The Week In Review


February 15, 2013
The major averages ended today's session on a mixed note. The Dow added 0.1% while S&P 500 shed 0.1% after late-afternoon weakness pressured the index to its lows. Equities saw little change into the final two hours of trade when reports indicated Wal-Mart (WMT 69.30, -1.52) saw a slow start to its February sales. Bloomberg obtained emails from the company's vice president of finance and logistics who said "February [month-to-date] sales are a total disaster." The vice president also said this was the worst start to a month he has seen in his seven years with the company. Shares of Wal-Mart fell to session lows on heavy volume, but managed to recover a portion of their losses. In addition, the news weighed on other retailers. Target (TGT 61.71, -1.02) and Family Dollar (FDO 55.94, -0.67) saw respective losses of 1.6% and 1.2%. Meanwhile, the broader SPDR Retail ETF (XRT 67.47, -0.26) lost 0.4% after being up as much as 1.4% in earlier trade. The consumer staples sector saw activity throughout the day. This morning, Campbell Soup (CPB 39.40, +0.68) J.M. Smucker (SJM 92.40, +0.24), and Kraft Foods (KRFT 47.17, +0.01) reported earnings. All three names beat on the bottom line and Kraft was the only one of the three which missed on revenue. Consumer stocks fared relatively well into the afternoon and the discretionary sector was the top performer until the Wal-Mart news spilled over to several other retail names. Contributing to the early strength was an upbeat January consumer sentiment survey from the University of Michigan. According to the preliminary reading, the survey rose to 76.3 from its prior reading of 73.8. Today's report surprised to the upside as the consensus had expected the survey would climb to 73.5. While consumer stocks were in focus for the bulk of the day, the energy sector was the day's biggest laggard. The SPDR Energy Select Sector ETF (XLE 78.45, -0.91) lost 1.2% amid weakness in crude oil. The energy component fell 1.4% to $95.99. The CBOE Volatility Index (VIX 12.51, -0.15) settled in the red despite a brief jump into positive territory. However, the term structure of VIX futures reveals some buying interest at the distant end of the curve as June, July, September, and October contracts settled with slight gains. When the dust from today's active afternoonand not so active remainder of the daysettled, defensively-oriented sectors ended in the lead. Telecoms (+0.3%), utilities (+0.3%), health care (+0.2%), and consumer staples (+0.2%) outperformed while energy (-1.1%), financials (-0.3%), and technology (-0.1%) lagged. Today's volume represented the highest total of the week as 940 million shares changed hands on the floor of the New York Stock Exchange. However, February options expiration did its part to push the total above its 50-day average, which sits in the neighborhood of 700 million. Comments from this weekend's G20 summit taking place in Russia have begun making the rounds. Earlier, Jens Weidmann of Germany's Bundesbank said the euro is not overvalued and the European Central Bank President Mario Draghi is not talking down the common currency. Meanwhile, Mr. Draghi said euro exchange rate is not a policy target for the central bank. Looking at the day's remaining economic data, January industrial production decreased 0.1%, which was worse than the 0.2% uptick that had been expected by the consensus. Meanwhile, capacity utilization hit 79.1%, which was better than the 78.9% expected by the consensus. February Empire Manufacturing Survey climbed to 10.0 from its prior reading of -7.8. The report was a positive surprise as the consensus expected the survey to rise to 0.0. Lastly, net long-term TIC flows showed an inflow of $52.3 billion in foreign funds into USD-denominated assets during November.

February 14, 2013
At midday, the S&P 500 is seeing little change after overcoming early weakness. The benchmark index began the session on a lower note after several Eurozone economies reported disappointing fourth quarter GDP readings. France, Germany, Greece, and Italy all saw their economies contract during the final three months of 2012. In addition, Japan also reported a contractionary reading making it three negative quarters in a row. The disappointing data released across Europe caused weakness in the euro with the common currency seeing notable weakness against the dollar. In turn, this is contributing to the strength of the dollar index which trades higher by 0.5% at 80.50. Interestingly, crude oil, which is denominated in dollars, is rising as well. The energy component trades at $97.40 per barrel after notching its session high at $97.69. The rise in the price of crude is contributing to the outperformance of energy stocks. The energy sector is the top performer and the SPDR Energy Select Sector ETF (XLE 79.36, +0.68) trades higher by 0.9%. In addition to energy stocks, consumer staples have outperformed for the duration of the session. Sector component H.J. Heinz (HNZ 72.42, +11.94) is soaring 19.7% after Warren Buffet's Berkshire Hathaway (BRK.B 98.94, +0.97) agreed to acquire the food company for $28 billion, or $72.50 per share, representing a 20% premium. Remaining in the sector, Constellation Brands (STZ 43.58, +11.70) is jumping 36.7% after the company, along with Anheuser Busch Inbev (BUD 92.62, +4.36), announced a revised agreement for the divesture of the U.S. business of Grupo Modelo. Some of today's biggest decliners lie in the telecom space, which trades lower by 2.3%. Century Link (CTL 32.45, -9.25) is contributing to the notable weakness after missing on earnings and cutting its dividend. In addition, the stock received six downgrades after reporting its quarterly results. Although economic data overseas was plentiful, that was not the case here. The latest weekly initial jobless claims count totaled 341,000, which was lower than the 365,000 that had been expected by the consensus. The reading was a positive surprise but it remains unclear if today's figure was an aberration or a break from the 350,000-400,000 range observed for much of last year. Note that next week's report may see some distortions related to snowstorm Nemo.

February 13, 2013
The major averages finished today's session on a mixed note despite this morning's strength. The Dow slipped 0.3%, while the S&P 500 and Nasdaq eked out gains of 0.1% and 0.3% respectively. The S&P 500 began the day on an upbeat note amid strength in industrials and discretionary shares. The two sectors outperformed after Comcast (CMCSA 40.13, +1.16) reported strong earnings and announced the acquisition of General Electric's (GE 23.39, +0.81) 49% stake in NBCUniversal. General Electric gained 3.6%, and settled near its highs while Comcast added 3.0% after being up as much as 7.6% in early trade. General Electric contributed to the relative strength of the industrial sector, which ended as the top performer. Elsewhere in the space, 3D Systems (DDD 65.61, +2.54) advanced 4.0% after President Obama spoke positively about the three-dimensional printing industry during last night's State of the Union address. President Obama also called for an increase of the federal minimum wage to $9/hour. This proposal weighed on restaurant operators where many workers earn minimum wage. McDonald's (MCD 94.00, -1.10) lost 1.2% and other quick service restaurants lagged as well. Buffalo Wild Wings (BWLD 76.55, -4.52) fell 5.6% after missing on the bottom line. In addition, the company is expected to face a difficult year with high wing costs responsible for the cautious outlook. The weakness among restaurant stocks weighed on the discretionary sector and negated some of the strength provided by the shares of Comcast. Afternoon trade saw underperformance from financials after several sector components notched fresh multi-year highs yesterday. Bank of America (BAC 12.17, -0.07) and Citigroup (C 44.00, -0.35) led the space during yesterday's action, but ended today's session with respective losses of 0.6% and 0.8%. The CBOE Volatility Index (VIX 12.98, +0.34) climbed throughout the session, but slipped off its highs into the close. Meanwhile, the VIX term structure saw the biggest rise in May and June futures contracts. Volume remained below average, but today's total of 657 million shares represented the most active session so far this week. Treasury yields crept higher following today's 10-yr auction which priced at 2.046%, its highest since March 2012. The bid-to-cover ratio came in at 2.68, which was below the 12-auction average of 2.99. Although demand from indirect bidders lagged, primary dealers ended up with nearly 48% of today's supply. The 10-yr settled at 2.023%, its highest level in 10 months. Overseas, the Bank of England raised its inflation forecast. However, Governor Mervyn King said the central bank will not hike interest rates in response as doing so would risk derailing a "slow but sustained" recovery. Mr. King's comments were followed by reports which indicated some European Central Bank officials are worried the recent strength of the euro will hamper the recovery in crisis states. These reports were met with a quick rebuttal from Germany's Finance Minister Wolfgang Schaeuble who said another major crisis could develop if countries continue to flood the world with money. Currency-related comments are likely to continue through the weekend with the G20 summit set to begin on Friday. Today's economic news had little trading impact. December business inventories rose 0.1%, which was slightly lower than the 0.3% rise expected by the consensus. Elsewhere, January retail sales climbed 0.1%, in-line with expectations. Though retail sales met expectations, this report is likely to be watched in the coming months in order to assess the impact of the expiration of the payroll tax cut as well as higher tax rates for top earners. In other news, export prices, excluding agriculture, increased by 0.5% in January after they had decreased by 0.2% during the prior month. Excluding oil, import prices increased by 0.2%, which followed the 0.1% decrease experienced in the prior month.
Tomorrow's economic data will be limited to weekly initial and continuing claims. This report will be released at 8:30 ET. General Motors (GM 28.67, +0.12) and PepsiCo (PEP 71.50, -0.67) are among the notable names scheduled to report their quarterly results prior to the open. The U.S. Treasury will auction off $16 billion in 30-yr bonds.

February 12, 2013
Equities finished the day on a mixed note. The Dow climbed 0.3% and registered its highest close of the year while the S&P 500 added 0.2%, and Nasdaq shed 0.2%. The day got off to a slow start as the major averages spent the entire morning near their respective unchanged levels. However, key indices were able to climb to their highs in afternoon trade as financials paced the advance. The financial sector led throughout the session, and the S&P 500 Financials Index climbed above 240 for the first time since October 2008. Bank of America (BAC 12.24, +0.38) and Citigroup (C 44.35, +1.20) both gained near 3.0% to support the space. While financials led throughout the session, defensively-oriented telecommunication stocks spent the day in an upward climb and ended as the second best performing sector. With no market-moving economic data, traders turned to earnings as several consumer names reported their quarterly results. The discretionary sector outperformed after market participants responded favorably to earnings from Fossil (FOSL 110.65, +3.19) and Michael Kors (KORS 62.00, +5.00). Fossil advanced 3.0% after reporting in-line earnings on better-than-expected revenue. Meanwhile, the company's guidance reflected a recent pattern. Fossil warned against a slowdown in the first quarter, but left its full-year guidance intact. This indicates the company believes the latter part of the year will make up for expected first quarter softness. Elsewhere, Michael Kors spiked 8.8% after its earnings came in well ahead of expectations. The discretionary space was supported by upbeat earnings, but quarterly results had the opposite effect on consumer staples. Coca-Cola (KO 37.56, -1.05) settled lower by 2.7% after the beverage giant warned against continued global uncertainty. As consumer staples held slim losses throughout the day, afternoon trade saw relative weakness from technology stocks. The space was pressured by Apple (AAPL 467.90, -12.03), which lost 2.5%, after Chief Executive Officer Tim Cook did not hint at near-term changes to the company's dividend policy. Elsewhere, Qualcomm (QCOM 65.88, -1.30) dropped 1.9% after JPMorgan Chase downgraded the stock to 'Neutral' from 'Overweight.' Today's floor volume represented a marked improvement over yesterday's session, but it remained well below average as just over 610 million shares changed hands. Looking at the S&P 500 sector breakdown, financials (+0.8%) and telecoms (+0.6%) were the clear leaders while technology (-0.5%), health care (-0.2%), and consumer staples (-0.1%) brought up the rear. Overseas, world leaders are preparing for the G20 summit scheduled to take place in St. Petersburg later this week. Reports from the meetings will be closely watched as recent months have seen a rise in currency commentary. With Japan taking active efforts to weaken the yen and daily remarks from European officials suggesting what the "right" level for the euro should be, the summit is likely to produce some noteworthy quotes. Investors received just one economic report today and it came in the form of the January Treasury budget. This report pointed to a surplus of $2.88 billion, which was better than the deficit of $2.0 billion expected by the consensus. Note that President Barack Obama will give the first State of the Union address of his second term at 21:00 ET tonight. Looking at tomorrow's economic data, weekly MBA Mortgage Index will be reported at 7:00 ET. At 8:30 ET January retail sales, retail sales ex-auto, export prices ex-agriculture, and import prices ex-oil will all be released. Lastly, December business inventories will be announced at 10:00 ET. In notable earnings, Comcast (CMCSA 38.97, +0.33) and Deere (DE 93.97, +0.74) will report their quarterly results prior to the opening bell. The U.S. Treasury will auction off $24 billion in 10-yr notes.

Feb 11, 2013
The S&P 500 ended today's quiet session with a slim loss of 0.1%. Equities started the day amid mixed European trade where Italian and Spanish stocks trailed behind the remainder of the region. The relative weakness came amid continued political turmoil. In Italy, markets showed caution as Silvio Berlusconi speculated his party may be closing in on the lead ahead of the February 24/25 general elections. Meanwhile, Spanish equities underperformed as Prime Minister Mariano Rajoy continued facing increased scrutiny following allegations of having accepted secret payments from his party's slush fund. A weekend poll indicated almost 80% of all respondents have found Mr. Rajoy's explanations to be insufficient. As Italian and Spanish markets underperformed, their respective yields climbed higher. The Spanish 10-yr added six basis points to 5.43% while Italy's 10-yr yield rose seven basis points to 4.62%. While the two sovereign yields climbed higher, U.S. interest rates were little changed. The 10-yr yield eased fractionally to 1.946%. Like Treasury yields, U.S. equities saw little change during today's session. With no earnings or economic data of note, stocks drifted sideways throughout the day. Below average volume contributed to the uneventful trade as some traders were absent due to the aftermath of snowstorm Nemo. On the downside, the energy sector underperformed, and the SPDR Energy Select Sector ETF (XLE 78.19, -0.39) slipped 0.5%. Energy stocks spent the session near their lows despite an intraday spike in the price of crude oil. The energy component jumped to near $97.00 after comments from the president of Germany's Bundesbank resulted in dollar weakness, thus helping the dollar-denominated crude. The greenback lost ground to the euro after Mr. Weidmann said there is "no indication euro is seriously overvalued." While energy stocks were unable to lift off their lows, the defensively-oriented utilities spent the day in a steady climb. The SPDR Utilities Select Sector ETF (XLU 36.78, +0.09) added 0.3% amid relative strength from electricity producers. Exelon (EXC 31.42, +0.34) settled higher by 1.1%. Though utilities registered modest gains, the financial sector was the top performer. The space hovered near its highs thanks to relative strength of major components. Citigroup (C 43.15, +0.47), Wells Fargo (WFC 35.26, +0.38), and U.S. Bank (USB 34.09, +0.44) all gained in excess of 1.0%. Prior to the open, Wells Fargo and U.S. Bank were upgraded to 'Buy' at Stifel Nicolaus. In sector news, Nasdaq (NDAQ 30.38, +0.91) rose 3.1% after reports indicated the exchange has held preliminary talks with Carlyle Group regarding a possible deal to go private. However, negotiations have stalled over a purchase price. Looking at the S&P 500 breakdown, financials (+0.4%), utilities (+0.2%), and technology (+0.1%) saw relative strength. Meanwhile, energy (-0.6%), consumer discretionary (-0.3%), and materials (-0.2%) lagged. Tomorrow's economic data will be limited to the January Treasury budget. This report will be released at 14:00 ET. Among notable earnings, Avon Products (AVP 17.28, +0.43) and Coca-Cola (KO 38.61, -0.16) will report their quarterly results ahead of the open. The U.S. Treasury will auction off $32 billion in 3-yr notes.