN), Lowe's (LOW) and TJX Companies (TJX).

The Zacks Revisions Ratio: 2010

• Overall picture for 2010 similar to that of 2009
• Revisions ratio up to 1.25 from 0.96
• Tech and Consumer sectors showing best estimate momentum for 2010
• Health Care and Utilities getting cut
• Ratio of rising to falling mean estimates rises to 1.19 from 0.80
• Total revisions activity nearing lows for the quarter
• Total number of revisions falls to 1,425 from 2,264 (-37.1%)
• Estimate increases falls to 791 from 1,109 (-28.7%), cuts fall to 634 from 1,155 (-45.1%)

Two tech stocks with particularly strong revision ratios are Analog Devices (ADI) and Texas Instruments (TXN).

Earnings Shares and P/Es

• Earnings Shares, including historical, based on current make up of S&P 500
• Health Care expected to take earnings crown from Energy in 2009 and keep it in 2010
• Energy's earnings share expected to plunge to 11.1% from 23.8%
• Financials' 2009 earnings share expected to rise to 11.3% from -1.7% in 2008.
• 12-month forward S&P P/E of 14.55 equates to earnings yield of 6.87%, which is attractive relative to 10-year T-note yield of 3.85%, but only mediocre relative to 5.98% A-rated 10-year corporate.
• T-note rates are rising and more realistic earnings yields of near 6.34% based on lower earnings ($60) means the spread, while still attractive, is not overwhelming.

Want stock picks from Zacks Equity Research that are based on earnings estimates? Subscribe to the free "Profit from the Pros" newsletter: http://at.zacks.com/?id=5617.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5618.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Len Zacks. The company continually processes stock reports issued by 3,000 analysts from 150 brokerage firms. It monitors more than 200,000 earnings estimates, looking for changes.

Then, when changes are discovered, they're applied to help assign more than 4,400 stocks into five Zacks Rank categories: #1 Strong Buy, #2 Buy, #3 Hold, #4 Sell, and #5 Strong Sell. This proprietary stock-picking system continues to outperform the market by a nearly 3-to-1 margin.

The best way to unlock profitable Zacks' stock recommendations and market insights is through the free daily email newsletter: "Profit from the Pros." It provides a steady flow of profitable ideas GUARANTEED to be worth your time. Register for your free subscription at http://at.zacks.com/?id=5616

Follow us on Twitter: http://twitter.com/ZacksInvestment

Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Contact:
Dirk Van Dijk
Director of Research
312-265-9211
Visit: www.zacks.com

• Estimate increases outnumber cuts by 5:4 margin
• Second Quarter total net income expected to be down 36.0% year/year
• Third quarter expected to be down 23.1% year/year
• Full year 2009 expected to fall 12.3%, implies strong growth in fourth quarter
• Staples only sector expected to post positive growth in second quarter
• Six sectors expected to decline more than 30%
• Financials expected to rebound after disastrous 2008
• Median EPS growth in second quarter expected to be -19.3%
• Bottom up estimate for S&P 500 now $57.27 in 2009 versus $57.25 two weeks ago.
• S&P 500 now expected to earn $72.49 in 2010 versus $72.61 last week

Total Net Income Growth

The expectations bar for the second quarter is set very low with total net income projected to fall 36.0%. This is even worse than the 27.3% decline posted in the first quarter. (Note that this is different than what was posted in the last report since the numbers always reflect the current members of the S&P 500 and there have been some noteworthy changes in the index, most importantly the deletion of GM).

Our first peak at the third quarter shows that earnings are still expected to be down year over year, but not by as much, dropping "only" 23.1%.

For both quarters the decline in total net income is expected to be widespread, with only Staples eeking out a small year over year gain (+1.2%). Health Care and Utilities are expected to hold up fairly well with only mid-single digit declines. Every other sector is expected to post a decline of at least 25%. Hardest hit will be 3 economically sensitive sectors: Materials, Energy and Industrials. The first 2 are also commodity oriented, and face very tough year ago comparisons. However, the prices of the underlying commodities have been rebounding, so with the bar set low, they have the potential to surprise to the upside.

Looking ahead to the third quarter, Staples, Health Care and Utilities are again expected to post flattish results. Financials are expected to post extremely strong year over year earnings gains, reflecting the very tough time they had a year ago. The commodity sectors are again expected to face a tough time, but then again with commodity prices on the rise (provided they can be sustained) they might do better than expected.

Total Net Income Growth (Reported)
Sector	Q3 '09 E	Q2 '09 A	Q1 '09 A	2010 E	2009 E	2008 A
Cons. Disc.	-0.26%	9.49%	8.58%	12.52%	16.52%	17.70%
Cons. Stap.	-18.86%	-21.82%	-26.88%	9.12%	-14.84%	10.65%
Technology	-100.00%	-170.93%	-86.30%	200.00%	-88.37%	13.16%
S&P	-21.54%	-36.38%	-27.97%	14.12%	-17.00%	12.76%

Total Net Income (Reported)
Sector	Q2 '09	Q2 '08	Q1 '09	Q1 '08
Cons. Stap.	$231	$295	$240	$328
Cons. Disc.	$174	$159	$116	$107
Technology	-$61	$86	$10	$73
S&P	$343	$540	$366	$508

Total Net Income Growth (Not Reported)
Sector	Q1 '09 A	Q2 '09 E	Q3 '09 E	2008 A	2009 E	2010 E
Cons. Stap.	-6.34%	1.21%	-0.13%	7.72%	-3.84%	8.92%
Health Care	0.52%	-4.83%	-4.31%	8.35%	1.00%	9.20%
Utilities	-1.45%	-6.84%	0.49%	1.79%	-1.75%	8.67%
Telecom	-18.67%	-25.48%	-15.77%	-4.51%	-19.59%	5.64%
Cons. Disc.	-43.46%	-30.86%	-24.58%	-51.24%	36.72%	39.00%
Technology	-27.12%	-33.62%	-20.09%	19.58%	-20.76%	21.22%
Financials	4.20%	-37.65%	260.88%	-106.74%	-623.75%	60.91%
Industrial	-36.39%	-41.41%	-33.51%	-2.76%	-28.74%	7.72%
Energy	-60.57%	-68.16%	-66.86%	22.41%	-59.20%	43.76%
Materials	-74.07%	-84.90%	-64.03%	-3.72%	-68.07%	96.77%
S&P	-27.22%	-35.98%	-23.08%	-20.03%	-12.67%	23.61%

Total Net Income Growth (Combined)
Sector	Q1 '09 A	Q2 '09 E	Q3 '09 E	2008 A	2009 E	2010 E
Cons. Stap.	-6.34%	1.21%	-0.13%	7.72%	-3.84%	8.92%
Health Care	0.52%	-4.83%	-4.31%	8.35%	1.00%	9.20%
Utilities	-1.45%	-6.84%	0.49%	1.79%	-1.75%	8.67%
Telecom	-18.67%	-25.48%	-15.77%	-4.51%	-19.59%	5.64%
Cons. Disc.	-43.46%	-30.86%	-24.58%	-51.24%	36.72%	39.00%
Technology	-27.12%	-33.62%	-20.09%	19.58%	-20.76%	21.22%
Financials	4.20%	-37.65%	260.88%	-106.74%	-623.75%	60.91%
Industrial	-36.39%	-41.41%	-33.51%	-2.76%	-28.74%	7.72%
Energy	-60.57%	-68.16%	-66.86%	22.41%	-59.20%	43.76%
Materials	-74.07%	-84.90%	-64.03%	-3.72%	-68.07%	96.77%
S&P	-27.27%	-35.95%	-23.13%	-20.73%	-12.27%	23.91%

The Zacks Revisions Ratio: 2009

• Revisions ratio for full S&P 500 up to 1.25, from 1.09
• Steady climb in the ratio, was 0.32 three months ago
• Four sectors in positive territory; Consumer Sectors lead
• Revisions ratio is now into positive territory for the S&P 500 as a whole
• Industrials continue to see estimates being cut
• Ratio of firms with rising to falling mean estimates rises to 1.05 from 0.86
• Total number of revisions (4-week total) down to 1,758 from 3,023 (-41.8%)
• Increases down to 978 from 1,576 (-37.9%); cuts down to 780 from 1,447 (-46.1%)
• Total revisions activity approaching low for the quarter

There has been a steady increase in the revisions ratio, which is now up for 14 weeks in a row. Granted it started at absolutely horrific levels, with estimates being cut at more than 4:1 for the S&P 500 as a whole, and in individual sectors, the cuts were often in excess of 10:1.

This week we finally broke into positive territory, which we define as at least 5 increases for every 4 cuts. We have to conclude that the green shoots are taking hold, at least as far as analysts' projections for earnings.

While I still have my doubts about the group from a longer-term macro perspective, at least for the short term, the analysts disagree with me about the retailers, which have been some of the strongest performers in terms of estimate revisions. Some of the names that have gotten more than 10 estimate increases and no cuts are Gap (GPS), Nordstrom (JWN), Lowe's (LOW) and TJX Companies (TJX).

Sector	Avg. 4wk EPS Change (FY1)	Revisions Ratio	Firms With FY1 EPS Increase	Firms With FY1 EPS Decrease
Consumer Staple	0.47%	3.30	23	13
Consumer Disc	-1.61%	2.41	41	34
Technology	1.28%	2.12	35	21
Financial Services	1.08%	1.38	40	36
Energy	-0.73%	0.72	18	20
Telecom	-0.47%	0.60	3	5
Materials	-1.26%	0.46	11	13
Health Care	0.03%	0.45	21	20
Utilities	-0.32%	0.44	12	16
Industrials	-2.61%	0.37	16	31
S&P 500	-0.32%	1.25	220	209

The Zacks Revisions Ratio: 2010

• Overall picture for 2010 similar to that of 2009
• Revisions ratio up to 1.25 from 0.96
• Tech and Consumer sectors showing best estimate momentum for 2010
• Health Care and Utilities getting cut
• Ratio of rising to falling mean estimates rises to 1.19 from 0.80
• Total revisions activity nearing lows for the quarter
• Total number of revisions falls to 1,425 from 2,264 (-37.1%)
• Estimate increases falls to 791 from 1,109 (-28.7%), cuts fall to 634 from 1,155 (-45.1%)

Two tech stocks with particularly strong revision ratios are Analog Devices (ADI) and Texas Instruments (TXN).

Sector	Avg. 4wk EPS Change (FY2)	Revisions Ratio	Firms With FY2 EPS Increase	Firms With FY2 EPS Decrease
Technology	-0.67%	2.29	39	24
Consumer Discr	-0.21%	2.10	40	26
Consumer Staples	0.98%	2.09	29	6
Energy	1.96%	1.48	27	11
Financial Services	-3.39%	0.98	35	38
Telecom	-0.34%	0.89	5	3
Industrials	-1.45%	0.62	20	29
Materials	0.03%	0.59	13	11
Utilities	-0.66%	0.52	8	18
Health Care	-0.84%	0.36	13	26
S&P 500	-0.74%	1.25	229	192

Earnings Shares and P/Es

• Earnings Shares, including historical, based on current make up of S&P 500
• Health Care expected to take earnings crown from Energy in 2009 and keep it in 2010
• Energy's earnings share expected to plunge to 11.1% from 23.8%
• Financials' 2009 earnings share expected to rise to 11.3% from -1.7% in 2008.
• 12-month forward S&P P/E of 14.55 equates to earnings yield of 6.87%, which is attractive relative to 10-year T-note yield of 3.85%, but only mediocre relative to 5.98% A-rated 10-year corporate.
• T-note rates are rising and more realistic earnings yields of near 6.34% based on lower earnings ($60) means the spread, while still attractive, is not overwhelming.

Earnings Shares and P/Es
Sector	2008%	2009%	2010%	Market Cap %	P/E 2008	P/E 2009	P/E 2010
Health Care	15.89%	18.32%	16.14%	12.72%	11.2	11.1	10.1
Technology	17.05%	15.53%	15.20%	18.67%	15.3	19.2	15.8
Cons Stpl	13.49%	14.80%	13.01%	12.76%	13.2	13.7	12.6
Financials	-1.73%	11.30%	14.67%	13.21%	NM	18.6	11.6
Energy	23.81%	11.09%	12.86%	12.92%	7.6	18.6	12.9
Industrials	13.49%	10.96%	9.53%	10.12%	10.5	14.7	13.7
Cons Discr	4.67%	7.28%	8.17%	9.23%	27.6	20.2	14.5
Utilities	4.60%	5.16%	4.53%	3.77%	11.5	11.7	10.7
Telecom	4.43%	4.00%	3.41%	3.25%	10.2	12.9	12.3
Materials	4.30%	1.57%	2.49%	3.35%	10.9	34.1	17.3
S&P 500	100.00%	100.00%	100.00%	100.00%	14.0	15.9	12.9

Neil Malkin contributed significantly to this report.

Data in this report, unless stated otherwise, is through the close on Thursday 6/11/2009

Zacks Investment Research

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Here are highlights from Monday's Analyst Blog:

Penske Automotive Buys Saturn

Penske Automotive (PAG) today announced that it will be purchasing the Saturn brand, including the rights to sell parts and cars through the Saturn dealerships.

There may be little cash involved, as no inventory is being transferred. The company also may outsource production to a lower-cost producer once an initial GM manufacturing period ends.

The keys to this deal are finding an Indian or Chinese producer to lower Saturn's costs, and also pushing more and varied product through the Saturn dealerships. Ultimately, this is a "dealership acquisition" by Penske. We think the deal will be successful and is well timed. Auto sales have bottomed and may be poised for a slow recovery.

U.S. Workforce's Changing Nature

Prolonged unemployment means that the long-term growth rates of sectors like retail are likely to be greatly diminished even after the recession is officially over. As such, even if firms like Macy's (M), Saks (SKS) and Nordstrom (JWN) are able to stay in the black through aggressive cost-cutting (and most have been doing a very good job of that, hence better-than-expected earnings), those earnings should get a lower multiple in the market. Also, jobs should be slow to return in retail.

The sectors that have been growing are the ones that are least susceptible to the twin forces of globalization and technology. However, technology and globalization are starting to impact even previously safe sectors through outsourcing.

Leisure and Hospitality is probably still safe, since it is hard to have a bartender in Bangalore pour you a drink when you are in Boston. The same is not true for Professional and Business Services. Those jobs are not going to follow Manufacturing right away, but they will not show the sort of growth seen in the last three upturns in the economy.

Euroseas Down But Still Afloat

In 2009's first quarter, Euroseas Ltd. (ESEA) posted diluted EPS before nonoperating items of $0.06, down 85% from the $0.43 earned in the prior-year period. This was above our estimate of a $0.05 loss per share, mainly due to lower-than-expected depreciation, the result of the sale of two vessels (adding $2.0 million to the bottom line), as well as a change in accounting for the useful lives of vessels (adding $1.6 million to net earnings).

We are raising our 2009 diluted EPS estimate to a loss of $0.06 per share from a loss of $0.28 per share, mainly to reflect the first quarter overage and a reduction in our estimates for depreciation expense. Our initial 2010 estimate is a $0.35 loss per share.

Going forward, we expect spot rates to continue at sharply lower levels, which will have a negative impact on revenues and earnings as part of the fleet is exposed to the spot market, and the renewal of expiring contracts is challenging. In fact, the company laid up three of its vessels in 2009's first quarter, rather than employ them at a loss.

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Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=2677

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Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4580.

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Full analysis of all these stocks is available at http://at.zacks.com/?id=2676.

Here is a synopsis of all five stocks:

Bull of the Day:

As a result of its large non-US revenue base, IBM Corporation (IBM) has been better insulated from the recent weakness in the U.S. economy than many of its peers. IBM's Q109 results indicate its strong position in emerging markets, which should continue to help drive growth.

Moreover, the company has focused on driving its bottom line through cost cutting efforts. It re-affirmed EPS guidance for the full year of 2009 and 2010. Although, revenue is not expected to grow by much, we expect margin improvements in 2009.

The company's long-term prospects look brighter as it maintains a strong position in the software and services market. We maintain our Buy rating on IBM shares and maintain our price target of $120.00.

Bear of the Day:

Align Technology (ALGN) is engaged in the design, manufacture, and marketing of a proprietary system, Invisalign, for the treatment of crooked teeth. The company's business fundamentals are negatively affected by the current economic turbulence.

As such, we expect revenue to decline in FY09. Furthermore, we think that the earnings quality could become an issue as management finds it difficult to meet growth targets.

We are recommending a Sell rating for this stock. We think that the shares deserve to trade at 10% discount to the comparable mean. This equates to a P/S multiple of approximately 2.0x and to a target price of $8.80.

Latest Posts on the Zacks Analyst Blog:

Fed Minutes: Signs of Improvement

The Fed revised its forecast for economic growth to reflect a comparatively more optimistic outlook. The central bank expects real GDP to "edge higher in the second half and then increase moderately next year."

However, the Fed also warned that growth would be restrained over the foreseeable future. It particularly cited financial services and housing as sectors that "might well account for a smaller share of the economy in coming years." This is not good news for companies like Zions Bancorporation (ZION), target areas hardest hit by the housing bust.

Furthermore, the Fed predicted that the unemployment rate could continue to rise into the early part of 2010. This would have a dampening effect on consumer spending and would be a negative for retailers such as J.C. Penney (JCP) and Nordstrom (JWN).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=2649.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=2677.

About Zacks 

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks InvestmentResearch is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4582.

Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.

Financials were once again the leading gainers, with a 3.5% advance. JP Morgan (NYSE:JPM) shares jumped 4.4%, Bank of America (NYSE:BAC) added 2.7%, and Citigroup (NYSE:C) was up 4.1%. Wells Fargo (NYSE:WFC), fresh from its $8.6 billion stock sale, jumped 6.2% after Moody's (NYSE:MCO) raised its ratings on the company's preferred shares, saying there is an improved likelihood of maintaining the dividend payout. The rating agency put Bank of America (NYSE:BAC) on review for an upgrade on consideration of its financial strength. Fortress Investment Group (NYSE:FIG), however, lost 5.3% after the company said an offering of its 40 million shares was priced at $5 each.  The 3-month LIBOR witnessed its biggest drop in three months, declining to a record low of 0.85%.

On Thursday, basic material shares jumped 2.2% and technology stocks were up 1.5%.  Among material stocks, Dow Chemical (NYSE:DOW) surged 6.0%, AK Steel (NYSE:AKS) was up 2.9% and Newmont Mining (NYSE:NEM) added 1.7%.  CA's (NYSE:CA) better-than-expected results helped technology firms register a 1.5% advance.  Reflecting improved Chinese demand for commodities, such as iron ore, coal and grains, the Baltic Dry Index jumped to its highest level this year.

Consumer spending nevertheless remained a core area of interest as several better-than-expected returns boosted sentiment yesterday, after Wednesday's 0.4% drop in April retail sales disappointed investors.  Although Wal-Mart (NYSE:WMT) reported inline earnings, its revenues came in below expectations.  Whole Foods (NASDAQ:WFMI) shares, however, added 2.8% after the company's cost controls measures helped it post better-than-expected earnings. Nike (NYSE:NKE) announced plans to lay off 1,750 jobs.  Nordstrom (NYSE:JWN), up 3.4% Thursday, posted better-than-expected first quarter earnings on inline revenues, and raised its full-year guidance.

Today's consumer price report is expected to have shown no change in April, with a 0.1% increase in core prices. NY Empire Manufacturing data is expected to come in at a negative 15.00.  Industrial production is expected to show a 0.6% m/m drop, with capacity utilization coming in at 68.9% from 69.3% prior.

Goldman Sachs Group Inc. (NYSE:GS), which passed the government's stress test, said it plans to soon repay the $10 billion of bailout money. Nevertheless, banking analyst Meredith Whitney warned, "the recessionary environment is very difficult," due to problems looming with credit cards and mortgage originations.

Oil and gas shares rose 8.7% and basic materials were up 6.5% as investors began to bet on the early stages of improved spending by businesses.

Exxon Mobil Corp. (NYSE:XOM) and Schlumberger Ltd. (NYSE:SLB) led energy companies in the S&P 500 to an 8.5% advance. Exxon added 4.1% to $70.80 and Schlumberger gained 12% to $56.53.  El Paso Corp. (NYSE:EP) was the leading gainer in the group, rising 27% to $9.03, after the company reported better-than-expected profit on expanding lines and hedging correctly on energy prices.  General Motor (NYSE:GM) led the declining issues on the DJIA after reporting a huge first-quarter loss that pushed it closer towards bankruptcy.  McDonald's Corp. (NYSE:MCD) reported another month of impressive comparable sales with April recording a 6.9% jump in same-store sales.

A U.S. Labor Department report Friday said non-farm payrolls declined 539,000 in April, beating economists' projections for a decline of 600,000. Figures for March were revised to show a steeper decline of 699,000.  Unemployment rate rose to 8.9% from 8.5% in March.    

Fed Chairman Bernanke speaks tonight on the stress tests. On Wednesday, April retail sales are due for release, and are expected to have declined 0.1% following March's 0.2% drop. Although economists doubt the ongoing strength of the consumer, Friedman Billings, Ramsey on Friday lifted the price targets on several retailers including Abercrombie and Fitch (NYSE:ANF), Ann Taylor (NYSE:ANN), and Pacific Sunwear (NASDAQ:PSUN). On Friday consumer price numbers are expected to show annual headline numbers at their lowest since January 1955, off 0.6%, with core CPI up 1.8% on an annualized basis. Among key companies slated to release earnings are JC Penney (NYSE:JCP), Macy's (NYSE:M), Nordstrom (NYSE:JWN) and Wal-Mart (NYSE:WMT).

In our view, the 50-day upward move in retail stocks was a bear-market rally. Investors should begin to lighten up on exposure to retail stocks. We expect the group to give back those gains as it becomes apparent that many retail stocks are not cheap, that the stimulus will provide at best a short-term boost, and the economy will not turn until 2010.

Our negative view of the group is based on the awful 2008 holiday season, a reduction of leverage in the financial system and, most importantly, consumer attitudes shifting away from borrowing to make discretionary purchases. These factors all point to continued pressure on consumer spending.

As a result, we believe that consumer and retailer trends that began in 2008 will continue throughout 2009. Consumers will focus their spending on necessary items such as food, clothing, and staples. Discretionary purchases will be made when items are significantly marked down. In turn, retailers will focus on reducing square footage, reducing leverage and reducing inventory. This will lead to further negative earnings estimate revisions for retailers for the next few quarters.  

OPPORTUNITIES

We see few opportunities in the near term. That said, investors looking for exposure should focus on retailers with stable revenue and earnings. These include defensive plays including discounters, retailers with debt-free balance sheets, and supermarkets.

Two stocks we like in this environment are Kroger (KR) and PetMed Express (PETS).

Kroger's sales should remain relatively intact. Consumers will still need to shop for groceries even with in a weak economic environment. Kroger is doing a good job of gaining market share by competing on price and selection.

PetMed Express operates the nationwide pet pharmacy 1800PetMeds.com. The company markets its health products for dogs, cats and horses. PETS' revenue is holding up well in this challenging retail environment. The company continues to manage its operating costs, which has enabled the company to produce strong earnings growth.

Another long-time favorite of ours is GameStop (GME), which reported blow-out numbers for the holiday season with same-store sales up 10%. The company also increased its EPS guidance for the fourth quarter.

WEAKNESSES

We would avoid most names in retail. The stocks that are least attractive in this environment are those companies with levered balance sheets, marginal businesses, or those retailers that rely on the credit markets to buy inventory or sell its merchandise. We have Sell ratings on department stores including JC Penney (JCP) and Nordstrom (JWN), specialty retailers Cost Plus (CPWM) and Tractor Supply (TSCO), and e-commerce firms Overstock.com (OSTK) and Priceline.com (PCLN).

After his prepared remarks, Scott sat down for a Question & Answer session with NRF President and CEO Tracy Mullin. Mr. Scott was asked about various topics ranging from government spending, retail trends, and the economy. What Scott had to say about the economy and consumer spending is worth reading.

On the economy:

    
• Hopes that by next Christmas it isn't any worse    
• If things get better, they will only be modestly better    
• Doesn't see anything that points to things turning around quickly    
• Stimulus should have some impact

On spending habits:

    
• Scott believes that there is a fundamental change in consumer buying habits    
• Young people have given up something like eating out, going to the movies, or shopping, and they felt good about it    
• The consumer won't go back to a lifestyle of consumption and debt    
• Many young people learned what it is like to live on the edge when the bad times come    
• Their appetite is now towards more about living things differently    
• This change in consumer attitudes is not all that bad

Many consumers are still reeling from staggering declines in wealth due to losses in home values and the stock market. Anyone looking for a return to the days of consumers spending beyond their means or taking on more debt to keep up with the Joneses will be sorely disappointed.As a result, we would continue to limit exposure to the retail sector and avoid department stores such as JC Penney (JCP) and Nordstrom (JWN); specialty retailers such as Cost Plus (CPWM) and Hibbett Sports (HIBB); and e-tailers Overstock.com (OSTK) and Priceline.com (PCLN).

Read the full analyst report on JCP

Read the full analyst report on JWN

Read the full analyst report on CPWM

Read the full analyst report on HIBB

Read the full analyst report on OSTK

Read the full analyst report on PCLN

This morning, the Census bureau confirmed that it was an absolutely dismal holiday retail sales season. On a seasonally adjusted basis, total retail sales dropped 2.7% from November, and were down 9.8% from a year ago. On top of that, the drop in retail sales in November was revised down to a decline of 2.1% from October rather than the -1.8% originally reported.

If you strip out auto sales (as dismal as the auto sales numbers were), on a month-to-month basis things were even worse, down 3.1% from November, although somewhat better on a year-over-year basis, down 6.7%.

Keep in mind that these are nominal figures, not adjusted for inflation. In real terms, the year-over-year figures are much worse; however they might not be quite as bad on a month-to-month basis because it is possible we are now deflating on the consumer level.

The declines came despite retailers being extremely promotional throughout the holiday season. This indicates that gross margins probably suffered as well as sales -- not a pretty combination. I seriously doubt that gift-card sales will save the retailers in January, so look for some very ugly earnings reports.

If you did get gift cards over the holidays, by all means use them as soon as possible. If a retailer goes belly-up, gift-card holders are unsecured creditors and are likely to get nothing. So use 'em or lose 'em. 

I would expect a rash of store closures and bankruptcies in the retail sector, both "mom & pops" and big chains. Firms in the middle to high-end of the retailing scene seem particularly vulnerable, and even if they avoid going bankrupt do not look like good places to invest. Avoid firms like JC Penney (JCP), Nordstrom (JWN) and Sears (SHLD). In addition, this will cause serious pain to the owners of malls like General Growth Properties (GGP). 

Read the full analyst report on JCP.

Read the full analyst report on JWN.

Read the full analyst report on GGP.

Our negative view of the group is based on the awful 2008 holiday season, a reduction of leverage in the financial system and, most importantly, consumer attitudes shifting away from borrowing to make discretionary purchases. These factors all point to continued pressure on consumer spending.

As a result, we believe that consumer and retailer trends that began in 2008 will continue throughout 2009. Consumers will focus their spending on necessary items such as food, clothing, and staples. Discretionary purchases will be made when items are significantly marked down. In turn, retailers will focus on reducing square footage, reducing leverage and reducing inventory. This will lead to further negative earnings estimate revisions for retailers for the next few quarters.

OPPORTUNITIES

We see few opportunities in the near term. That said, investors looking for exposure should focus on retailers with stable revenue and earnings. These include defensive plays including discounters, retailers with debt-free balance sheets, and supermarkets.

Two stocks we like in this environment are Kroger (KR) and PetMed Express (PETS).

Kroger's sales should remain relatively intact. Consumers will still need to shop for groceries even with in a weak economic environment. Kroger is doing a good job of gaining market share by competing on price and selection.

PetMed Express operates the nationwide pet pharmacy 1800PetMeds.com. The company markets its health products for dogs, cats and horses. PETS' revenue is holding up well in this challenging retail environment. The company continues to manage its operating costs, which has enabled the company to produce strong earnings growth.

Another long-time favorite of ours is GameStop (GME), which reported blow-out numbers for the holiday season with same-store sales up 10%. The company also increased its EPS guidance for the fourth quarter.

WEAKNESSES

We would avoid most names in retail. The stocks that are least attractive in this environment are those companies with levered balance sheets, marginal businesses, or those retailers that rely on the credit markets to buy inventory or sell its merchandise. We have Sell ratings on department stores including JC Penney (JCP) and Nordstrom (JWN), specialty retailers Cost Plus (CPWM) and Tractor Supply (TSCO), and e-commerce firms Overstock.com (OSTK) and Priceline.com (PCLN).
"CPWM" Free Stock Analysis: Buy? Sell? Hold?
"GME" Free Stock Analysis: Buy? Sell? Hold?
"TSCO" Free Stock Analysis: Buy? Sell? Hold?
"PCLN" Free Stock Analysis: Buy? Sell? Hold?
"KR" Free Stock Analysis: Buy? Sell? Hold?
"OSTK" Free Stock Analysis: Buy? Sell? Hold?
"PETS" Free Stock Analysis: Buy? Sell? Hold?
"JCP" Free Stock Analysis: Buy? Sell? Hold?
"JWN" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research

This from Taipan Publishing:

’Tis the season of too damn many cocktail parties. I simply don’t have the stamina for so much small talk and gossip, and don’t much care for finger food – or weak drinks.

But this time of year they are simply unavoidable (i.e., my wife makes me go). And so, all too often, I am forced to put…

This from Taipan Publishing:

’Tis the season of too damn many cocktail parties. I simply don’t have the stamina for so much small talk and gossip, and don’t much care for finger food – or weak drinks.

But this time of year they are simply unavoidable (i.e., my wife makes me go). And so, all too often, I am forced to put…

Maverick Capital Management Holdings Analysis

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Quick Take: Overall, the back-to-school season was weak. Below is a sample of 22 retailers that reported same-store sales and only 8 of those companies reported a positive number. And despite ankle-high expectations, half of those companies reporting same-store sales missed those low expectations.

The trade down trend is still working with positive comps from Wal-Mart (WMT), Costco (COST), BJ's Wholesale Club (BJ), and TJX Companies (TJX). Department stores in the mid-to-high end continue to struggle. Specialty retailers were all over the map, with Abercrombie & Fitch (ANF) down 11% while Buckle (BKL) was up 22% and Aeropostale (ARO) was up 13%.

Closing thought: Retail stocks have caught a bid over the last several weeks, as the market appears to be expecting better results in the future quarters. Maybe these investors believe lower gas prices or an improved economic environment will drive the growth.

I just don't see it. Gas prices, while down from all-time highs in July, are still up
about $0.90/gallon over last year. The global economy appears to be weakening further, and that probably pushes out a recovery for the US consumer.

What's more, a weak back-to-school season usually leads to a weak Christmas season, which is the most important period of the year for retailers. That said, it is hard to be too negative on the retail group. The stores remain focused on inventory controls and cost-cutting efforts, and the market's expectations are still pretty low.

Wal-Mart [WMT] +3.5%, Target [TGT] -2.1%, Costco [COST] +9.0%, JC Penney [JCP] -4.9%, Kohl's [KSS] -5.8%, BJ's Wholesale [BJ] +15.4%, TJX Companies [TJX] +2.1%, Zumiez [ZUMZ] +0.2%, Gap [GPS] -8.0%, Cache [CACH] -6.0%, Saks [SKS] -5.9%, Nordstrom [JWN] -7.9%, Limited Brands [LTD] -7.0%, Wet Seal [WTSLA] -8.7%, Fred's [FRED] +2.1%, Dillard's [DDS] -7.0%, Abercrombie [ANF] -11.0%, Chico's [CHS] -10.0%, Buckle [BKL] +22.0% and Aeropostale [ARO] +13.0%.