Market Monitoring – 07 Apr 2014

Edited by Vani Rao

US Stock Market Falls in Tech-led Selloff; Nasdaq’s Worst Drop in Two Months

Biotech, internet stocks crumble; Dow down 0.96%

US stocks fell sharply after heavy selling in momentum stocks in biotech and internet companies, shrugging off gains following the lukewarm jobs report on Friday, April 4, 2014.

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The Dow Jones Industrial Average dropped 159.84 points, or 0.96%, to 16,412.71, but managed to stay 0.5% higher during the week.

The S&P 500 ended the week down 23.68 points, or 1.25%, at 1,865.09. The benchmark index eked out a 0.4% gain during the week. The Technology and Consumer Discretionary sector stocks led the losses, while investors fled to the defensive Utilities sector, the only one closing higher.

The Nasdaq Composite Index fell 110.01 points, or 2.60%, to 4,127.73. Friday’s losses resulted in a second weekly loss in a row. Biotechnology and internet stocks were the worst hit. The iShares Nasdaq Biotechnology ETF, a sector benchmark, fell 4%.

The heavily weighted groups did not fare much better amid the heavy selling. Consumer Discretionary (-1.71%) and Technology (-2.23%) lagged throughout the session, while Financials (-1.15%) also underperformed. On the upside, Utilities (+0.6%) posted a solid gain with lower yields giving a boost to the rate-sensitive sector.

Facebook Inc. (NASDAQ:FB), considered a momentum play, tumbled 4.6%. The stock is now in the bear market, having fallen more than 20% from its all-time closing high set on March 10.

Gainers

mm pic 2Best Buy Inc. (NYSE:BBY) rose 3.47% after the stock’s “Buy” rating was reiterated by Bank of America Merill Lynch.

Shares of GrubHub Inc. (NYSE:GRUB) soared 30.77% to $34 in its stock market debut. The online food-ordering service priced its initial public offering late Thursday at $26 a share, above the expected range of $23 to $25. GrubHub offered about 7 million shares.

mm pic 3Peabody Energy Corp. (NYSE:BTU) shares added 2.87%. The stock’s rating was raised to “Outperform” from “Market Perform” by Cowen & Co.

Anadarko Petroleum Corp. (NYSE:APC) rose 2.05% after the company reached a deal with plaintiffs and the US government to settle legal claims against its subsidiary Kerr-McGee for $5.15 billion. The case stems from the bankruptcy of Tronox Inc., which was spun off from Kerr-McGee before it was bought by Anadarko in 2006.

E-Trade Financial Corp. (NASDAQ:ETFC) fell 7.83% following a 6.5% drop in the previous session. The recent criticism of high-frequency trading by high-profile figures such as Charles Schwab has prompted concerns that regulators may take steps to ban “other perceived market structure flaws” such as payment for order flow. Stricter rules on payment for order flow could impact revenue at E-Trade, he added, noting that the online brokerage generated about $72.5 million worth of order flow revenue in 2013.

TripAdvisor Inc.’s (NASDAQ:TRIP) shares sank 6.14%, falling for a third day. The stock has been somewhat volatile this year, falling almost 7% in January and then jumping 30% in February before falling in March and April. TripAdvisor is up 4% year to date.

Amazon.com Inc. (NASDAQ:AMZN) shares slid 3.18%. The Internet retailer released Fire TV, a new gadget that allows access to various content including movies and games, from different sources to a tepid response.

Futures

Currency

Treasury yields dipped after the employment report for March came in slightly below economists’ estimates. Medium-term yields fell the most as fears of an early hike in interest rates by the Federal Reserve eased. The 5-year note climbed 12/32, yielding 1.71%. The benchmark 10-year note gained 17/32 to yield 2.73%. The 30-year bond was up 22/32 with a yield of 3.59%.

The US dollar fell against other major currencies after rising in early trading, even though US data showed solid jobs gains for a second straight month. The dollar index was off 0.07% at 80.42 after touching 80.599, its highest since February 27, 2014. The Euro was down 0.12 against the greenback at $1.3702. The US dollar was off 0.63% against the Yen at 103.26 yen. The Euro gave back 0.79 at 141.47 yen.

Oil rose as data showed strong jobs growth in the US. The Brent followed suit as investors cast doubt on reports Libya’s oil ports were about to reopen. Brent crude rose 0.43% to $106.62 a barrel. US oil gained 0.83% to $101.12 a barrel.

Gold rose more than 1%, its biggest daily gain in nearly a month, after data showing brisk US employment growth in March and unleashed heavy short-covering by bullion investors who had feared the job figures would sharply exceed Wall Street’s expectations. Spot gold rose 1.26% to $1,303.16 an ounce. Gold futures for June delivery gained 1.49% to $1,303.70 an ounce.

Economic Front

US jobs market shakes off winter’s icy grip

Employers hired at a brisk pace last month and ramped up the hours their workers put in on the job, the strongest signals that the economy was breaking free of its winter doldrums. At the same time, the jobless rate held near a five-year low even as Americans poured into the labor market to hunt for work, another upbeat signal of the economy’s health. Non-farm payrolls increased by 192,000 jobs last month after rising by 197,000 in February, the US Labor Department said. The unemployment rate was unchanged at 6.7%. First-quarter growth estimates ranged as low as a 0.6% annual rate. Manufacturing payrolls fell by 1,000, breaking a string of seven monthly increases. However, the average workweek in manufacturing rebounded to 41.1 hours in March.

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Top News

US IPO market bounces back with large first-day gains

Strong debuts of four new listings put a shine back on the US IPO market after a wobbly debut last week by “Candy Crush Saga” maker King Digital Entertainment (NYSE:KING) brought a bustling market back to earth. GrubHub (NYSE:GRUB) saw its shares soar, valuing the company at $3.2 billion. IMS Health‘s (NYSE:IMS) shares rose, valuing it at $7.55 billion. Shares in Five9 (NASDAQ:FIVN) also jumped well above its offer price. Improving economic fundamentals, record low interest rates, and strong capital markets have boosted the US IPO markets, nearly doubling the IPO volumes for the first quarter and making it the busiest IPO season since the dotcom boom of 2000. IPO activity during the first quarter totalled $47.2 billion, an increase of 98% from last year at this time and the strongest annual start for global IPOs since 2010. Shares of IMS Health, GrubHub, and Five9 closed higher by 14.65%, 30.77%, and 9.14%, respectively.

GM files 200,000 pages of documents about recall to safety agency

General Motors (NYSE:GM) said that it has submitted most of the answers that US safety regulators sought from the automaker about a defective ignition switch linked to at least 13 deaths. In response to the National Highway Traffic Safety Administration, GM sent some 200,000 pages of documents to the safety agency by a Thursday midnight deadline, GM spokesman Greg Martin said. The company has provided answers to nearly 65% of the 107 questions that the NHTSA asked, he said. “GM is cooperating fully with NHTSA and is keeping the agency apprised at every step of its progress as it works to respond to the remaining questions within the special order,” Martin said.

Coming up in the Next Week

Economic Releases

Fresh off the mostly upbeat but largely unstartling jobs report, investors will be given few new clues on where the economy is heading. After dipping in March, the Thomson Reuters/University of Michigan preliminary consumer sentiment index due on Friday, April 11, 2014, is expected to edge higher. Data on producer prices on the same day is expected to show that pricing pressures remained contained. The US Department of Labor is expected to report that the Producer Price Index for final demand inched up 0.1% in March. Investors will also look to the weekly data on jobless claims on Thursday, April 10, 2014, to make sure that the labor market recovery continues to progress.

Upcoming IPOs

La Quinta Holdings in its initial public offering on Wednesday, April 9, 2014, is expected to raise about $780 million, valuing the third hotel chain to be taken public by Blackstone in six months, at up to $2.57 billion. With more than 830 hotels, La Quinta is one of the largest owners and operators of mid-priced hotels in the US. Blackstone took Hilton Worldwide public in the biggest-ever hotel IPO in December and also bought shopping center company Brixmor Property and hotel chain Extended Stay America to the market last year.

British private equity company 3i-backed Phibro Animal Health is expected to raise about $210 million in its initial public offering on Friday, April 11, 2014, valuing the animal healthcare product maker at up to $680 million. Founded in 1947, the company operates animal health, mineral nutrition, and performance products units and owns brands such as Stafac, Nicarb, and OmniGen. The company, which has over 2,500 customers, said its profit more than tripled to $25 million for the year ended June 30.

Earnings Releases

JPMorgan Chase (NYSE:JPM) is likely to report first-quarter results on Friday, April 11, 2014, and is expected to say just how much revenue from capital markets has declined from a year earlier. The results will show how much of the profit from stock, bond, and derivatives dealing has gone for good with changes in regulation and market structure since the financial crisis.

Wells Fargo (NYSE:WFC) is expected to report its first-quarter results on Friday, April 11, 2014. The company’s revenue has fallen in recent quarters as the mortgage refinancing boom fizzled, and the first quarter is set to be the weakest for Wells Fargo in terms of new mortgage loans in over five years. Wells has been boosting loans faster than the industry, so analysts and investors will be keen to know whether income from lending offset the decline in fees.

Retailers including Costco (NASDAQ:COST) and Gap Inc. (NYSE:GPS) will report sales for March on Thursday, April 10, 2014, giving investors a sense of how much the dip in consumer confidence hit sales just as stores start stocking spring merchandise. Analysts expect a dip in sales because of a later Easter this year and the unusually cold winter that continued into March.

Other Major Events

Finance officials from around the world descend on Washington DC in the week ahead for the spring meetings of the International Monetary Fund (IMF) and the World Bank. The IMF kicks off the show with the release of its World Economic Outlook report on Tuesday, April 8, 2014, which is likely to throw a fresh spotlight on the European Central Bank. IMF has already pressurized the ECB to ease monetary policies further to lift prices.

On Friday, April 11, 2014, finance ministers and central bankers from the Group of 20 nations will gather again after meeting just six weeks ago in Sydney. The failure of the US Congress to ratify IMF reforms agreed in 2010 will likely spark some squabbling. Officials will also provide an update on Ukraine, which is nearing its agreement on an IMF bailout.

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