The Week In Review

1/14-1/18/13

January 18, 2013
Equities began the session on a rather uninspiring note, but managed to climb back into positive territory by day's end. The key indices got off to a slow start despite China reporting its 2012 GDP growth at 7.9%. While the reading beat expectations, investor optimism was contained to the Asian session. Domestically, the lone economic data point came from the University Michigan, which reported its preliminary January consumer confidence measure at 71.3. The report was a disappointment and it contributed to the early weakness observed in the major averages. The S&P 500 and Dow staged an afternoon recovery back into positive territory after headlines out of Washington indicated Republican lawmakers are open to a three-month debt ceiling extension. While the reports were met with initial resistance from top Democrats, the White House was said to be 'encouraged' by the proposal. The 30-stock Dow Jones was the top performing index, and positive earnings from General Electric (GE 22.04, +0.74) contributed to the relative strength. The conglomerate reported earnings growth in five of its seven segments, and its stock gained 3.5% on the back of the strong results. While the Dow and S&P 500 registered gains, the Nasdaq ended lower due to pressure from two major components. Intel (INTC 21.25, -1.43) reported a fourth quarter earnings beat, but its top line results as well as forward guidance were disappointing. The stock slid 6.3% and other semiconductor manufacturers underperformed as well. The PHLX Semiconductor Index slipped 0.5%. Apple (AAPL 500.00, -2.68) also weighed on tech shares. The stock shed 0.5% after supply concerns were revisited after reports out of Reuters indicated that Sharp, which supplies screens for the iPad, has slowed its production rate. The demand concerns spilled over to other Apple supplier as Qualcomm (QCOM 64.48, -0.45) and Skyworks (SKWS 20.88, -0.78) lost 0.7% and 3.6% respectively. Additionally, the market received earnings from two major financials. American Express (AXP 59.78, -0.96) settled lower by 1.6% after reporting earnings in-line with its January 10 preannouncement. On the upside, Morgan Stanley (MS 22.38, +1.63) surged 7.9% after reporting a bottom line beat. Crude oil shed 0.1% and ended at $95.38 after trading in a narrow range for the duration of the session. Also of note, the CBOE Volatility Index (VIX 12.33, -1.24) sank 9.1% and finished at its lowest level since April 2007. Floor volume at the New York Stock Exchange was aided by the January options expiration, and totaled 1.07 billion shares, which was well above average. Sector leadership came from industrials (+1.0%) and the utilities (+0.9%) space. On the downside, technology shares were the biggest laggard (-0.3%), followed by financials (+0.2%). As mentioned earlier, today's economic data was limited to the preliminary January University of Michigan Consumer Sentiment Survey. The report came in at 71.3, which was lower than the 72.9 that was posted in the prior month, and worse than the reading of 75.0 that had been expected by the Briefing.com consensus. Note that equity and bond markets will be closed on Monday in observance of Martin Luther King Day. On Tuesday, December existing home sales will be reported at 10:00 ET. Among earnings of note, Google (GOOG 704.51, -6.81) and Verizon Communications (VZ 42.54, +0.41) are scheduled to report on Tuesday. Verizon will announce its quarterly results ahead of the opening bell while Google is scheduled for an after-hours release.

January 17, 2013
The major averages opened today's session on a strong note after weekly initial claims and housing starts were reported ahead of expectations. Meanwhile, a disappointing Philadelphia Fed Survey was not enough to cool optimism. Key indices spent the duration of the day in a steady upward climb, and the S&P 500 made its biggest advance in more than a week to end higher by 0.6%. The market saw notable support from homebuilders after December housing starts data indicated the demand for fresh construction projects remains strong. Among individual builders, PulteGroup (PHM 20.37, +1.03) and Lennar (LEN 41.94, +1.42) saw respective gains of 5.3% and 3.5%. Meanwhile, the SPDR Homebuilders ETF (XHB 28.15, +0.51) settled higher by 1.9%. While builder shares registered broad gains, Hovnanian Enterprises (HOV 5.95, -0.05) shed 0.8%, and was a notable laggard. In addition, the stock has seen heavy option activity with February $6.00 puts garnering interest. The strength in homebuilders helped discretionary stocks outperform the remaining S&P 500 sectors. On the downside, financials lagged after Bank of America (BAC 11.28, -0.50) and Citigroup (C 41.24, -1.24) reported earnings which did not please the market. The two lost 4.2% and 2.9% as a result. Though most sector components have already delivered their quarterly results, a handful of names have yet to report. Following today's close, American Express (AXP 60.74, +0.12) will announce its fourth quarter earnings. In addition, the market will receive Morgan Stanley's (MS 20.75, +0.21) report ahead of tomorrow's open. A familiar storyline was revisited today when morning reports indicated that European authorities along with the Federal Aviation Administration have ordered all Boeing (BA 75.26, +0.26) 787 flights to be halted. Boeing shares sold off on the news, but turned higher after Bloomberg reported that faulty batteries may have been the cause of electrical issues aboard the Dreamliner. While the market displayed strength all around, Apple (AAPL 502.68, -3.41) did not participate in the rally. The largest tech stock shed 0.7% after yesterday's comments from technical analyst Tom Demark sent the stock higher by 3.0%. In acquisition news, K-Swiss (KSWS 4.71, +1.52) soared 47.7% after the footwear manufacturer agreed to be acquired by E.Land World for $4.75 per share. The transaction price represents a 49.0% premium to K-Swiss' Wednesday closing price. Crude oil rose by 1.1% and settled above $95.00 after a hostage situation in Algeria fueled supply concerns. Another item of note lied in the CBOE Volatility Index (VIX 13.67, +0.25), which added 1.9%. The volatility measure spent the majority of the session in the red before crossing into positive territory during the last hour of trade as the S&P 500 slipped off its highs. Today's NYSE floor volume was just north of 700 million shares, which lied in-line with its 100-day average. Tomorrow's economic data will be limited to the January Michigan Sentiment, which is scheduled for a 9:55 ET release. Among notable earnings, General Electric (GE 21.30, +0.18) and Schlumberger (SLB 73.37, +0.15) will report their quarterly results prior to the opening bell.

January 16, 2013
Major stock market averages started the day on a mixed and uneventful note and that's pretty much how they traded the rest of the day. There were plenty of storylines, which we will introduce shortly, but there just wasn't any conviction on the part of buyers or sellers outside of some individual stock stories. The broader market's languor has been a familiar site this week. Including today's action, the S&P 500 is basically unchanged since last Friday. That's actually not a bad sign considering the S&P 500 had surged 3.2% in the first two weeks of trading. The sideways action, therefore, is being deemed a consolidation phase by technical analysts and perhaps just a boring phase by the rest of us. On Wednesday, the S&P 500 traded in a six-point range that was skewed mostly to the downside, the bulk of which was seen shortly after the market opened. Some early storylines that triggered the initial downside move included the following. Weakness in Boeing (BA 74.34, -2.60) after two Japanese carriers suspended their Dreamliner flights due to safety concerns. The World Bank cut its 2013 global GDP growth forecast to 2.4% from 3.0%. The muted response to a blowout earnings report from Goldman Sachs (GS 141.09, +5.50), which topped the Capital IQ consensus estimate by $1.96, and a better-than-expected earnings report from JPMorgan Chase (JPM 46.82, +0.47), which topped the Capital IQ consensus estimate by twenty cents. The market soon found its footing, however, when Apple (AAPL 506.09, +20.17) got going in the wake of a bullish call from technical analyst Tom Demark who accurately called the slide in Apple back in September when Apple was trading at $700. Demark's call on CNBC last night was that Apple has bottomed and should run to the $600 area in the next couple of weeks. Apple's strength was a staying factor for the broader market and triggered the outperformance of the Nasdaq versus the other major averages. Still, in a broader context, everything unfolded in moderation today as the Nasdaq gained just 0.2% while the Dow Jones Industrial Average slipped just 0.2%. In a certain respect, market participants were in deliberation mode, showing little reaction to reports of a terrorist attack on a natural gas facility in Algeria that resulted in 41 hostages being taken, including several Americans. Oil prices increased 1.0% to $94.19 per barrel, garnering added support from an EIA inventory report that showed a draw of 950,000 barrels from last week. Commodities overall traded somewhat mixed, although there was broad-based weakness in the industrial metals that coincided with the World Bank's tempered growth outlook. Notably, the CBOE Volatility Index (VIX 13.40, -0.15) continued its slide, reflecting an ongoing sense that the market isn't going to experience any dramatic moves up or down in the next 30 days. Many observers, though, see the low level of the VIX as a sign of complacency that could be a harbinger of more concerted selling interest for the cash market. For today, there wasn't much concerted selling interest outside of individual stocks like Chipotle Mexican Grill (CMG 280.94, -16.38), which issued a fourth quarter earnings warning, or much concerted buying interest for that matter. Volume at the NYSE totalled 600 mln shares with the last hour producing a good chunk of today's trading volume. The technology sector (+0.7%) led today's gainers and was followed by the energy (+0.3%) and financial (+0.1%) sectors. On the flip side, the telecom services sector (-1.2%) brought up the rear along with the low-weighted materials (-0.6%) and utilities (-0.5%) sectors. Treasuries held a bid throughout the day, but ended off their highs. The 10-year note finished up six ticks and its yield dipped to 1.82%. Today's economic data featured the CPI, Industrial Production, and NAHB Housing Market Index reports. None produced any major surprises, so they were largely overlooked as trading catalysts. The same can be said for the Fed's Beige Book report, which noted all 12 districts are experiencing modest to moderate growth and that fiscal cliff uncertainties were delaying hiring decisions in a number of areas. Tomorrow's economic lineup includes the Initial Claims, Housing Starts, and Philadelphia Fed Index reports. On the earnings front, financial names will again be in focus with Bank of America (BAC 11.78, +0.23) and Citigroup (C 42.48, -0.09) headlining the reporting activity.

January 15, 2013
Equities began the day with a slightly bearish bias after Germany's 2012 GDP was reported below expectations. Though the news weighed at the open, the major averages showed resilience, and spent the remainder of the session climbing off their lows. As a result, the S&P 500 added 0.1% while the Nasdaq underperformed with a loss of 0.2%. The tech-heavy Nasdaq was pressured by Apple (AAPL 485.92, -15.83), which fell 3.2%. In addition, Apple suppliers continued to show weakness. Broadcom (BRCM 34.19, -0.43) and Skyworks Solutions (SWKS 20.50, -0.51) saw respective losses of 1.2% and 2.4%. Today's selling followed yesterday's 3.6% drop in Apple resulting from reports which indicated the company has cut its orders for iPhone 5 parts. Facebook (FB 30.10, -0.85) dropped to its session lows after today's highly-anticipated press event disappointed investors. When the company first announced today's presentation on January 9, Facebook responded by rallying nearly 5.0% in less than a week. The rise was attributed to speculation the company may launch a search engine or its own phone brand. However, at today's event, the company revealed a "graph search" feature. Business software provider SAP (SAP 77.55, -4.33) also contributed to the weakness in technology. The stock lost 5.3% after the company's operating profit missed expectations. Additionally, SAP lowered its fourth quarter guidance, which also contributed to the selling. The discretionary sector was the top performer after the December retail sales report beat expectations. Retailers rallied on the news and the SPDR S&P Retail ETF (XRT 64.54, +1.32) gained 2.1%. This morning, Lennar (LEN 40.68, -0.34) was the first homebuilder to report its fourth quarter results. The report was generally positive as the company's earnings and revenue exceeded the Capital IQ consensus estimates. In addition, the company expects its full-year 2013 gross margins to be in-line with analyst estimates. Despite the upbeat earnings, Lennar settled lower by 0.8%. It should be noted the stock has added over 36% over the past five months, thus strong quarterly results have been largely priced-in. Other homebuilders showed intraday strength and finished generally higher as Lennar's results. Financials outperformed the broader market with ten sector components scheduled to report their quarterly results ahead of tomorrow's open. JPMorgan Chase (JPM 46.35, +0.47) was in the news today as the bank was ordered to improve its risk controls following last year's $6.2 billion derivative trading loss. JPMorgan Chase will report its fourth quarter earnings tomorrow and the Capital IQ consensus expects the financials to show year-over-year bottom line growth of 35%. The market will also receive quarterly results from Goldman Sachs (GS 135.59, -0.54) which are expected to show earnings of $3.40 on $7.67 billion in revenue. Several economic data points crossed the wires today. During November, business inventories rose by 0.3%, which was in-line with the Briefing.com consensus. Today's reading follows the prior month's uptick of 0.4%. December retail sales rose by 0.5%, which was better than the 0.2% increase that had been broadly expected. The revised prior month's reading pointed to an increase of 0.4%. Excluding autos, retail sales rose by 0.3%, which was in-line with the Briefing.com consensus. December producer prices decreased by 0.2%, which was cooler than the unchanged reading that had been widely forecast. Core producer prices rose by 0.1% which was cooler than the uptick of 0.2% expected by the Briefing.com consensus. The Empire Manufacturing Survey for January registered a reading of -7.8, which was up from the prior month's reading of -8.1. Economists polled by Briefing.com had expected that the Survey would rise to 2.0. In tomorrow's economic data, the weekly MBA Mortgage Index will be reported at 7:00 ET. December CPI and core CPI will both be released at 8:30 ET. At 9:00 ET, November net long-term TIC flows will hit the wires. December industrial production and capacity utilization will be reported at 9:15 ET while January NAHB Housing Market Index will cross at 10:00 ET. Lastly, the Federal Reserve will release its January Beige Book at 14:00 ET.

January 14, 2013
Today's session began on a lower note after pre-market weakness in Apple (AAPL 501.75, -18.55) weighed on the tech-heavy Nasdaq. Meanwhile, the S&P 500 marked its session low in the 1465 area an hour into the session. The benchmark index then reversed and spent the remainder of the session climbing back near its flat line before finishing with a slim loss. Apple lost 3.6% after being down as much as 4.5% during pre-market trade. The underperformance followed reports from the Nikkei and the Wall Street Journal, which indicated the largest tech company has cut its orders for iPhone 5 parts due to sluggish demand. The early selling pushed the stock below $500 for the first time in eleven months. A handful of Apple suppliers were also pressured by the news as Qualcomm (QCOM 64.24, -0.66) and Cirrus Logic (CRUS 28.62, -2.96) lost 1.0% and 9.4% respectively. Note that several analysts have come out in defense of Apple saying the story is not a recent development. Among other smartphone manufacturers, Research In Motion (RIMM 14.95, +1.39) remained in the spotlight. On Friday, the stock surged over 15.0% after photos of the new Blackberry 10 handset became available on the internet. Today, Research In Motion settled higher by 10.3%, which puts it 27.0% above Friday's opening price. Telecom stocks lagged the broader market after morning reports hinted at slowing Apple iPhone demand. The three major carriers which offer the device on their networks traded lower in response to the developments. AT&T (T 34.02, -0.25), Sprint Nextel (S 5.69, -0.23), and Verizon Communications (VZ 42.59, -0.71) saw respective losses of 0.7%, 3.9%, and 1.6%. Note that UBS downgraded Sprint and Verizon to 'Neutral.' In addition, JPMorgan Chase also downgraded Sprint to 'Neutral' from 'Overweight.' Dell (DELL 12.29, +1.41) was on the move today after Bloomberg TV reported the PC maker is in talks with private equity regarding a potential buyout. Dell surged 13.0% on the news, and several related names moved higher as well. Hewlett-Packard (HPQ 16.95, +0.79) and Seagate (STX 33.97, +0.68) saw respective gains of 4.9% and 2.0%. Discretionary stocks showed relative weakness in early trade, but the sector settled with slim gains. Amazon.com (AMZN 272.73, +4.79) was a notable advancer as the online retailer hit a fresh all-time high of $274.26. Harry Winston Diamond (HWD 15.08, +0.62) rose by 4.3% after the company agreed to sell its luxury brand diamond jewelry and timepiece division to the Swatch Group for $750 million. In addition, Swatch will assume up to $250 million of pro-forma net debt. V.F. Corporation (VFC 153.88, +4.88) advanced 3.3% after the company confirmed it has submitted a bid to acquire Billabong International for AUD1.10 per share. Financials underperformed and the SPDR Financial Select Sector ETF (XLF 17.06, -0.05) slipped 0.3%. The financial sector saw notable gains in recent weeks, but last Friday's earnings report from Wells Fargo (WFC 34.77, -0.33) failed to please investors. Though the bank exceeded analyst expectations on the top and the bottom line, a decrease in net interest margins and mortgage originations weighed. Today, the space traded lower with most majors scheduled to reveal their fourth quarter results this week. Looking at individual components, Bank of America (BAC 11.47, -0.16) and JPMorgan Chase (JPM 45.88, -0.26) lost 1.4% and 0.6% respectively. Looking at tomorrow's economic data, December retail sales, retail sales ex-auto, PPI, core PPI, and the January Empire Manufacturing Index will all be reported at 8:30 ET. Lastly, November business inventories will be released at 10:00 ET.