The Week In Review


March 1, 2013
Stocks finished the first session of the month on a positive note despite showing early weakness. The downbeat start took place as the markets digested disappointing PMI readings from China and the United Kingdom. In China, the country's manufacturing PMI slipped to 50.1 from the 50.2 reported in the flash reading. The report was notable as PMI fell back to 50, a level which draws a line between contraction and expansion. Meanwhile, the United Kingdom saw its PMI slide to 47.9 while the general consensus had expected a reading of 51.0. The disappointing report weighed on European markets as well. Also note the British pound slid to a fresh multi-year low following the data. Combined with euro softness, the weakness in the sterling pushed the dollar index higher. The greenback held the bulk of its gains throughout the day and settled higher by 0.4% at 82.27. The cautious overseas trade carried over into the start of the U.S. session. However, bargain hunters were quick to scoop up shares at a perceived discount even as all indications suggested the sequester will hit tonight at midnight. Interestingly, the financial sector was the biggest laggard at the start, but ended among the day's top performers. Bank of America (BAC 11.34, +0.11) was the top performer among the majors while the SPDR Financial Select Sector ETF (XLF 17.64, +0.05) added 0.3%. The financial space was not the only cyclical sector which outperformed. Consumer discretionary shares saw strength among retailers after both Gap (GPS 33.87, +0.95) and Deckers Outdoor (DECK 46.62, +6.21) beat on earnings. Additionally, Gap topped off its earnings report with a 20% dividend hike to $0.60 per share. Best Buy (BBY 17.16, +0.17) was another sector component which outperformed on better-than-expected earnings. However, the company warned it expects to face significant first quarter pressure and said founder Richard Schulze has ended his attempt to purchase the retailer. Consumer discretionary and financials were the only cyclical sectors which outperformed. Growth-sensitive technology stocks lagged behind the broader market and the largest sector component, Apple (AAPL 430.47, -10.93), lost 2.5%. Meanwhile, chipmakers also saw relative weakness with the PHLX Semiconductor Index settling lower by 0.4%. (CRM 182.00, +12.78) was a notable sector outperformer after the business software company beat on its bottom line. Energy stocks also lagged, and spent the duration of the day in negative territory as weakness in the price of crude contributed to the underperformance. The energy component lost 1.2% and settled just under $91.00. Looking back at the S&P 500 sector performance, health care (+0.8%), consumer discretionary (+0.6%), telecom (+0.4%), and consumer staple (+0.3%) finished ahead of the broader market. Meanwhile, industrial (-0.3%), energy (-0.2%), and technology (+0.1%) underperformed. Volume was right in-line with average as 731 million shares changed hands on the floor of the New York Stock Exchange. Economic data released today was plentiful. Personal income fell 3.6% in January after increasing 2.6% in December. The consensus expected income to fall 2.4%. The expiration of the payroll tax cut and the giveback following the December boost to asset receipts were expected to lower income levels in January. Those two components accounted for 3.5 percentage points of the January pullback. More concerning was that the remainder of the decline in income was the result of a 0.4% drop in employee compensation. The final reading of the February University of Michigan Consumer Sentiment Index improved to 77.6 from a preliminary reading of 76.3. Construction spending took a sizable hit in January as spending fell 2.1% after increasing an upwardly revised 1.1% (from 0.9%) in December. The consensus expected construction spending to increase 0.5%. Both private (-2.6%) and public (-1.0%) spending contracted in February. Manufacturing activity strengthened in February as the ISM Manufacturing Index increased from 53.1 in January to 54.2. That is the strongest reading since June 2011.

February 28, 2013
Equities ended February on a negative note as the S&P 500 settled with a slim loss of 0.1%. The key averages saw some morning indecision but late afternoon buying pushed the benchmark index to session highs before the index surrendered its gains. Stocks opened the session amid some initial chop which followed a worse-than-expected second estimate of fourth quarter GDP. The slim 0.1% annualized growth followed a 0.1% contraction reported in the preliminary reading. However, the reading missed expectations as the consensus had expected growth of 0.5%. One positive element could be found in real final sales, which were revised up to 1.7% from the 1.1% reported in the advance reading. In addition to the GDP report, J.C. Penney's (JCP 17.57, -3.59) quarterly earnings caught the attention of investors in early trade. Shares of the retailer plunged 17.0% after the company reported a loss of $1.95 on below-consensus revenue. In response, S&P cut the company's debt rating to 'CCC+' from 'B-' and assigned a negative outlook. In other retail earnings, Kohl's (KSS 46.10, -0.51) and Limited (LTD 45.52, +1.02) beat on their respective bottom lines. However, both names issued cautious guidance. The consumer discretionary sector ended little changed, which was good enough to outperform the broader market. However, the space was not joined by the remaining cyclical sectors. Instead, defensively-oriented telecom and utilities garnered buying interest throughout the session. The cyclical basic materials space was an exception as the sector continued its rebound from the weakness dating back to last Wednesday. The SPDR Materials Select Sector ETF (XLB 38.49, +0.07) settled higher by 0.2% amid strength in chemical producers. With most cyclical sectors underperforming, financials traded in tentative fashion throughout the day. Bank of America (BAC 11.23, -0.07) and JPMorgan Chase (JPM 48.92, -0.36) both lost near 0.6% while the SPDR Financial Select Sector ETF (XLF 17.59, -0.03) shed 0.2%. As stocks settled with slim losses, the CBOE Volatility Index (VIX 15.51, +0.78) climbed higher. Looking across the VIX term structure revealed buying interest in front month contracts on VIX futures. Reviewing S&P 500 sector performance, utilities (+0.2%), materials (+0.2%), and telecom (+0.1%) outperformed while technology (-0.2%), financials (-0.2%), and health care (-0.1%) trailed behind the broader market. Looking back at the day's remaining economic data, initial claims for the week ending February 23 declined by 22,000 to 344,000 ( consensus 360,000). This was a supportive headline number, dropping initial claims below the range of 350,000-400,000 where they have been bounded for most of the last year. However, it will take several weeks of claims below that range to conclude a new lower bound is being established. Also of note, the February Chicago PMI reading of 56.8 surprised to the upside as economists surveyed by had generally expected a reading of 54.0 to follow the prior month's revised reading of 55.6. In tomorrow's economic data, January personal income, personal spending, and core PCE prices will all be reported at 8:30 ET. At 9:55 ET, the final February Michigan Consumer Sentiment Survey will be released. Finally, January construction spending and February ISM Index will both cross the wires at 10:00 ET. Among earnings of note, Best Buy (BBY 16.41, -0.19) will report its quarterly results ahead of the open.

February 27, 2013
Today's session saw an extension of yesterday's buying as the S&P 500 managed to erase the remainder of its losses from Monday. The broad rally occurred with six of 10 sectors adding in excess of 1.0%. Cyclical stocks led the way with industrials and materials exhibiting relative strength from the start of the session. Today's economic data provided some support as January pending home sales rose 4.5%, which was ahead of the 1.0% increase that had been expected by the consensus. In addition to January pending home sales, the market received news of durable goods orders for the same month. Although the headline number fell 5.2%, this was due to a 45.7% drop in defense and nondefense aircraft orders. Excluding transportation, orders rose a solid 1.9% in January. Industrial shares led throughout the day. This was aided by the strong performance from transportation related stocks, which pushed the Dow Jones Transportation Average to a gain of 2.9%. Elsewhere in industrials, Joy Global (JOY 63.45, +3.49) jumped 5.8% after its quarterly report beat on earnings and revenue. Basic materials also finished near the lead after lagging notably in recent sessions. Today, material producers rallied broadly with miners as the lone weak spot. The SPDR Materials Select Sector ETF (XLB 38.42, +0.67) gained 1.8%. The outperformance of cyclical stocks was also reflected by the consumer discretionary sector where homebuilders climbed on the back of the pending home sales report. Although this report does not have a direct impact on new homes, strong existing sales can be seen as a positive indicator of demand for new properties. The SPDR S&P Homebuilders ETF (XHB 28.37, +0.60) rose 2.2%. Monday's downturn was sparked by fears that political uncertainty in Italy will upset the recent recovery observed in sovereign debt markets. This expectation caused investors to shun financial shares which exhibit heightened sensitivity to political and market fluctuations. However, today's rebound saw money return to the sector. JPMorgan Chase (JPM 49.28, +1.68) was the best performer among the majors, and the SPDR Financial Select Sector ETF (XLF 17.62, +0.27) gained 1.6%. As the recent wave of investor fear was leaving the market, Federal Reserve Chairman Ben Bernanke did his best to help chase it away. Earlier today, the Fed Chair concluded his bi-annual, two-day testimony before Congress. Appearing in front of the House Financial Services Committee, the Chairman continued stressing the benefits of the Fed's asset purchase plan. Today's testimony was largely a carbon copy of yesterday's remarks which confirmed the Federal Reserve's desire to continue its easy money policy. Reviewing S&P 500 sector performance, industrials (+1.9%), materials (+1.7%), and financials (+1.6%) settled in the lead while technology (+0.9%), telecoms (+0.9%), and utilities (+0.9%) trailed behind the broader market. Today's volume was below average as just over 670 million shares changed hands on the floor of the New York Stock Exchange. Notably, today's final tally represented the lowest total since February 14. Looking at tomorrow's economic news, weekly initial and continuing claims, as well as the second estimate of fourth quarter GDP will all be reported at 8:30 ET. The day's economic data will be topped off with the 9:45 ET release of the February Chicago PMI.

February 26, 2013
The S&P 500 ended today's session with a gain of 0.6% despite enduring some early weakness. The benchmark average started the day on a positive note with upbeat economic data proving insufficient in staving off the early selling pressure. However, markets staged a rebound in afternoon trade with the key indices climbing to fresh highs. Consumer discretionary stocks were among today's top performers, largely due to upbeat February consumer confidence, which was reported at 69.0. In addition, January new home sales of 437,000 were reported well ahead of the consensus. The strong housing data coupled with a healthy rise in December home prices provided support for homebuilders. DR Horton (DHI 22.25, +0.88) and Lennar (LEN 38.01, +1.35) both gained near 4.0%, and the broader SPDR S&P Homebuilders ETF (XHB 27.77, +0.80) advanced 3.0%. Discretionary shares also received support after Home Depot (HD 67.56, +3.64) reported better-than-expected earnings and revenue. In addition, the company hiked its quarterly dividend by 34% to $0.39/share and authorized a $17 billion share repurchase program. The Dow component jumped 5.7%, contributing to the relative strength of the blue chip average. While discretionary shares outperformed, consumer staples finished as one of the weakest sectors. Tyson Foods (TSN 22.40, -0.86) slipped 3.7% after saying margin compression has taken a bite out of its beef and pork segments. Meanwhile, United Natural Foods (UNFI 50.45, -2.55) slid 4.8% after guiding on the low end of analyst estimates, citing rising costs. The materials sector has been one of the weakest performers dating back to last week, but the space led today's rebound. The SPDR Materials Select Sector ETF (XLB 37.75, +0.40) gained 1.1% amid outperformance from chemical and paper producers. Monsanto (MON 99.20, +1.11) advanced 1.1% and International Paper (IP 42.75, +0.96) climbed 2.3%. Similar to materials, the financial sector has shown notable sensitivity to the market swings of recent days. With exposure to Italian and other sovereign debt, a rise in political uncertainty runs the risk of turning into financial instability. Today, bank stocks trailed behind the broader market and the SPDR Financial Select Sector ETF (XLF 17.35, +0.09) added 0.5%. Floor volume at the New York Stock Exchange was slightly above average as 772 million shares changed hands. Notably, today's session saw thinner volume than yesterday's sell off with the Tuesday total also running behind high volume sessions of last week. With the focus remaining on Italy, concerns over the country's near-term future were also brought up during today's Humphrey-Hawkins Testimony. Speaking before the Senate, Fed Chairman Ben Bernanke said that a need to write-down Italian debt would not inflict serious damage on U.S. financial institutions. The rest of Mr. Bernanke's remarks at today's testimony have struck a now-familiar tone. The Chairman highlighted the perceived benefits of current monetary policy but also acknowledged very low interest rates could push portfolio managers into a "reach for yield," thus causing them to assume outsized risk. Regarding the March 1 implementation of automatic spending cuts known as the "sequester," the Chairman does not expect to see an immediate impact, but foresees a build-up of effects over time. In tomorrow's economic data, the weekly MBA Mortgage Index will be reported at 7:00 ET. At 8:30 January durable goods and durable goods ex-transportation will be released. The day's economic data will be topped off with the 10:00 ET release of January pending home sales. Also at 10:00 ET, Fed Chairman Ben Bernanke will testify before the House Financial Services Committee, concluding the two-day event. On the earnings front, Joy Global (JOY 59.96, +0.26) and Target (TGT 64.05, +1.16) are scheduled to report their quarterly results before the opening bell.

February 25, 2013
Equities endured a broad sell off which saw the S&P 500 drop 1.8%. Bearish sentiment built into the afternoon as the likely deadlock in the Italian general election weighed on markets. Stocks got off to a broadly higher start as early "instant polls" suggested Pier Luigi Bersani, who is a supporter of reforms started by Mario Monti, was destined for full control of the government. This was welcomed by European markets, which rallied broadly and saw Italy's MIB climb 4.0%. The risk-on bias was confirmed by the bond market where Italian bonds were bid, and the 10-yr yield slid 27 points. However, once the initial reports were followed by exit polls indicating a much closer race, European markets surrendered the bulk of their gains. Italian yield climbed back into positive territory, and U.S. equities slid off their opening highs. As of the U.S. close, official results remain unclear. The financial sector was the day's weakest performer due to its heightened sensitivity to sovereign debt. In addition, banks are one of the main lines of defense in the face of economic or political uncertainty. The SPDR Financial Select Sector ETF (XLF 17.26, -0.48) shed 2.7% and Morgan Stanley (MS 22.03, -1.55) was the weakest performer among the majors. Meanwhile, Goldman Sachs (GS 147.65, -6.44) lost 4.2% after Reuters reported the investment bank will begin a fresh round of job cuts later this week. In addition to financials, other cyclical sectors underperformed as well. The materials space saw weakness for the majority of last week and today's selling caused the sector to turn negative for the year. Overnight, China's HSBC Manufacturing PMI fell short of expectations, suggesting the country's continued economic growth may face some challenges. Combined with the upcoming implementation of automatic spending cuts known as the "sequester," these developments weighed on industrial shares. Dow component Caterpillar (CAT 89.16, -2.38) settled lower by 2.6%. In industrial earnings, 3D Systems (DDD 34.65, -3.32) lost 8.7% after reporting mixed earnings. Although the company beat on the bottom line, its revenue fell short of analyst expectations. In addition, the company guided full-year earnings which may not compare to estimates due to the inclusion of the Geomatic acquisition. With cyclical stocks leading to the downside, defensively-oriented sectors registered slimmer losses than the broader market, but only telecom was able to avoid losing more than 1.0%. Today's selling caused the CBOE Volatility Index (VIX 19.18, +5.01) to jump over 35.0% and climb above its 200-day moving average. In addition, the near-term volatility measure ended at its highest level of the year. A safe-haven bid sent the 10-yr yield lower by 10 basis points to 1.87%. Volume was heavy, and accelerated into the close as nearly 820 million shares changed hands on the floor of the New York Stock Exchange. Today's tally marks the highest total of the year, eclipsing last Wednesday's 816 million. In the foreign exchange market, the euro endured a busy session which saw the common currency gain as much as 100 pips versus the dollar in early trade. However, those gains were built on the expectations of a clear win by Pier Luigi Bersani. Since the initial polls came into question, the common currency has turned negative, and is now shedding 100 pips against the greenback. Tomorrow, December Case-Shiller 20-city Index and the FHFA Housing Price Index will both be reported at 9:00 ET. In addition, January new home sales and February consumer confidence will be announced at 10:00 ET. Another event on the horizon is tomorrow's Humphrey-Hawkins testimony. This is the two day bi-annual testimony held by the Fed Chairman. Mr. Bernanke will testify in front of the Senate on Tuesday and the House on Wednesday.