The Week In Review

10/18/13

The S&P 500 registered its third consecutive gain, rising 0.7% to extend its weekly advance to 2.4%. However, the Nasdaq (+1.3%) was today's standout as Google (GOOG 1011.41, +122.61) made a significant contribution to the relative strength of the tech-heavy index. Shares of Google surged 13.8% after the company surpassed earnings expectations by 37 cents.

Thanks to Google's surge, the tech sector settled in the lead with a gain of 1.8%. Even though the sector ended sharply higher, some other top members underperformed. Qualcomm (QCOM 68.40, -0.30) shed 0.4% and IBM (IBM 173.78, -1.05) fell 0.6% after plunging 6.4% yesterday. Chipmakers sat out the rally as Intel (INTC 23.88, -0.05) slipped 0.2% while the broader PHLX Semiconductor added 0.3%.

Outside of technology, the industrial sector (+1.1%) was the only group that ended with a gain larger than 1.0%. Top sector component General Electric (GE 25.55, +0.87) jumped 3.5% after beating earnings expectations by a penny on a 1.5% year-over-year decline in revenue. Transports also contributed to the sector's strength as the Dow Jones Transportation Average advanced 1.2%. Kansas City Southern (KSU 117.35, +4.19) was the top index component, rising 3.7% despite reporting a bottom-line miss.

Elsewhere, the energy space (+0.9%) outperformed with Schlumberger (SLB 93.99, +2.56) providing a measure of support after beating on earnings. Crude oil ended with a modest gain of 0.2% at $100.84 per barrel.

Also of note, the financial sector (+0.3%) underperformed even as Morgan Stanley (MS 29.69, +0.76) rose 2.6% after beating on earnings and revenue. JPMorgan Chase (JPM 54.30, +0.09) received a late-afternoon boost off its lows amid reports of the bank reaching a $4 billion settlement with the Federal Housing Finance Agency after the FHFA sought as much as $6 billion in damages. Even though financials lagged, the sector was the top performer of the week, rising 5.1%.

On the downside, the health care space (-0.4%) ended in the red. Intuitive Surgical (ISRG 376.52, -22.61) weighed following its top-line miss while biotechnology underperformed as well. The iShares Nasdaq Biotechnology ETF (IBB 206.78, -1.59) lost 0.8%.

Treasuries ended little changed with the 10-yr yield at 2.59%.

Trading volume was aided by options expiration as nearly 900 million shares changed hands on the floor of the New York Stock Exchange.

September existing home sales will be reported on Monday at 10:00 ET. On the earnings front, McDonald's (MCD 95.20, -0.27), Halliburton (HAL 52.47, +0.75), and SAP (SAP 73.75, +0.86) will report their quarterly results prior to the opening bell.

Week in Review: Equities Notch Fresh Record Highs as Government Shutdown Ends

On Monday, equity indices posted modest gains even as the agreement to end the partial government shutdown and extend the debt ceiling remained elusive. The S&P 500 added 0.4%. Stocks slumped at the open after the weekend ended without any concrete progress in Washington. Despite the opening weakness, dip-buyers were quick to step in, drawing encouragement from late-morning reports indicating a bipartisan meeting was scheduled to take place at the White House at 15:00 ET. The technology sector (+0.5%) fueled much of the session-long rebound as top components rallied. Netflix (NFLX 333.50, +3.40) also displayed strength, surging 7.8% after reports indicated the company is exploring making its service available through cable set-top boxes. The company also said it entered into a production deal with Sony (SNE 19.61, -0.42).

Tuesday saw the S&P 500 settle lower by 0.7% after contradicting headlines from Washington fostered volatile price action throughout the session. Equity indices displayed modest losses at the open, but were able to turn positive by late afternoon. The rebound was predicated on optimism associated with budget talks in Washington after Senate Majority Leader Harry Reid was quoted as saying 'tremendous progress' had been made. Selling pressure intensified during the final 90 minutes of the session amid headlines indicating the Senate has halted its negotiations pending the outcome of the House vote. California Senator Dianne Feinstein weighed in on the situation, saying budget talks have 'all fallen apart.' All ten sectors ended in the red with countercyclical consumer staples (-0.9%) and utilities (-1.4%) leading to the downside. Among staple stocks, Coca-Cola (KO 38.78, +0.23) lost 0.7% following its in-line earnings report.

On Wednesday, the S&P 500 settled higher by 1.4% with participants rushing into equities as Washington lawmakers appeared to be on the verge of striking a deal that would fund the government through January 15 while extending the debt ceiling until February 7, and maintaining the sequester. All ten sectors posted gains with financials (+2.2%) ending in the lead. The sector received support from Bank of America (BAC 14.63, -0.03) and PNC Financial (PNC 75.04, +0.36) after both banks reported bottom-line beats.

The major averages ended Thursday's session on a mixed note as the Dow shed just over two points while the S&P 500 added 0.7% to notch a fresh all-time high at 1,733.45. With the third quarter earnings season heating up, the Dow Jones Industrial Average was victimized by disappointing results from two market-moving names. Goldman Sachs (GS 158.69, +0.37) and IBM ended with respective losses of 2.4% and 6.4% after both reported bottom-line beats on light revenue. Goldman Sachs missed top-line estimates by roughly $500 million while IBM reported revenue $1 billion below analyst expectations. Shares of IBM weighed on the technology sector (-0.2%) while financials (+0.9%) were able to shake off Goldman's weakness with help from American Express (AXP 80.52, +0.29). The Dow component jumped 5.1% following its earnings beat.

DJIA +17.5% YTD
S&P 500 +22.3% YTD
Nasdaq +29.6% YTD
Russell 2000 +31.3% YTD