Market Matters…
| Market/Index | Year Close (2013) | Qtr Close (03/31/14) | Previous Week (05/02/14) | Current Week (05/09/14) | YTD Change | Week Change |
| Dow Jones Industrial | 16,576.66 | 16,457.66 | 16,512.89 | 16,583.34 | 0.04% | 0.43% |
| NASDAQ | 4,176.59 | 4,198.99 | 4,123.90 | 4,071.87 | -2.51% | -1.26% |
| S&P 500 | 1,848.36 | 1,872.34 | 1,881.14 | 1,878.48 | 1.63% | -0.14% |
| Russell 2000 | 1,163.64 | 1,173.04 | 1,128.80 | 1,107.26 | -4.85% | -1.91% |
| Global Dow | 2,483.62 | 2,504.05 | 2,523.17 | 2,520.68 | 1.49% | -0.10% |
| Fed Funds | 0.25% | 0.25% | 0.25% | 0.25% | 0 bps | 0 bps |
| 10 yr Treasury (Yield) | 3.04% | 2.72% | 2.58% | 2.62% | -42 bps | 4 bps |
So much for the dismal winter season and its impact on earnings. For weeks, analysts moaned and groaned about the potential for poor biz conditions and how the economic recovery was being placed on the backburner for the time being. So much for those early negative prognostications. With about three-quarters of S&P 500 companies having reported, aggregate earnings are now trending up 1.5% vs. expectations of a 1.2% decline and revenues are seen growing at a 2.6% pace. Investors have breathed collective sighs of relief and most focused far more on future outlooks than past results. This week, Disney signaled a solid return of the consumer as both earnings and revenue beat expectations. Meanwhile, Whole Foods and Priceline both posted earnings that bested forecasts, though they each offered somewhat downbeat forecasts. Still, the mood among market “playas” seems generally more favorable and the future looks bright(er) for the quarters to come.
Same-store sales confirmed the consumer’s return from hibernation as improved weather conditions and a late Easter holiday brought more traffic to the malls in April and contributed to the second straight month of stronger-than-expected numbers. Taken together, March and April show a definite pickup in activity and pent-up demand from the harsh winter season. Gap, for example, posted significant sales growth and an solid outlook for future earnings. Shifting to the online world, Walmart earned a nice coup as its annual online sales growth topped that of rival Amazon.com for the first time in a decade; before the folks in Bentonville, Arkansas start planning that parade, they should bear in mind that Amazon’s actual total online activity (not just the growth rate) still exceeds Walmart’s by six-fold.
Boardrooms remained active automaker Ford announced a share buyback plan that could be worth close to $2 billion. Big Pharma Merck is looking to focus more on prescription meds and is selling its over-the-counter and consumer product segments to Bayer for $14 billion. China’s Internet conglomerate Alibaba Group filed its paperwork and moved closer to its much sought after US IPO. For now, the company expects to raise $1 billion, though analysts believe that number will rise (maybe significantly) and could even approach $20 billion as offering day approaches later in the summer.
Despite the bounce-back in stocks once the winter weather scare passed, fixed income continues to surprise as the yield on the benchmark 10-year touched its lowest level since November 2013 and has dropped from 3% at the end of the year. Many corporations are still taking advantage of the low borrowing costs and Caterpillar issued 50-year bonds this week. Equities remained volatile as those higher risk securities continue to ride the roller coaster as investors move between bargain hunting and profit-taking (and back again). The Dow Jones moved into record-setting territory and even set a new record closing high. The Blue Chip index finally sits “in-the-black” for the year. Oil continued to hover at or around that crucial $100/barrel mark and this week’s government report showed an unexpected drop in crude inventories. (Any chance of a gasoline reprieve before the summer months?)
Economic Calendar
| Date | Release | Comments |
| May 5 | ISM – Services (04/14) | Gaining momentum |
| May 6 | Balance of Trade (03/14) | Narrowing seen as sign of strong demand at home and abroad |
| May 7 | Consumer Credit (03/14) | Increased after a cautious start to the year |
| May 8 | Jobless Claims (05/03/14) | Back to low levels last seen in early March |
| The Week Ahead | ||
| May 13 | Retail Sales (04/14) | |
| May 14 | PPI (04/14) | |
| May 15 | Jobless Claims (05/10/14) | |
| CPI (04/14) | ||
| Industrial Production (04/14) | ||
| May 16 | Housing Starts (04/14) |
While the Yellen Fed is working to cease its long-term stimulus programs, its counterpart in Europe has implied that more help in on its way to counter the potential ill-effects of (dare we say it) “deflation.” European Central Bank Prez Draghi hinted that the policymakers could loosen monetary policy as soon as at its upcoming June meeting. Currently, short rates already stand at 0.25% so perhaps some creative stimulus is on the way. With the Ukraine/Russia debacle still making daily headlines (and appear to be far from ending), many European companies across various sectors (from financial services to beer-makers) are suffering due to the ongoing uncertainty and negative economic impact. The HSBC purchasing managers Index in Russia contracted at its fastest pace since mid-2009. Shifting to China, while its purchasing managers index also remained in contraction mode, exports and imports both rose unexpectedly in April so hopefully the second largest economy may be moving into recovery mode.
Closer to home, the domestic economic calendar was rather slow this week though the releases du jour gave investors reason for continued optimism. The ISM services index rose more than anticipated as the non-manufacturing sectors continue to exhibit solid growth. The balance of trade narrowed in March as both import and exports increased, a signal of enhanced demand at home and with our trading partners. Jobless claims dropped to levels not seen since early March, a favorable development for the improving labor market. And the consumer remains comfortable borrowing these days after taking an early year hiatus as credit card debt and auto lending are on the rise.
Fed Chair Yellen made that trek to Congress that Bernanke had come to dread, though she seemed to be met with more patience and courtesy. (How long does the honeymoon period last?) She shared a rather upbeat forecast for the economy, but confirmed that the Fed has no intention of increasing short rates anytime soon. Most investors don’t expect any move until at least mid-2015. Yellen did express some concerns about the stagnant housing market and warned that investors seem to be adding new risk to their portfolios given the extended low rate environment.
On the Horizon…Earnings season moves forward with biggees Walmart and Cisco taking their turns on those analysts’ conference calls. By now, investors have come to grips that the aggregate numbers will exceed prior forecasts, though each release is greeted with cautious optimism. The economic calendar picks up as well with reports from retail, manufacturing, housing and inflation. With the nightmarish winter becoming a distant memory, investors hope to see continued rebound across the sectors (and hopefully even a housing recovery). Though the (low) pricing situation does not seem as dire as that in Europe, the Fed will continue to closely monitor inflation as it sets policy for the future. And, of course, plenty of global issues will sit atop the headlines…Will China’s rebound continue? Will Draghi call Yellen for stimulus advice? Will Putin ever say, “enough is enough?”
