The Week In Review
1/31/14
The stock market ended a disappointing month on a lower note as the S&P 500 lost 0.7%, extending its January decline to 3.6%. The Nasdaq outperformed, falling 0.5%, while the Dow Jones Industrial Average slid 1.0%.Equities began the session sharply lower but a day-long rebound helped the major averages finish the trading day with more palatable losses. The S&P 500 made a very brief afternoon appearance in positive territory before retreating again in the final hour.
Today's cash session kicked off amid significant weakness in Europe where markets were flirting with losses close to 2.0%. The region-wide weakness was led by Germany after the country saw a 2.4% year-over-year drop in retail sales (+1.9% expected). A disappointing CPI reading for the eurozone (+0.7% versus 0.9% consensus) also played a part in the weakness.
Furthermore, the early selling once again coincided with yen strength as dollar/yen dropped as low as 102.00 before staging a modest recovery which accompanied the rebound in equities. Fittingly, the final hour retreat in stocks was accompanied another rally in the yen. Yen futures added 0.5% on Friday, extending their January gain to 3.0%.
Seven of ten sectors ended in the red with energy (-1.5%) seeing the largest decline. The sector was pressured by Dow component Chevron (CVX 111.63, -4.82), which tumbled 4.1% following disappointing earnings. The broader energy sector ended January behind the remaining nine groups with a loss of 6.3%.
Meanwhile, the second-weakest sector of the month, consumer discretionary, lost 1.3%, extending its January decline to 6.0%. The sector was a significant source of the morning weakness as Amazon.com (AMZN 358.69, -44.32) plunged 11.0% following its disappointing earnings and cautious guidance.
Despite the sharp loss in Amazon.com, the discretionary sector was able to climb off its lows with help from Chipotle Mexican Grill (CMG 551.96, +58.00) and homebuilders. Chipotle spiked 11.7% after reporting in-line earnings while iShares Dow Jones US Home Construction ETF (ITB 24.82, +0.43) added 1.8% as Treasury yields continued their retreat (10-yr yield -4 bps to 2.66%).
With regard to other cyclical groups, financials (-1.1%) lagged while industrials (-0.5%), materials (-0.6%), and technology (+0.2%) outperformed.
Notably, the tech sector drew strength from Google (GOOG 1180.97, +45.58), which jumped 4.0% after reporting earnings. Although the company missed its Capital IQ earnings estimate by $0.28, investors were pleased to see a 13% quarterly increase in click revenue.
On the countercyclical side, consumer staples (-0.4%), telecom services (+0.1%), and utilities (+0.8%) outperformed while health care (-0.8%) lagged.
Participation was well above average, which was likely related to month-end activity as 937 million shares traded at the NYSE.
Monday's data will be limited to the New Home Sales report for December, which will be released at 10:00 ET. It is also worth mentioning that China will release its Manufacturing PMI tonight at 20:00 ET, which is likely to generate a reaction in global markets on Monday. The general consensus expects the reading to slip from 51.0 to 50.5.
Nasdaq Composite -1.7% YTD
Russell 2000 -2.8% YTD
S&P 500 -3.6% YTD
Dow Jones Industrial Average -5.3% YTD
Week in Review: Stocks Endure Volatile Week
On Monday, the major averages followed the sharp losses of the prior week with another shaky performance. The Dow Jones Industrial Average and S&P 500 posted respective declines of 0.3% and 0.5% while the Nasdaq (-1.1%) and Russell 2000 (-1.5%) underperformed. Stocks displayed gains at the open but the early strength faded during the initial hour as the Nasdaq headed into the red. The other indices followed suit and the broad retreat continued until about 12:20 ET when stocks reversed, and spent the afternoon in a steady climb. Moderate selling pressure returned during the final hour, knocking the indices off their afternoon highs. Although there was no news responsible for the turn, the morning selling coincided with a strengthening yen while the session low in equities matched the high point for the Japanese currency. Once the yen began weakening again, a rally in equities ensued. Similarly, the selling observed during the last 30 minutes of action coincided with the yen gaining strength once again.
The stock market halted its three-day slide on Tuesday as the S&P 500 gained 0.6%. The tech-heavy Nasdaq (+0.4%) also finished in the green, but couldn't keep pace with the S&P 500 as Apple weighed following its quarterly report. Although the largest tech company beat on earnings and revenue, investors were not pleased by below-consensus iPhone sales. In addition, disappointing guidance for the second quarter also factored into the stock's 8.0% loss. The remainder of the technology sector (-0.7%) was a bit more mixed as large-cap names like Google, Oracle, and Intel posted solid gains while Seagate tumbled 11.3% after missing earnings estimates. Outside of technology, most other cyclical groups finished ahead of the broader market with financials (+1.3%) ending in the lead.
Selling pressure returned on Wednesday as equities ended broadly lower with small caps leading the weakness. The Russell 2000 lost 1.5% while the S&P 500 fell 1.0% as nine of ten sectors finished in the red. Although the session generated plenty of excitement, some of the events that played out over the course of the day were set in motion on Tuesday. Shortly after Tuesday's session on Wall Street ended, the Central Bank of Turkey shocked the market with a 445-basis point hike to 12.00% in an attempt to halt the rapidly weakening lira. The move worked...for 15 hours. The lira strengthened after the announcement, but spent the remainder of the overnight session in a steady retreat, giving up all of its gains. Interestingly, the news of out of Turkey also gave a boost to U.S. equity futures while weighing on the yen. The moves did not hold as futures spent the night in a steady retreat while the yen rallied. The materials sector (+0.5%) withstood the broad-based weakness with help from Dow Chemical, which rallied 4.1% after beating on earnings.
On Thursday, the major averages finished near their highs with the Nasdaq surging 1.8% while the S&P 500 gained 1.1% as all ten sectors ended in the green. Stocks jumped out of the gate and continued climbing steadily into the early afternoon. The S&P 500 notched a session high of 1798.77 just before 13:00 ET, and spent the rest of the trading day near that level. The upbeat start to the session was aided by overnight gains in index futures which rallied while the Japanese yen weakened. The futures market received an additional boost an hour before the cash open when it was reported that fourth quarter GDP rose 3.2%, per the advance estimate. The Nasdaq Composite spent the entire session in the lead with the likes of Amazon.com, Google, Facebook, and Qualcomm providing support. Amazon.com and Google rallied ahead of their earnings while Facebook and Qualcomm posted respective gains of 14.1% and 3.0% after reporting better-than-expected results.