Stock Market Today
What the NYSE Deal Means for the Major Players – And You
The NYSE deal in which IntercontinentalExchange Inc. (NYSE: ICE) will acquire NYSE Euronext (NYSE: NYX), the operator of the New York Stock Exchange, is putting pressure on CME Group Inc. (Nasdaq: CME) to find a dance partner before closing time.
That's because the NYSE deal has highlighted the importance of futures and options exchanges like CME (Chicago Mercantile Exchange) in the future of trading.
A new regulatory environment, set up to address the issues thought to have caused the financial crisis of 2008, will require most over-the-counter derivatives – customized options and futures contracts between two companies – to be settled through clearing houses instead of as a private agreement between two investors.
Settling OTC derivatives through clearing houses will require market participants to put up collateral and adhere to specified margin requirements, which are not necessarily required in an OTC transaction.
Big derivatives exchanges, such as ICE and CME, see this as another money-making opportunity. And ICE just made a huge profit move with its NYSE deal.
"CME should be wary of this combination because it looks to be pretty formidable," Michael Holland, who oversees more than $4 billion in assets as chairman of New York-based Holland & Co., said in a phone interview with Bloomberg News. "The ICE people have done a very smart thing. CME should be concerned."
NYSE Deal Signals End of Era
ICE acknowledges the NYSE deal is all about NYSE LIFFE, Europe's second-largest futures exchange specializing in financial futures, which is operated by NYSE Euronext. ICE specializes in energy and agricultural commodity derivatives, so acquiring LIFFE gives ICE a broader, complementary product lineup as well as enhanced access to the European market.
By leveraging its existing clearing operations through the acquisition of NYSE LIFFE, ICE hopes to increase its clearing and settlement revenue as new regulation begins to take effect next year.
This seems to be the final nail in the coffin for the brick-and-mortar stock exchange and the ultimate triumph of electronic trading.
The NYSE and other stock exchanges around the world have lost market share to electronic exchanges, market makers and dark pools where the bulk of trading now takes place.
The idea of trading on the floor of a stock exchange now seems to be an anachronism -
a buggy whip in the Space Age.
Which brings us to the importance of CME.
Three Stocks to Buy in Next Year's Most Promising Sectors
Whatever 2013 brings for the markets, there will be plenty of quality stocks to buy – if you know where to look.
Overall, the markets are expected to have another positive year.
A survey of 10 top financial strategists by Barron's projects the Standard & Poor's 500 will close at 1,562 in 2013, a 10% gain from current levels. (By the way, last year's picks outpaced the broader index by 6%.)
That would follow modest gains in 2012 of 13.5% for the S&P 500 and 8% for the Dow Jones Industrial Average.
For next year, Wall Street's top guns predict certain sectors of the market – technology, industrials, and energy – will lead the charge higher. Companies in more defensive sectors like consumer staples, telecoms, and utilities, will be laggards.
So let's take a closer look at three stocks to buy from among these favored sectors that should be an excellent place for your money in 2013.
Stocks to Buy in 2013: Cheap Tech
Tech stocks are hugely profitable and as a group currently carry a forward P/E ratio of about 11.
That's cheap versus historical levels.
Tech is also a bellwether for when companies start to invest capital.
"When we get an upturn in capital expenditures, it will show up in tech first," Barclays' Barry Knapp told Barron's.
One stock to buy that has a rock solid balance sheet and a mountain of cash is Cisco Systems Inc. (Nasdaq: CSCO).
Once the world's most valuable company with a market cap of $500 billion, Cisco's shares sank sharply when the tech bubble burst in 2000.
And the stock is still dirt cheap, trading around $20 a share, roughly 10 times next year's earnings. Plus, the company is sitting on more than $48 billion in cash, worth about $9 a share.
With a dominant market share of 60%, CSCO is the de facto choice in the switching market.
2013 Tax Law Changes: Watch Out for These Hits
Some of the 2013 tax law changes slated to take effect Jan. 1 could hit your portfolio if you aren't prepared – and some will go into effect regardless of the fiscal cliff resolution.
In fact, the Internal Revenue Service (IRS) has released 159 pages of rules that will apply to trusts, annuities and individual equity traders.
One tax that could affect you is a new 3.8% surtax on investment income – or as it's fondly called, the investment income Medicare tax. The new tax is part of the 2010 healthcare reform law passed by Congress, and represents the first surtax on capital gains and dividend income.
There's also a new 0.9% healthcare tax on wages for high-income individuals; it is called the earned income Medicare tax increase.
Combined, these two taxes could raise an estimated $317.7 billion over the next decade, reported Reuters, based on a June Joint Committee on Taxation analysis.
To find out if you qualify for these taxes – and how to avoid them – check out this look at the proposed changes.
2013 Tax Law Changes: Medicare Surtax
The 3.8% Medicare surtax is a big deal because it's the first time a Medicare tax will be assessed on investment income.
For the purposes of the rule, investment income includes the following:
- Interest, Dividends, Royalties, and Annuities
- Capital gains, including any profit you make on the sale of your residence if it exceeds the amount you are allowed to exclude
- Passive-activity income. This can defined as earnings that stem from rental property, limited partnerships or other business that an individual is not actively involved.
You'll be affected by the Medicare surtax if your modified adjusted gross income (MAGI) is more than $200,000 as an individual, or $250,000 for married couples filing jointly.
Your MAGI is the total of adjusted gross income plus any foreign income. So if you work in the United States, MAGI will equal AGI, which includes your net investment income (gains minus losses).
It's a bit tricky, though.
Japanese Stocks Are Up, But Don't Fall for the Trap
Japanese stocks hit a new 2012 high today (Wednesday) and the yen weakened to a 20-month low against the U.S. dollar as Shinzo Abe was installed as Japan's 96th prime minister.
Abe, who served as prime minister in 2006-2007 but stepped down due to health issues, has vowed to pursue aggressive monetary easing to end deflation and get the Japanese economy growing again.
But the long-term implications of Abe's policies aren't as rosy as the short-term stocks boost.
"The hope is that Abe's promises of fresh stimulus, unlimited spending and placing a priority on domestic infrastructure will be the elixir that restores Japan's global muscle," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "As a veteran global trader who actually lives in Japan part time each year, and who has for the last 20+ years, let me make a counterpoint with particular force -don't fall for it."
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Apple Stock in 2013: Hang On For Another Wild Ride
Following the dizzying ups and downs of 2012, investors may be hoping for a little less drama from Apple stock in 2013.
While 2013 figures to be a very different year for Apple Inc. (Nasdaq: AAPL), don't plan on the ride getting much smoother.
With 2012 annual revenue at $156.5 billion and annual profit at almost $42 billion, Apple's biggest challenge heading into 2013 is figuring out how to add meaningful growth.
For example, when Apple reports earnings on Jan. 24, you won't see a repeat of last year's incredible December quarter year-over-year revenue growth of 73% and profit growth of 118%.
Numbers like that helped launch Apple stock on a tear from just over $400 at the start of the year to $544 by March 1.
But this January Apple would need quarterly revenue of $80 billion and profits of $28.5 billion to duplicate that rate of growth. Not even Apple can do that.
If Apple meets current analyst expectations for its Q1 2013, it will have revenue growth of 18% and a 4% decline in profit. That's not the sort of year-over year performance that lights a fire under a stock.
Indeed, Apple stock throughout 2013 will face difficult year-over-year comparisons as each quarter goes up against 2012's record numbers. AAPL is now officially a victim of its own success.
And any hiccups along the way will surely ding Apple stock in 2013, as we've seen repeatedly over the past three months.
Here's a look at what could go right – and wrong – for Apple stock in 2013.
Election in Japan: Will a New Government Revive Growth?
Following three-and-a-half years of government marked by scandal, incompetence and hesitation in the face of a natural disaster, voters in Sunday's election in Japan voted in a new party.
Japanese voters turned their backs on the Democratic Party of Japan (DPJ) and returned the Liberal Democratic Party (LDP) to power in a landslide victory.
The LDP, which ruled Japan continuously for more than 50 years, has been chastened by its time in opposition and returns to power with a renewed vigor and strengthened belief in its core values.
Sunday's election, which had been characterized as a referendum on the future of nuclear power in Japan, actually turned out to be a vote in favor of competence and experience in governing.
Voters handed the LDP/Komei coalition a veto-proof majority of 325 seats in the Lower House of the Diet.
Under Japan's parliamentary system, if a bill passed by the Lower House is rejected by the Upper House, it can be resubmitted to the Lower House and become law if approved by a two-thirds majority. That means even the most radical LDP policies can become law over the objections of the opposition.
That's a good thing because LDP president Shinzo Abe, who will be the next prime minister, has some pretty radical ideas for dealing with Japan's economic malaise.
Stocks to Buy Now: Bet on these Three Casino Stocks for 2013
Rather than being suckered by the glamour and neon lights at casinos, savvy investors looking for stocks to buy now are putting the odds on their side and betting on "the house."
That's because casino stocks are promising big returns for shareholders.
Plus, the gaming industry is still in the early stages of what should be a sustained recovery from the financial crisis that had lightened gamblers' wallets.
But identifying the best casino stocks to buy now involves more than a weekend jaunt to Vegas.
Due diligence on gaming stocks now requires a look at gambling's biggest hotspot – Macau, a former Portuguese colony that is now a special administrative region under Chinese rule.
U.S. Economy 2013 to Get Boost from Offshored Jobs Coming Home
The U.S. economy in 2013 should get a badly needed push from the acceleration of an improbable trend – the return of offshored manufacturing jobs to America.
Often referred to as reshoring, the trend started to gain traction this year, but is attracting more and more interest from manufacturers who just a decade ago couldn't move production to China and other foreign countries fast enough.
Companies rushed to send work abroad to take advantage of cheaper labor costs as well as to have factories closer to customers in rapidly expanding Asian economies.
Some companies did improve their bottom line, but at a great cost to the U.S. economy: America lost nearly 6 million manufacturing jobs between 2000 and 2010.
Yet calculations that favored the offshoring of manufacturing just a few years ago no longer add up. Some argue they never did, as offshoring turned out to have many hidden, unforeseen costs for many companies.
"There was a herd mentality to the offshoring," John Shook, a manufacturing expert and the CEO of the Lean Enterprise Institute, told The Atlantic. "But it was also the inability to see the total costs – the engineers in the U.S. and factory managers in China who can't talk to each other; the management hours and money flying to Asia to find out why the quality they wanted wasn't being delivered. The cost of all that is huge."
Now jobs once thought lost forever are starting to return to the U.S.
According to a Boston Consulting Group survey taken in February, 37% of U.S. companies with sales of $1 billion or more are either planning on reshoring some production or actively considering it.
Why Companies are Reshoring
Reshoring already has reversed the long, steady decline of manufacturing jobs in the U.S. Since 2010 America has added 500,000 manufacturing jobs, an increase of 4.3%.
With the disadvantages to manufacturing overseas growing each year, it's no wonder reshoring is becoming popular: