Business Blog Posts

One of the defining characteristics of 2010 has been the strong correlation across asset classes. Movements in the dollar or in bonds had just as much impact on equities as more fundamental factors, such as corporate outlooks.

The tight relationships came as investors focused on the same factors -- further stimulus from the Federal Reserve, sovereign debt worries in the euro zone and the strength of the economic recovery.

The macro focus has meant investors made the same trades rather than differentiating individual sectors and industries.

"No matter how much work you put in trying to pick winners and losers, the profit available from doing so was way below normal," said Charlie Blood, director of financial markets strategy at Brown Brothers Harriman in New York.

Analysts expect that correlation to ease in the coming year, allowing sectors to see more divergence and affording investors more chances to outperform the market.

"It's structurally just unsustainable to have that kind of (correlation) because it doesn't allow for diversification," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York.

"I do think it has to reverse -- it's just not a healthy part of the capital market," he said.

Even as investors reposition themselves, the broad market is likely to drift until year-end with next week shortened by the Christmas holiday.

Indeed, Wall Street's fear gauge, the CBOE Volatility index, or VIX .VIX, on Friday fell to its lowest level since April.

Investors will also take in a round of economic data next week, including the final reading of gross domestic product for the third quarter, new and existing home sales for November and December consumer sentiment.

TOO HOT TO HANDLE

Stocks that have been the best performers for the year are already seeing a pullback, suggesting investors are happy to lock in profits as they search for fresh opportunities.

Salesforce.com (CRM.N), one of the best-performing stocks on the S&P 500 this year, has backed off this week, sliding 8.1 percent. Even so, the stock is up 85 percent for the year.

Mid-cap Netflix (NFLX.O), another investor favorite this year, has shed 12.6 percent since the beginning of December, though that still leaves the stock up some 226 percent this year.

Some stores will offer 24-hour shopping or help you make sure the item you want is in the store before you even get into the car. Others are trying to rectify early missteps.

Best Buy Co Inc (BBY.N) made a bad merchandise bet and watched sales fall as shoppers looked past pricey 3D and Internet television technologies this year.

But the electronics chain may be an outlier in an otherwise improved shopping season, with the National Retail Federation raising its holiday sales forecast this week.

Reuters is monitoring the holiday strategies of department store chain J.C. Penney Co Inc (JCP.N), discounter Target Corp (TGT.N), Kmart parent Sears Holdings Corp (SHLD.O), Best Buy and Toys R Us.

A sixth company that Reuters had been following, teen apparel chain Aeropostale Inc (ARO.N), had a different change of heart, based on a media report that it is setting up a defense against a potential takeover bid.

Aeropostale has not commented on the report and did not respond to repeated requests for an update on its holiday strategy this week.

BEST BUY:

Best Buy lost tech shoppers to mass merchants like Target and online retailer Amazon.com (AMZN.O) as it discounted less and promoted expensive 3D televisions this season.

The retailer acknowledged its misstep on Tuesday, when it reported a drop in quarterly sales at existing stores and lower-than-expected earnings.

After realizing that "the consumer is definitely showing propensity at the low end," the retailer said it will now promote lower-priced 32-inch TVs and making price adjustments in its computer section.

"The U.S. consumer is carefully considering his or her wallet and what they are going to buy for their holiday gift-giving," Dunn told Reuters in an interview, adding he expects sales volumes to be "enormous" in the 10 days before and after Christmas.

To boost customer traffic, Best Buy will offer free smartphones every day for the remainder of the holiday season. Customers will still need to sign the 2-year service agreement to get the phone.

TARGET:

Troy Risch, executive vice president of stores, said the company brought more televisions into stores to shore up dwindling stocks of what have been a popular item this season. But it is not overstocked with other goods.

The Conference Board's measure of leading economic indicators jumped 1.1 percent in November, the biggest rise since March and the fifth straight monthly gain.

The increase in the LEI matched forecasts in a Reuters poll. The index's level is now at a record high of 112.4, the research group said.

It was the latest evidence of steady, if fragile, improvement in the country's growth prospects after a summer lull. Retail sales in particular have been surprisingly strong, raising hopes for consumer spending.

"The U.S. economy is showing some sparks of life in late 2010," said Ken Goldstein, an economist at The Conference Board. "The indicators point to a mild pickup after a slow winter. Looking further out, possible clouds on the medium term horizon include weakness in housing and employment.

U.S. gross domestic product grew at a 2.5 percent annual rate in the third quarter, but that was not enough to bring down the jobless rate, which rose to 9.8 percent in November.

(Reporting by Pedro Nicolaci da Costa; Editing by Neil Stempleman)

The Conference Board releases its report on November leading economic indicators at 1500 GMT. Economists in a Reuters survey forecast a 1.1 percent rise compared with a 0.5 percent increase in the prior month.

Ford Motor (F.N) intends to raise its 30 percent stake in Jiangling Motors Corp (000550.SZ), a major Chinese light commercial vehicle maker, a source said on Friday, as the Detroit automaker speeds expansion in the world's largest auto market.

At 1530 GMT, the Economic Cycle Research Institute releases its weekly index of economic activity for December 10. In the prior week the index read 126.4.

A head-to-head study of GlaxoSmithKline's (GSK.L) and Baxter's (BAX.N) H1N1 flu vaccines found the GSK shot produced a swifter, stronger immune response and was likely to offer better protection.

Blackstone Group LP (BX.N) has reached an agreement to restructure about $7 billion of the remaining debt tied to its 2007 purchase of Sam Zell's Equity Office Properties Trust, the largest leveraged buyout ever, the Wall Street Journal reported on Thursday.

Resource-related stocks will be in focus as crude oil prices rose above $88 a barrel, supported by a weaker dollar and cold weather in the United States and Europe, and key base metals prices gained 0.8 to 2.3 percent.

Oracle Corp (ORCL.O) forecast late on Thursday that its profit in the current quarter will beat Wall Street estimates, suggesting that its strategy of offering a one-stop shop for software and hardware is paying off. Oracle shares in Frankfurt (ORCL.F) rose 3.5 percent.

European shares edged lower in early trade on Friday, with investors cautious after Moody's downgraded Ireland's debt rating, while Japan's Nikkei average .N225 fell 0.1 percent.

On Thursday, the Dow Jones industrial average .DJI was up 41.78 points, or 0.36 percent, at 11,499.25. The Standard & Poor's 500 Index .SPX was up 7.64 points, or 0.62 percent, at 1,242.87. The Nasdaq Composite Index .IXIC was up 20.09 points, or 0.77 percent, at 2,637.31.

(Reporting by Atul Prakash; Editing by Erica Billingham)

The rare steep downgrade came in the middle of a European Union summit intended to restore market confidence by creating a permanent financial safety net for the euro zone from 2013 and vowing to do whatever it takes to preserve the single currency.

Moody's cut Ireland's rating to Baa1 with a negative outlook from Aa2 and warned further downgrades could follow if Dublin was unable to stabilize its debt situation, caused by a banking crash after a decade-long property bubble burst.

"While a downgrade had been anticipated, the severity of the downgrade is surprising," Dublin-based Glas Securities said in a note.

News of the latest blow to confidence broke as the 27 leaders began a second day of talks on how to stop contagion spreading from Greece and Ireland to other high-deficit euro zone countries such as Portugal and Spain.

"The recent events have demonstrated that financial distress in one member state can rapidly threaten macrofinancial stability of the EU as a whole through various contagion channels," a draft final summit statement seen by Reuters said.

"This is particularly true for the euro area where the economies, and the financial sectors in particular, are closely intertwined."

At their first session on Thursday, leaders rejected calls for immediate practical steps such as increasing the size of a temporary bailout fund or allowing it to be used more flexibly to buy bonds or open credit lines before troubled countries are shut out of the credit markets.

German Chancellor Angela Merkel, who led opposition to those options, sought to reassure citizens and markets on Friday, declaring: "We are doing everything to make the euro secure."

She said the euro zone would have to move beyond crisis management next year and build step-by-step a common economic policy.

The European Central Bank moved on Thursday to bolster its firepower to fight the debt crisis by announcing it would almost double its subscribed capital.

But analysts said this was chiefly to cover potential losses on euro zone sovereign bonds bought so far, not to step up such purchases to support governments in trouble.

ECB President Jean-Claude Trichet told reporters the central bank's governing council thought it was appropriate to make "additional provisioning" -- a veiled reference to potential losses on euro zone sovereign bonds it has bought.

"IF INDISPENSABLE"

At Germany's insistence, the 27 leaders said the long-term crisis-resolution mechanism, to be added to the EU's governing treaty, would only be activated "if indispensable to safeguard the stability of the euro as a whole."

The French oil giant and Canada's largest energy company announced deals encompassing three projects in Alberta, where Asian investors have already been pouring funds into tarry deposits which have opened a new frontier in oil supplies.

Total said it would acquire 19.2 percent of Suncor"s interest in the Fort Hills project, which together with a previous acquisition would give it a 39.2 percent stake in the Suncor-operated venture near Calgary.

Suncor will acquire 36.75 percent of Total"s interest in the Joslyn project where operator Total will retain 38.25 percent.

Total is buying 49 percent of the Suncor-operated Voyageur project near Fort McMurray, where construction stopped in 2008.

"Suncor and Total have agreed to a joint commitment to develop Fort Hills and Voyageur in parallel so that both come on stream early 2016," the companies said in a statement.

Total's payment to Suncor reflects the net value of these deals and a contribution for past costs of the Voyageur project.

Total, the fifth-largest Western oil company by market value, already has significant investments in Canada.

Its shares opened little changed after the announcement.

Alberta's oil sands are seen as the largest potential source of crude outside Saudi Arabia and are the target of billions of dollars of spending by the world's oil industry.

Chinese, South Korean and Thai investors have contributed to the Canadian tar rush with a wave of acquisitions.

However, the environmental impact of the projects is under scrutiny by environmentalists and politicians.

Total said separately it would pay $281.25 million to buy an additional 7.5 pct stake in Australia's Gladstone LNG project from Australian energy firm Santos (STO.AX).

The moves came as Suncor unveiled a 10-year growth strategy including plans to increase oil production.