(ZH) Why Citi Is Worried About The 1,700 Level On The S&P

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Why Citi Is Worried About The 1,700 Level On The S&P

Despite the short-term memory-losing recency-biased perspective that a 2-day rally in stocks has seemingly set in investors' minds, Citi's FX Technicals group remains concerned that the S&P 500 is stretched by historical standards. At this point, they add, the S&P is more stretched than in 2007 and a bit less stretched than 2000 with the line in the sand around 1,700.


Via Citi FX Technicals,

The S&P 500 is stretched by historical standards:

– At the peak on 15 Jan 2014 the S&P was 12% above the 55 week moving average which itself was 20% above the 200 week moving average
– At the peak in 2007 the S&P was 8.5% above the 55 week moving average which itself was 14.5% above the 200 week moving average
– At the peak in 2000 the S&P was 14% above the 55 week moving average which itself was 29.5% above the 200 week moving average


So at this point the S&P is more stretched than in 2007 and a bit less stretched than 2000. In both those instances you would have expected (and in fact got) a correction down to the 200 week moving average once support at the 55 week moving average was broken.

However, in both those instances we ended up going much further than the 200 week because of the knock on effects of another asset in the US (In 2000 it was the NASDAQ which saw an 80%+ drop and in 2007 it was the housing market which dominoed into a financial crisis).

Another dynamic at play here is the similarity between 1998-2000 and 2011-present:

– In 1998 the S&P saw a 22% high to low correction on the back of Russia’s default which was followed by a 68% into the 2000 high
– In 2011 the S&P saw a 22% high to low correction on the back of the European crisis/Greek defaults which was followed by a 72% rally into the high so far from January
At this point, though, we certainly do not expect the type of correction seen in 2000 but the parallel certainly speaks to just how stretched the move over the last few years in the S&P has been, especially when comparing the backdrop wherein the late 1990s saw low unemployment and high GDP growth compared to the more recent anemic recovery (and the potential beginning of the end of easy money by the Fed).

For now we have not seen the break of any significant levels which would suggest much lower levels are likely in the near-term; however, they are certainly on the horizon:

– Initially watch supports around 1672-1697, the converging 55 week moving average and 12 month moving average (see below for more).
– A break below there, should we see it, would open the way towards the 200 week moving average at 1387, 25% off of the highs


The 12 month moving average has been a significant level on a closing basis as can be seen by the rare breaks below (marked by black circles):

– August 1998: S&P closes below the 12 month moving average for the first time in 43 months and we saw a 22% high to low correction
– October 2000: S&P closes below the 12 month moving average for the first time in 24 months as the S&P begins a 50% high to low correction. After regaining the 12 month moving average in April 2003, the S&P stays above it until
– December 2007: S&P closes below the 12 month moving average as the S&P begins another 50%+ correction
– June 2010: S&P closes below the 12 month moving average and sees a high to low move of 17%
– August 2011: S&P closes below the 12 month moving average while posted a high to low decline of 22%
If we were to see a monthly close below the level, it would be in our view a very bearish break and suggests that we are in the process of a high to low double digit percentage correction with the obvious target being the 200 week moving average (if the 55 week moving average also gives way)

>>> Nestle Said to Explore Ways to Reduce $30 Billion L’Oreal Stake

Nestle Said to Explore Ways to Reduce $30 Billion L’Oreal Stake

Nestle SA (NESN) is exploring ways to reduce its $30 billion stake in L’Oreal SA (OR) and has signaled its intentions to the world’s largest cosmetics maker’s management, people with knowledge of the matter said.

Nestle has raised the issue to L’Oreal at the highest levels and both sides have discussed the matter with banks, said the people, who asked not to be named because the talks are private. Any move to gradually reduce the 29 percent stake could take years, several of the people said, citing the size of the holding and the close, complex nature of the relationship between the companies and the Bettencourt family behind L’Oreal.

The two consumer companies would have to agree on the timing, as would the Bettencourt family, which owns 31 percent of L’Oreal. While talks have been on and off again for some time, preparations have picked up ahead of April’s expiry of restrictions on Nestle’s stake imposed by a shareholder agreement with the Bettencourts, some of the people said.

The Swiss firm is focusing on paring its investment because cosmetics don’t fit its long-term nutrition and health strategy, the investment ties up capital and has already generated sizablereturns, said one of the people. Nestle could decide to retain its holding if the Vevey, Switzerland-based company doesn’t agree on a plan with the maker of Maybelline cosmetics and the family.

Nestle, already sitting on more than $6 billion in cash and short-term investments, doesn’t have an immediate plan to redeploy proceeds from a sale, two of the people said. The key for Nestle is selling shares at the right price, one of the people said. No decision has been made about when a sale could start, several of the people said.

Nestle Options

The Swiss food company has several options on how to exit. The company could sell shares to L’Oreal, the Bettencourt family or the public, or a combination of those three, the people said. L’Oreal could also buy shares and take them out of the market, which its shareholders would like because it would increase the value of their existing holdings, some of the people said. Complicating any discussions are the different interests of the owners, which include France’s richest person and two of Europe’s biggest consumer companies, the people said.

A spokesman for Nestle declined to comment, referring only to the company’s previous statement that the future of Nestle’s participation in L’Oreal is an important topic for the group and that the board is addressing the matter with "great attention." An official for L’Oreal declined to comment.

Sanofi Stake

Meanwhile, French pharmaceuticals producer Sanofi (SAN) has said it would consider buying back some of L’Oreal’s 8.9 percent stake in the drugmaker if it were to become available. L’Oreal could use cash from a sale to buy back its shares from Nestle, two of the people said.

The companies said last year they were keeping all options open ahead of April. Nestle, the maker of KitKat bars, can already sell its shares, though it has to offer them first to the family. That preemption right expires April 29, along with a provision forbidding alliances with third parties.

Buying back Nestle’s stake would make sense for Paris-based L’Oreal, Chief Executive Officer Jean-Paul Agon said last month in an interview with Le Monde, who added that the cosmetics maker has the financial resources that would make it possible.

Such a move would boost earnings, he said, and allow L’Oreal to cancel the shares, boosting the value of its stock. Were L’Oreal to buy the stake, it could return some of the stock to shareholders, two of the people said.

No Synergies

Agon has said he doesn’t see any synergies between L’Oreal and Nestle. The companies have two joint ventures that are small parts of each company’s business.

L’Oreal shares were unchanged at 123.50 euros as of the close of Paris trading on Feb. 7, valuing the company at 74.9 billion euros. Nestle advanced 1.7 percent to 67.60 Swiss francs in Zurich, bringing its market valuation to 218 billion francs. If Nestle sells the stake, it could use the cash to fund acquisitions, said Exane BNP Paribas analysts including Jeff Stent in a Jan. 14 research note.

Exane believes Nestle will sell the stake and that its "real acquisition intentions" may be more significant than the small bolt-on deals that management has said it wants to do, the analysts wrote.

The question of what to do with the L’Oreal holding has taxed Nestle since 2000, when Chairman Peter Brabeck-Letmathe was CEO and proposed a stronger push into cosmetics. The board deemed that too ambitious and Brabeck-Letmathe decided instead to focus on nutrition and health, according to the company’s official history.

Bettencourt Family

Nestle bought a stake in L’Oreal in 1974 from the Bettencourts. The holding generates about a 10th of the net income generated by the maker of Purina dog food and Nescafe instant coffee.

Still in effect after April will be an agreement barring Nestle from acquiring more L’Oreal shares until six months after the death of the daughter of L’Oreal founder Eugene Schueller and family matriarch, Liliane Bettencourt, 91. A court in 2011 put Bettencourt under the care of her family, ruling she was no longer mentally fit to manage her affairs.

The Bettencourt family remains committed to L’Oreal and has no plans to sell its stake, the family said in August.

WSJ For Sprint, Hot Pink Is a Red Flag

For Sprint, Hot Pink Is a Red Flag

Investors may soon get a signal from Sprint. The No. 3 U.S. carrier by subscribers reports fourth-quarter results Tuesday. And they probably won't be pretty. Analysts say Sprint continued to bleed subscribers and that its network upgrade, forecast to be completed by midyear, appears behind schedule. Against this backdrop, taking the risky step of bidding for T-Mobile US, which it is considering, would be an acknowledgment that Sprint's prospects as a stand-alone company are faltering. Strong preliminary fourth-quarter subscriber additions from T-Mobile, reported last month, likely came at Sprint's expense. And T-Mobile's most recent offer to cover the fees new subscribers pay for early termination of contracts with other carriers may bode even worse for the current quarter. UBS estimates Sprint lost a net 300,000 postpaid subscribers in the fourth quarter and will lose a net 700,000 in the first quarter of 2014. Granted, Sprint has been saying for a while that 2014 would be a transition year as it invests in its network. But it has so far refrained from aggressive marketing, allowing T-Mobile to employ many strategies it might have used. Sprint may now be forced to act by undercutting T-Mobile's prices. That could hit profit. One way to end the pain: Bid for T-Mobile, a deal that could come with synergies with a net present value of $23 billion, according to New Street Research. Yet regulators have strongly hinted such a deal wouldn't be approved. And T-Mobile is likely to demand a sizable breakup fee, probably in the realm of $4 billion to $5 billion, New Street estimates. Moreover, the regulatory process would tie up Sprint for the better part of a year, during which time it would still need to do something dramatic to reverse its subscriber trends. For Sprint investors, a bid for T-Mobile should be more a sign of concern than a sign of confidence.

>>> Weekly Market: Dow+0,61% S&P+0,81% Nasdaq+0,54%(WTD)

Weekly Market Update: The Correction Corrects

- The week began with a massive sell-off, as the DJIA and S&P500 fell more than 2% a piece on Monday and closed at their lows, while the DJIA also fell below its 200-day moving average for the first time since October. The declines came after a bad slide on the prior Friday and were exacerbated by another discouraging Chinese PMI reading. On Tuesday, the Nikkei saw a 4% slump, but global markets bottomed out mid-week and then recouped all of their losses. In Europe, healthy-looking PMI data helped limit losses, while the mixed US jobs report did not damage the bounce-back on Friday. Emerging market currencies stabilized this week following the recent round of rate hikes. For the week, the DJIA rose 0.6%, the S&P500 gained 0.8% and the Nasdaq added 0.5%.

- The January US non-farm payrolls figure widely missed expectations and the December figure was revised higher by a mere 1K, making for the weakest two-month period of job growth in three years. However, investors are looking past this to find some pretty good news in the numbers. The lack of upward revisions in December data was still blamed on harsh weather, and the November payroll gains were revised higher again to 274K from 241K. More significantly, unemployment rate fell again to 6.6% while the labor force participation rate edged up to 63%, and employment measured by the household survey increased by 616K, complemented by a huge decline in part-time employment.

- Janet Yellen was officially sworn in as the new Fed chairman this week. Nearly everyone expects a pretty smooth transition, with Yellen very unlikely to make any changes to the course charted by helicopter Ben. She will have to deal with policy contradictions now that unemployment is nearly at the Fed's 6.5% threshold while job growth remains anemic. At the December meeting, the Fed extended its forward guidance by stressing that low rates will likely remain appropriate "well past" reaching the 6.5% threshold, however market rates are still creeping higher. Next week will see Yellen's first big policy statement, during Congressional testimony on the economic outlook and monetary policy. Several Fed officials this week, both hawks and doves, affirmed that tapering was still on track and that it would take a significant change in the data to force them the reconsider it.

- Despite the week-long Lunar New Year holiday on the mainland, China released the official PMI figures for the month of January on Monday. Much like the disappointing HSBC final PMI readings, the government figures described more deterioration with manufacturing PMI falling to 50.5, a six-month low, and non-manufacturing falling to 53.4, a 23-month low. Perhaps most notable among components, the employment reading in the manufacturing sector fell to an 11-month low. Meanwhile, the China Commence Ministry reported 2014 Lunar New Year "golden week" retail sales that were up a mere +13.3% y/y, the slowest pace of growth on record for the key holiday retail period.

- Shares of Twitter were down as much as 24% on Wednesday after the firm released its first quarterly report as a publically traded company. Twitter's headline EPS and revenue numbers were much better than expected, but traders and analysts insist that slowing user growth and weaker engagement trends seen in metrics bode ill for the firm. In addition, the first round of lock-up expirations arrives on February 15th, followed by another round on May 7th. Cult tech names Pandora and LinkedIn saw losses as well in the wake of problematic quarterly results. Both firms disclosed decent fourth-quarter results but offered guidance that widely missed consensus estimates.

- Time Warner reported strong fourth-quarter results. Analysts focused on the company's decision to break out separate HBO revenue figures for the first time. HBO took in $1.26B compared to $1.19B y/y, citing the consolidation of Asia and certain European operations for the 4% gain. This compares to Netflix's $1.18B in revenue in the quarter.

- On Thursday, Apple disclosed that it has repurchased $14B in common stock over the last two weeks, amounting to 3.1% of its market cap. Over the last 12 months, the company said it has bought back $40B in stock, an all-time record for Apple or any company. CEO Cook said that the company had been surprised by the 8% decline on Jan 28th that came after reporting quarterly results. He also pledged to return $100B to shareholders by the end of 2015.

- Shares of Ford and General Motors saw losses early in the week after reporting weak January auto sales. Ford's January sales skidded 7% y/y while GM's slid 12% y/y. Both firms blamed the terrible winter weather in most of the country throughout the month. A Ford sales executive said that in areas where the weather was good, such as in the West, sales were up. Chrysler's January sales were up 8%, with gains credited to strong demand for Jeep Cherokee. In its quarterly report on Thursday, GM disclosed net income up a weak 2% and adjusted EPS well below expectations, but the company insisted its calendar year outlook remains unchanged.

- Microsoft officially named Satya Nadella as its new CEO and said Bill Gates will step down as chairman to become a technology advisor. When Steve Ballmer stepped down there were widespread reports that Microsoft needed a fresh face from outside the firm to shake things up, but Nadella has been with the company for 22 years, most recently heading up the cloud computing division.

- According to reports, last week saw massive reallocations among funds. A Citigroup analyst wrote that a record amount came out of equity funds and flowed into bond funds, and over 95% of the flows were in and out of ETFs. In the week ended Feb 5th, there was a $14.8 billion inflow into bond funds and a $28.3 billion outflow from equity funds. In addition, this was the 15th week of outflows from emerging market equity funds, while China funds ended a six-week run of inflows with a small outflow.

- In the summer of 2012, ECB President Draghi said the ECB would do whatever it takes to save the euro, in a move that marked the beginning of the end of the euro crisis. Among his biggest weapons standing behind that promise was the OMT bond buying program. In a long awaited decision out this week, Germany's highest court declined to rule on the program's constitutionality and deferred to the EU's highest court. In its decision, the German court said there were substantial reasons to believe that the OMT program exceeds ECB mandates but did not rule it was unconstitutional.

- There were no big surprises in either the BOE or ECB rate decisions. President Draghi took a less dovish tone in the post-rate decision press conference than some had expected, hammering home the point that the ECB is in no rush to cut rates. Draghi squashed speculation of any imminent halt to the SMP sterilization process and reiterated there was no deflation in the eurozone. EUR/USD climbed over 100 pips as the press conference progressed, putting the pair right back above 1.3600. The BoE offered no comments even as ILO unemployment dropped to just above the bank's 7% forward guidance threshold. Sterling fell to a two-week low around 1.6370 after the miss in the January UK PMI Manufacturing data.

- Following the Nikkei close at a 4-month low early in the week some analysts noted that BOJ would likely buy ETFs to keep the 225 Index above 14,000. The USD/JPY moved off its 2-month low of 100.73 to regain a footing above 101.30.

- In its decision this week, Australia's RBA abandoned easing bias and propelled the AUD to three-week highs as participants scrambled in a short covering rally. The RBA dropped language referring to AUD as "uncomfortably strong." The RBA's Edwards attempted to curb the post-decision strengthening trend by asserting that the AUD's decline was not necessarily over. Recall that the AUD/USD 0.90 handle has been a verbal intervention point in the past.

>>> US Close Dow+0,66% S&P+1,33% Nasdaq+1,69%

Closing Market Summary: Stocks Rally Despite Disappointing Jobs Data

The major averages finished a shaky week on an upbeat note. The Nasdaq led the way, climbing 1.7% while the Dow Jones Industrial Average and S&P 500 added 1.1% and 1.3%, respectively. Thanks to the broad rally, the indices managed to register weekly gains between 0.5% and 0.8% but small caps were not as fortunate. The Russell 2000 gained 1.1%, trimming its weekly loss to 1.3%.

Prior to the open, it was reported that only 113,000 nonfarm payrolls were added in January while the consensus expected an increase of 175,000. Immediately after the release, equity futures and the dollar/yen pair tumbled while gold futures and Treasuries rallied. Strikingly, the moves reversed nearly as fast after the dollar/yen pair surged off its low near the 101.50 level.

Once again, the rebound in dollar/yen occurred in conjunction with the rebound in futures and continued into the session. This suggests participants remain very sensitive to the performance of the Japanese currency due to the popularity of the yen-based carry trade that benefits from rising stocks and a falling yen.

An interesting component of today's rally in the stock market, which was presumably predicated on the belief that pent-up demand will unleash better labor market and economic data in coming months, was that the Treasury market also traded higher. The benchmark 10-yr note added four ticks, pressuring its yield to 2.68%. The growth acceleration view, therefore, did not appear to be resonating as much in the fixed income market as it did in the stock market.

In the same vein, the US Dollar Index (DXY 80.65, -0.25) slipped today in a move that didn't exactly mesh with the stock market's seeming optimism about the road ahead. Also of note, gold futures rose 0.5% to $1262.90/ozt.

Just like yesterday, cyclical sectors paced the bulk of the advance. All six growth-sensitive groups posted gains between 1.1% and 1.6% with industrials ending in the lead. The sector drew strength from the likes of Boeing (BA 127.02, +4.35) and Honeywell (HON 93.16, +2.02) while transports lagged. The Dow Jones Transportation Average surged at the open and tested its 50-day moving average (7272) before surrendering a portion of the advance. The bellwether complex ended higher by 0.8% after being up nearly 1.2% in the morning.

Elsewhere among cyclical sectors, the discretionary space advanced 1.3%, extending its weekly gain to 1.9%. The discretionary sector ended the week ahead of the remaining nine groups after losing nearly 6.0% in January.

On the defensive side, health care (+1.7%) seized the lead during the afternoon while the remaining three countercyclical groups—consumer staples (+0.9%), telecom services (+0.7%), and utilities (+0.6%)—lagged. Biotechnology contributed to the outperformance of the health care sector as the iShares Nasdaq Biotechnology ETF (IBB 246.33, +9.54) surged 4.0%.

Participation was a bit above average as 751 million shares changed hands at the NYSE.

Today's data was limited to just two reports: Nonfarm payrolls added only 113,000 jobs in January. That was up from a 75,000 (from 74,000) gain in December, but well below the consensus expectation of a 175,000 gain. Even though the claims data have shown improvements in labor conditions and a clear decline in layoff trends, it has not translated into employers hiring more workers. The labor market is stuck in the mud. Many analysts will be quick to blame the poor data on extreme cold and other problematic weather conditions, but if this was the case then jobs that are directly affected by the weather-such as construction-should have fallen in January. That did not happen. The construction sector actually added 48,000 new jobs in January, which was the most new jobs since 80,000 jobs were added in March 2007. Total private payrolls added 142,000 jobs in January, up from an 89,000 gain in December. The consensus expected private payrolls to increase by 161,000. The unemployment rate fell to 6.6% from 6.7% while the consensus expected the rate to remain at 6.7%. The consumer credit report for December showed credit growth of $18.80 billion while the consensus expected the reading to come in at $11.50 billion. The prior month's reading was revised higher to $12.40 billion from $12.30 billion. There is no economic data on Monday's schedule.

(BFW) Yellen to Back Modest Tapering After Jan. Jobs Data: E

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Yellen to Back Modest Tapering After Jan. Jobs Data: Economists 2014-02-07 19:14:59.813 GMT

By Vivien Lou Chen Feb. 7 (Bloomberg) -- Yellen won’t be swayed by Jan. jobs report into backing away from support for $10b/meeting tapering pace in semi-annual testimony to Congress, said economists Michael Gapen of Barclays and Carl Tannenbaum at Northern Trust. * Yellen probably won’t mention $10b in context of future tapering moves, and will instead refer to Fed’s Dec. and Jan. decisions when she delivers her first Congressional testimony on Tuesday and Thursday, Gapen and Tannenbaum said in phone interviews * “She’ll make it clear there’s a regular pattern here and make the same statement Ben has made: that absent a significant shock, tapering will continue at a pace similar to in the past”: Tannenbaum; “there’s no value in making promises” * Tannenbaum, Gapen, Capital Economics, GMP and UniCredit are among those who say Yellen and Fed will stick to path of reducing QE purchases from current level of $65b/mo. * Jan. jobs report “is a mixed report overall and I believe she will read it as evidence that monetary policy needs to remain accommodative”: Gapen; “even with tapering, the balance sheet is rising, which will help keep rates low” * Gapen says he expects Fed to keep tapering by $10b at each meeting through Sept. and by $15b in Oct., though odds of pause in March are rising * Unemployment rate, currently at 6.6% as of Jan., is approaching 6.5% jobless rate threshold and raising questions about whether Fed will need to tweak guidance as soon as next meeting in March * Declining unemployment rate means adjusting forward guidance on rates becomes more urgent, UniCredit economist Harm Bandholz wrote in note * Yellen faces challenge of how quickly to boost near-zero rates to more normal level of ~4%, according to Capital Economics economist Paul Dales; she may move Fed away from emphasis on unemployment rate and return to use of a calendar date over time * “Yellen will remind people that getting a clear picture of the labor market is not easy to do, and she won’t back away from the threshold” in her testimony, Tannenbaum said. “Instead, she’ll say that, in practice, other factors need to be considered” besides unemployment rate * Tone of her remarks on U.S. economy won’t differ much from Fed’s most recent statements, projections and minutes: Gapen * “She’ll say the committee sees pace of activity accelerating in recent quarters, and the labor market making progress”: Gapen * “With degree of fiscal drag waning, there’s confidence stronger growth will persist and gains in the labor market will continue”: Gapen; “inflation pressures are still muted and the Fed can continue to taper gradually and at a moderate pace” * NOTE: Yellen appears before House Financial Services Committee in Washington at 10:00 am on Tuesday, and Senate Banking Committee at 10:30am on Thursday

For Related News and Information: First Word scrolling panel: FIRST<GO> First Word newswire: NH BFW<GO>

To contact the reporter on this story: Vivien Lou Chen in San Francisco at +1-415-617-7078 or vchen1@bloomberg.net

To contact the editor responsible for this story: James Holloway at +1-212-617-4454 or jholloway8@bloomberg.net

Apple shareholders should reject Icahn's buyback proposal

Apple shareholders should reject Icahn's buyback proposal -proxy advisor

SAN FRANCISCO, Feb 7 (Reuters) - Proxy advisory firm Egan-Jones advised Apple Inc shareholders on Friday to reject activist investor Carl Icahn's demand that the iPhone maker expand its stock buyback program, a proposal that will be put to a vote this month.

"The board and management team have demonstrated a strong commitment to returning capital to shareholders over the past two years," the firm, the smallest of the three major proxy advisory outfits, said in a report obtained by Reuters on Friday.

Icahn is waging a campaign to get Apple to return more cash to shareholders and has filed a resolution proposing that it gives back $50 billion more through share buybacks. That proposal will be put to a vote at Apple's Feb 28 shareholders' meeting.

WSJ : Fiat's Move Risks Sticker Shock

Fiat's Move Risks Sticker Shock

A possible new first for Italian engineering: making shares of Fiat suddenly look more expensive.

Under Chief Executive Sergio Marchionne's new plan, Fiat and its Chrysler Group subsidiary will combine into a Netherlands-based holding company, with a U.K. tax domicile and a New York stock listing. Each leg of the structure will confer a benefit for the new Fiat Chrysler Automobiles. The Netherlands has more relaxed board requirements than many other countries. The U.K. offers lower tax rates. And the U.S. has deep capital markets with low borrowing costs.

But along with moving its primary listing to the U.S., Fiat Chrysler might also move its financial reporting to U.S. generally accepted accounting principles, known as GAAP.

This isn't required; the company could also remain on international financial reporting standards, or IFRS. But if the goal is better access to U.S. stock and bond investors, a switch may make sense. On a recent conference call, Mr. Marchionne said the company will "provide U.S. GAAP reconciliation, even if we stick to IFRS as the primary reporting standard."

Unlike international standards, under U.S. accounting companies aren't allowed to capitalize research and development spending. The latter lets a company move some research and development spending from the profit-and-loss statement to the balance sheet. ISI Group analysts reckon that in 2013 R&D capitalization boosted combined earnings before interest and taxes at Fiat and Chrysler by about 60%.

Fundamentally, switching to U.S. accounting would change nothing for Fiat Chrysler. Its cash flow would be the same regardless of which convention it adopts. But its valuation might look less flattering to a stock market that doesn't always stick religiously to the fundamentals.

Fiat's stock trades at about 9.8 times last year's earnings, in the same neighborhood as Ford Motor's F +1.20% price/earnings ratio of 9.3 times and Volkswagen's VOW3.XE +0.72% 9.1 times. But ISI estimates that under U.S. accounting, the company would have actually lost about $50 million in 2013, rather than posting net income of about $1.2 billion at current exchange rates.

Switching accounting might make sense with the stock adopting New York as its home. But it would also offer investors a peek under Fiat Chrysler's hood that makes the price on the windshield look like less of a deal.