Market Matters…
|
Market/Index |
Year Close (2013) |
Qtr Close (12/31/13) |
Previous Week (01/10/14) |
Current Week (01/17/14) |
YTD Change |
Week Change |
|
Dow Jones Industrial |
16,576.66 |
16,576.66 |
16,437.05 |
16,458.56 |
-0.71% |
0.13% |
|
NASDAQ |
4,176.59 |
4,176.59 |
4,174.66 |
4,197.58 |
0.50% |
0.55% |
|
S&P 500 |
1,848.36 |
1,848.36 |
1,842.37 |
1,838.70 |
-0.52% |
-0.20% |
|
Russell 2000 |
1,163.64 |
1,163.64 |
1,164.53 |
1,168.43 |
0.41% |
0.33% |
|
Global Dow |
2,483.62 |
2,483.62 |
2,475.95 |
2,486.04 |
0.10% |
0.41% |
|
Fed Funds |
0.25% |
0.25% |
0.25% |
0.25% |
0 bps |
0 bps |
|
10 yr Treasury (Yield) |
3.04% |
3.04% |
2.86% |
2.83% |
-21 bps |
-3 bps |
After a slow start to the new year, investors were anxious about this week’s trading activities and how the markets would respond. Unfortunately, the week kicked off with more of the same (much more) as the initial trading day saw a 179 plunge in the Dow Jones, the biggest one-day drop since September 20, 2013. The not-so-promising unemployment numbers from last week were still weighing on everyone’s minds and the continuation of the Fed tapering strategy was once again a concern. As the week progressed, however, the negativity waned as a few decent economic releases and earnings reports seemed to calm the newfound uncertain mindset. The month has passed its halfway point with a less-than-stellar start. Remember…as January goes, so go the markets for the year.
Financials took the lead in earnings season and the results were mixed at best. Wells Fargo posted a fifth straight year of profit growth and solid earnings, while Bank of America saw profits skyrocket on cost-cutting measures and lower loan loss provisions. Citigroup ’s profit doubled from last year’s level, but still missed estimates on weak fixed income trading results. Morgan Stanley overcame significant legal expenses as its wealth management group pushed revenue higher. Likewise, JP Morgan incurred a major legal settlement (thanks Bernie), but still bested Wall Street analyst projections. In non-financial earnings news, GE got a lift from its energy and aviation divisions; Intel provided a pessimistic outlook for 2014, and Royal Dutch Shell warned that earnings would be lower on refining weakness and higher exploration costs. Finally, Best Buy tumbled almost 30% in one day as the third best S&P 500 performer in 2013 announced sluggish holiday sales as its deep discounting strategy appeared to do little to entice consumers to buy more electronics. The poor results prompted major worries for retail.
In other biz news, Apple is already reaping the benefits of its venture with China Mobile as it posted record iPhone sales in China for the quarter. Google is buying alarm and thermostat maker Nest Labs for $3.2 billion; Japanese drink company Suntory is acquiring Beam (of Jim Beam whiskey fame) for over $13 billion; and GM declared its first quarterly dividend since 2008. Men’s Warehouse received a nice confidence boost from major shareholder Eminence Capital that should prove helpful in its quest to purchase rival clothier Jos. A Bank.
Investors shook off the opening trading session and made back some ground on solid retail sales numbers (pre-Best Buy announcement) and news about Apple’s newfound success in China. The Nasdaq even touched its highest level since September 2000 and the S&P 500 returned to record-setting ways before retreating on lackluster earnings reports. While the economy still looked to be in decent shape, some analysts are already predicting that the poor unemployment releases of last week will be revised in the coming month(s) and are not reflective of the current state of the labor markets. Oil rose on low inventory levels despite word that Iran may increase its production. (What about those nukes?)
Economic Calendar
|
Date |
Release |
Comments |
|
January 14 |
Retail Sales (12/13) |
Pickup in demand from consumers during holidays |
|
January 15 |
PPI (12/13) |
Big jump in energy costs |
|
Fed Beige Book |
The economic outlook is positive |
|
|
January 16 |
Jobless Claims (01/11/13) |
Another weekly decline in new claims |
|
CPI (12/13) |
Overall inflation remains weak |
|
|
January 17 |
Housing Starts (12/13) |
Construction retained a strong pace |
|
Industrial Production (12/13) |
Strongest gain since 2010 |
|
|
The Week Ahead |
||
|
January 23 |
Jobless Claims (01/18/13) |
|
|
Existing Home Sales (12/13) |
||
|
Leading Eco. Indicators (12/13) |
After last week’s surprisingly weak labor releases, analysts were skeptical about the true state of the economy. Well, this week, the numbers were far better and everyone is breathing a (temporary) sigh of relief in hopes that the jobs data was an aberration and due to be revised next month. Retail sales jumped again in December and reflected a solid holiday season, especially when the weaker auto sales component was taken out of the equation. Industrial production experienced its strongest gain in three years as manufacturing continued to depict solid growth after some mid-2013 question marks. Housing starts fell in December, but activity still remains far in excess of the level seen in the summer. Additionally, the homebuilders confidence index remained well above the level that reveals favorable conditions for residential housing. While the inflation gauges rose a tad last month, the gains were mainly reflective of energy and tobacco price hikes and the Fed will continue to monitor these and other related pricing data as it looks to wind down its bond buying.
According to the Fed, the domestic economy is growing at a “moderate” pace (as usual) and the policymakers hope to be able to continue (and enhance) its tapering strategy. The Beige Book confirmed that retail activity was solid during the holidays and manufacturing remains in expansion mode. Most officials seem to believe that the labor releases will not impact the desire to curtail the bond buying. Atlanta Fed President Dennis Lockhart expects the Fed to stick to the plan and not overreact to the often volatile December employment data. Chicago Fed President Charles Evans admits that the recent jobs report was disappointing, but points out that economic activity generally has been “encouraging" and labor will “likely get better this year.”
Looking at the global economy, the World Bank raised its forecast for global growth for 2014 and also expects the Eurozone to improve during the year. Industrial production in the Eurozone grew at its fastest pace in over three years, while retail sales in the UK beat expectations and turned it is best performance in nine years. The Organization for Economic Cooperation and Development sees continued improvement across the globe and predicts further European recovery to be led by Germany, though France, and Italy are showing potential as well. Outside of Europe, the leading indicators in China and Brazil point to growth in the coming months, though India may struggle on slower growth.
On the Horizon… Investors get a brief break from trading from the early week Martin Luther King holiday and the rest of the week finds a very light economic calendar. Without much data to digest, analysts and Fed watchers will be looking for other clues to speculate about future policy as it pertains to bond buying and any comments from the officials themselves will be highly scrutinized. A few tech giants join the earnings parade with IBM and Microsoft reporting results, while Procter & Gamble and McDonalds shed a little more insight into the minds of the consumer. How many day and counting, Dr. B.? You ready, Ms. Yellen?
© Brounes & Associates
