Market Monitoring – 05 May 2014

Edited by Vani Rao

US Stock Markets Fall on Escalating Geopolitical Concerns

Dow ends down 0.28% despite stronger-than-expected jobs report

Fears of an escalating Ukraine crisis that is expected to worsen further overshadowed an upbeat US April jobs report and sent stocks falling on Friday, May 2, 2014.

Source: Bloomberg
Source: Bloomberg

A surprisingly stronger-than-expected jobs report lifted both the S&P 500 and the Dow Jones Industrial Average to record levels, but the rally proved to be short-lived.

The S&P 500 ended the day 2.54 points, or 0.13%, lower at 1,881.14 and gained 1% over the week.

The Dow Jones Industrial Average lost 45.98 points, or 0.28%, to end at 16,512.89, but still recorded a gain of 0.9% over the past week.

The Nasdaq Composite Index finished the day 3.55 points, or 0.9%, lower at 4,123.90 and gained 1.2% over the week.

MMM pic 2Seven sectors registered losses, with Utilities (-1.98%) leading the retreat. This was a bit peculiar considering that the rate-sensitive sector tends to benefit from lower Treasury yields. The selling may have been a function of some profit taking inside of a sector, which remains well ahead of the other groups so far in 2014. The losses narrowed the sector’s year-to-date gain to 11.7%, while the second-best performer of the year, Energy, ended the session with a 5.3% advance so far this year.

Source: WSA
Source: WSA

Outside of the two commodity-linked sectors, the Consumer Discretionary sector (+0.30%) was the only other advancer.

Movers & Shakers

LinkedIn Corp. (NYSE: LNKD) slumped on Friday after dismal quarterly results, LinkedIn shed 7.1%. The social networking company said late Thursday that it swung to a loss of 11 cents a share from a profit of 20 cents a share a year ago. On an adjusted basis, LinkedIn earned 38 cents a share, better than the 34 cents a share forecast by analysts.

Ares Management (NYSE:ARES) slid 3.5% to $18.33 on its first day of trading. The alternative lender priced its initial public offering of 11.4 million shares at $19 a common share. Ares plans to use the proceeds of the IPO to buy newly issued Ares Operating Group Units, to repay debt, and finance growth projects.


Wynn Resorts Ltd.’s (NASDAQ:WYNN) shares rose 6.5%. The company said late Thursday that its first quarter adjusted earnings rose to $2.32 a share from $2.03 a share as net revenue increased 9.8% to $1.51 billion. The casino operator’s results topped analyst expectations.

Motorola Solutions Inc.’s (NYSE:MSI) shares climbed 4.9%. The stock had dropped 1.5% on Thursday after it reported its first-quarter profit dropped to 49 cents a share from 68 cents a share a year earlier.

Estee Lauder Cos. (NYSE:EL) climbed 4.75% after the beauty-products company on Friday said that it fiscal third-quarter profit rose to 54 cents a share from 45 cents a share a year earlier. Excluding special items, earnings came in at 64 cents a share.


DaVita HealthCare Partners Inc.’s (NYSE:DVA) shares fell 3.9%. The kidney dialysis provider on Thursday reported first-quarter earnings of 85 cents a share, on an adjusted basis, slightly below the 86 cents a share expected by Wall Street.

Expedia Inc.’s (NASDAQ:EXPE) shares fell 3.3%, among the worst S&P 500 performers. The online travel site late Thursday reported that its first-quarter losses narrowed to $14.3 million, or 11 cents a share, from losses of $104.2 million, or 77 cents a share, a year ago. Excluding items, Expedia earned 16 cents a share, topping analysts’ average estimate of 14 cents a share.

InvenSense Inc.’s (NYSE:INVN) shares skidded 4.66%. The company said late Thursday it swung to a fiscal fourth-quarter loss of $5.6 million, or 6 cents a share, from a year-earlier profit of $13.6 million, or 15 cents a share. Net revenue rose to $59 million from $55.2 million.


Yields on 30-year bonds dropped to their lowest value in more than 10 months for a fourth straight session as concerns about Russia and Ukraine overshadowed an upbeat US employment report. The 30-year bond rose 22/32, yielding 3.37%. The 10-year notes were up 4/32 to yield 2.59%.

Currency traders briefly boosted the dollar on news of surprisingly strong hiring that took the US unemployment rate in April to a 5-1/2-year low before surrendering the gains on data. This shows that many Americans were exiting the labor force. The dollar index edged lower 0.02% at 79.51. The dollar fell 0.10% against the yen to 102.22 yen. The euro edged up 0.01% against the dollar at $1.3870. The British Pound Sterling was down 0.09% against the dollar at $1.6875.

Oil rose as traders covered short positions after a week of sell-offs and fighting intensified between Ukraine and pro-Russian rebels. The positive April jobs report also supported crude prices. Oil advanced 0.38% to $99.80 a barrel.

Gold rose more than 1%, its biggest daily gain in two months, as rising geopolitical tensions and heavy short-covering helped the bullion reverse an initial sharp sell-off after mixed US job data. Traders said gold’s ability to hold above key technical support at $1,275 an ounce set the stage for reversing initial heavy losses that followed after data showed that US job growth had increased in April at its fastest pace in more than two years. Spot gold was up 1.14% at $1,298.11 an ounce. Gold futures for June delivery gained 1.18% to $1,298.40 an ounce.

Economic Front

US job growth jumps, but shrinking labor force is a blemish

Employers hired workers at the fastest clip in more than two years in April, pointing to a rebound in economic growth after a dreadful winter and keeping the Federal Reserve on track to end bond purchases this year. The brightening outlook was, however, marred somewhat by a sharp increase in the number of people dropping out of the labor force. This in turn pushed the unemployment rate to a 5-1/2 year low of 6.3%. Non-farm payrolls surged 288,000 last month, the US Labor Department said. About 806,000 people dropped out of the labor force in April. That helped to push down the unemployment rate 0.4 percentage points to its lowest level since September 2008.

Seasonally adjusted unemployment rate

Source: Bureau of Labor Statistics
Source: Bureau of Labor Statistics

Separately, the US Commerce Department said new orders for manufactured goods increased 1.1%. The department also said orders for durable goods increased 2.9% instead of the previously reported 2.6% rise.

Earnings Releases

Crude oil reliance dents Chevron’s profit

Sliding production and weak crude oil prices hampered Chevron Corp. (NYSE:CVX) in the first quarter, causing the second-largest US oil producer to report a profit well below Wall Street’s expectations. Chevron, unlike other large energy companies, derives a larger portion of its US profit from crude oil than natural gas. That has generally helped the company in the past few years when natural gas prices were near 10-year lows. Meanwhile, Chevron’s average selling price for two key types of crude oil fell 4%. The company posted net income of $4.51 billion, or $2.36 per share, compared with $6.18 billion, or $3.18 per share, in the year-ago quarter. Analysts, though, expected earnings of $2.51 per share. Globally, Chevron’s production fell 2% to 2.59 million barrels of oil equivalent per day during the quarter under review.

CVS profit misses target as general merchandise sales fall

CVS Caremark (NYSE:CVS) reported weaker-than-expected quarterly profits on a sharp drop in sales of general merchandise during the first quarter FY2014. The drugstore chain blamed the drop in sales on a harsh winter, milder flu season, and aggressive competition. Sales of merchandise sold at the front of its stores open for at least a year fell 3.8% in the first quarter. The company earned $1.13 billion, or 95 cents per share, in Q1, up from $954 million, or 77 cents per share, a year earlier. Adjusted profit was $1.02 per share, 2 cents below analysts’ estimates. Total revenue rose 6.3% to $32.69 billion during the quarter under review.

Coming up in the Next Week

Economic Releases

Two important data releases next week will determine whether the first quarter’s dismal 0.1% annual growth pace is revised to show a contraction or raised to show modest growth pace. March’s trade report from the US Commerce Department on Tuesday, May 6, 2014, is expected to show that the trade deficit narrowed to $40.4 billion from $42.3 billion in February. On Friday, the US Commerce Department will also release wholesale inventory data for March. Wholesale inventories are forecast to rise 0.5% after increasing 0.5% in February.

The Eurozone monetary policy is likely to remain steady when the Governing Council of the European Central Bank meets on Thursday, May 8, 2014.

Surveys on services industries from the Institute for Supply Management and financial data firm Markit are expected to fit in with the theme of accelerating growth in the second quarter on Monday, May 5, 2014.

Earnings Releases

Investors are expecting an action-packed day on Monday, May 5, 2014, as Pfizer Inc. (NYSE: PFE) reports first-quarter earnings. For the first time, the biggest US drugmaker will break out separate financial resultsfor each of its three main businesses in a prelude to possibly divesting one or more of them by 2017. All eyes and ears will also be trained on Pfizer for possible updates on progress, or lack thereof, in its hot unsolicited pursuit of British rival AstraZeneca.

Sports juggernaut ESPN and the blockbuster movie “Frozen” are expected to lift Walt Disney Co.‘s (NYSE:DIS) second-quarter earnings on Tuesday, May 6, 2014. Analysts expect Disney to report earnings per share of 95 cents for the quarter that ended March, up from 79 cents a year earlier.

Rupert Murdoch’s Twenty-First Century Fox (NASDAQ:FOXA), the television and film company that split from News Corp. last June, is expected to report third-quarter earnings on Wednesday, May 7, 2014. The company reported higher revenue in the previous quarter, driven by growth at its cable networks and its European satellite business. (NASDAQ:PCLN), the online travel agency, is expected to report higher first-quarter profit on Thursday, May 8, 2014 as its top brand,, reported grew in the US. The company faces intense competition in the online space, but has growth opportunities because of its sizable presence in the emerging markets.

Regeneron Pharmaceuticals (NASDAQ:REGN), whose eye drug has become one of the fastest growing medicines in the history of biotechnology, is scheduled to report first-quarter results on Thursday, May 8, 2014. Investors will be looking for changes in the company’s 2014 sales forecast for Eylea, as the company has said it expects the drug to be approved for new indications. The company said in February that it expects Eylea sales of $1.7-1.8 billion in the US.

Prudential Financial (NYSE:PRU), the second-largest life insurer in the US, will report its first-quarter results on Wednesday, May 7, 2014, which are expected to be in line with estimates. The company’s retirement services business, where it assumes pension obligations of large, old-line industrial companies, has witnessed stronger operating income over the past few quarters, helped by a rising stock market. Larger rival MetLife’s first-quarter operating earnings fell short of market expectations as it paid out more claims.

Allstate Corp. (NYSE:ALL), the largest publicly listed home and auto insurer, reports first-quarter results on Tuesday, May 6, 2014. The company has been looking to grab a larger slice of the US home and auto insurance markets by keeping rates low. Allstate’s total claims are expected to rise because of a severe winter earlier this year. Rival Chubb reported a weaker-than-expected first-quarter profit in April due to higher catastrophe losses.

Tesla Motors (NASDAQ:TSLA) is scheduled to report quarterly earnings on Wednesday, May 7 , 2014, updating investors on deliveries of Model S as well as providing an update on plans for the “gigafactory,” the large battery plant it plans to build.

IT services provider Cognizant Technology Solutions Corp. (NASDAQ:CTSH) is expected to post strong first-quarter results on Wednesday, May 7, 2014. Analysts expect Cognizant’s 2014 revenue forecast, which came in below analysts’ expectations, to remain unchanged due to soft spending on discretionary services such as consulting.

Symantec Corp. (NASDAQ:SYMC), the anti-virus software maker, is likely to report in-line fourth-quarter results on Thursday, May 8, 2014. Recently, the company sacked its CEO for the second time in less than two years as it struggles to revive growth amid eroding PC sales. Investors will look out for management commentary on the appointment of new CEO and outlook for the year.

Solar panel maker First Solar Inc. (NASDAQ:FSLR) is expected to report lower first-quarter profit on Tuesday, May 6, 2014, hurt by irregular revenue recognition from big solar projects that it is involved in. A slowdown in the rate of new contracts from power companies is also weighing on its earnings. The company, which is building utility-scale projects to offset the effect of low panel prices, expects its revenue to go up this year as the solar power market recovers. Investors will look for an update on the company’s plans to tap the fast-growing residential rooftop market.

Stratasys Ltd. (NASDAQ:SSYS), the 3D printer maker, is likely to post first-quarter results on Friday, May 9, 2014. Rival 3D Systems Corp. (NYSE:DDD) said last week that it expects to get most of the revenue and profit it forecasts for 2014 in the second half of the year when it launches new products and services. Both companies are investing heavily in new products and services, even as technology major HP Co. (NYSE:HPQ) prepares to announce plans to enter the nascent industry.

Office Depot Inc. (NYSE:ODP), the office supply retailer, has been struggling with declining sales as shoppers shift to e-retailers, mass merchants and drugstores for items such as paper and gadgets. When Office Depot reports first-quarter results on Tuesday, May 6, 2014, investors will be looking out for any signs of further deterioration in sales, as well as more details on how the company plans to stem the declines.

Other Major Events

US Federal Reserve Chair Janet Yellen will testify before the congressional Joint Economic Committee, the highlight of a week in which half of the Fed’s 16 policymakers are set to give speeches on the US economy or its monetary policy. A robust April payrolls report could put pressure on the US central bank to clarify just what economic conditions would cause it to raise its key interest rate after five and a half years. While Yellen speaks on the economic outlook and participates in an open meeting of the Financial Stability Oversight Council, Fed Governor Jeremy Stein addresses New York bond traders on Tuesday, May 6, 2014.

Wall Street’s most sought after investors, including William Ackman, David Einhorn, Larry Robbins, and Jeff Gundlach present their best investment ideas at the 19th annual Sohn Investment Conference on Monday, May 5, 2014. The Sohn Investment Conference hasbecome a must-attend event for wealthy investors over the years since Einhorn unveiled his bet against Lehman Brothers there and other managers discussed ideas that paid off triple-digit returns.

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