Market Monitoring – 13 January 2014

Edited by Vani Rao

Market Ends on a Mixed Note Following Jobs Report, Earnings Uncertainty

S&P 500, Nasdaq ends higher, but Dow drops in first full week of 2014

The US stock market ended Friday on a mixed note after a weaker-than-expected payroll report, which raised new questions on the strength of the economy and the Federal Reserve’s stimulus program.

Source: Bloomberg
Source: Bloomberg

At the close of US trading hours on 10 January 2014, the Dow Jones Industrial Average was down 7 points, or 0.05%, closing at 16,437.05. The Dow lost 0.2% over the week, posting its second weekly loss in a row in 2014.

The S&P 500 Index rose 4.24 points, or 0.23%, to 1,842.37. The S&P gained 0.6% for the week, its first weekly gain in 2014.

The Nasdaq Composite Index gained 18.47 points, or 0.44%, closing at 4,174.66, while the Nasdaq added 1% over the week, which was also its first weekly gain in 2014.

The strength of precious metals underpinned mining companies, which contributed to the strength of the Materials sector. Apart from Materials, the Consumer Discretionary sector (+0.38%) was another notable outperformer among growth-sensitive groups. Lower yields also factored into the outperformance of rate-sensitive Telecom Services (+0.39%) and Utilities (+1.44%). The other two countercyclical groups were mixed as Healthcare (+0.42%) outperformed, while Consumer Staples (+0.17%) ended in line with the S&P 500.

On the downside, the Financials sector (-0.13%) was the lone decliner.

Movers & Shakers

MM pic 2Abercrombie & Fitch Co (NYSE:ANF) rallied 11.98%after the firm raised its full-year adjusted per share earnings forecast to $1.55-1.65 from a previous estimate of $1.40-1.50.

Source: WSA
Source: WSA

Ventas Inc. (NYSE:VTR) rose 4.58%. The stock was upgraded to Buy from Neutral with a price target of $63 by UBS.

Intuitive Surgical Inc. (NASDAQ:ISRG) surged 8.63% following a positive write-up on its da Vinci surgery system from analysts at Wedbush.

Alcoa (NYSE:AA) shares slumped 5.43% after the aluminum producer swung to a fourth quarter loss. On an adjusted basis, the company earned 4 cents a share, below expectations of 6 cents a share. The firm also said on Thursday morning that it had settled charges of corruption in Bahrain with a $384-million payout to the Securities and Exchange Commission andthe Department of Justice.

Shares of Twitter (NYSE:TWTR) edged down 0.09% for a weekly loss of 17%. The stock was downgraded to Sell from Hold with a price target of $32 at Cantor Fitzgerald earlier this week.

Sears Holdings Corp. (NASDAQ:SHLD) tumbled 13.77% after the retailer disappointed the market with a decline in same-store sales. Moreover, the company said comparable sales declined 7.4% in the quarter-to-date holiday season. While the company is facing flak from investors for its reluctance to ramp up its stores, it forecasts a full-year loss of $7.64-8.61 a share, compared to estimates of loss of $6.80 a share.

Futures

Treasuries jumped, with benchmark yields posting their biggestone-day drop since October, after government data showed the weakest monthly job growth in three years in December 2013. This has undermined investor confidence in the economy. The 10-year notelast traded 28/32 higher with a yield of 2.86%. The 30-year bond rose 1-7/32 to yield 3.80%.

The dollar fell broadly after weaker-than-expected US jobs data affirmed expectations that the Federal Reserve will take agradual approach to tapering its bond-buying program in 2014. The dollar index was down 0.45% at 80.64. Against theyen, the dollar was down 0.72% at 104.07 yen. The eurolast traded up 0.43% at $1.3664. The eurowas down 0.28% against the yen at 142.20 yen.

Crude rose as new reports of production problems at a majorUK oilfield and weaker-than-expected US jobs data raisedexpectations that the US Federal Reserve may slow down the windingdown of its commodity-friendly stimulus program. Oil was up1.11% at $92.68 a barrel.

Gold rose after sharply weaker-than-expected US jobs datasupported the view that the US Federal Reserve will take agradual approach to tapering its bond-buying program in 2014. Bank of America (NYSE:BAC) cut its 2014 average price forecast to $1,150, citing an uncertain macroeconomic environment and lack of investmentdemand. Spot gold gained 1.55% to $1,246.60 anounce. Gold futures for February delivery were up 1.37% to $1,246.30 an ounce.

Economic Front

US job growth falters

The US Bureau of Labor Statistics reported earlier that the US economy added 74,000 jobs in December 2013, well below expectations for a 196,000 increase and below an upwardly revised 241,000 rise in November 2013.

The US private sector added 87,000 jobs last month, disappointing expectations for a rise of 195,000 jobs, after an upwardly increase of 226,000 in November. US employers hired the fewest workers in nearly three years in December, but the setback was likely to be temporary amid signs that unusually cold weather may have had an impact.

On a brighter note, the data showed that the US unemployment rate fell 0.3% to 6.7% in December due to a weak participation rate, its lowest level since October 2008.The decline mostly reflected people leaving the labor force.

The numbers softened stock prices by stoking fears that a US recovery could hit a soft patch, although stocks saw support on expectations for the Federal Reserve to trim its $75-billion monthly bond-buying program at a slower pace than once expected.

Separately, the US Department of Commerce said wholesale inventories increased 0.5% after a revised 1.3% rise in October. Sales at wholesalers rose 1.0% in November after a 1.1%gain the prior month. Economists had expected sales to rise 0.8% in November.

Top News

Target boosts data breach toll as prosecutors launch probe

The data breach at Target (NYSE:TGT)over the holiday shopping seasonwas far bigger than initially thought, the US retailer said, as theState Attorney General announced a nationwide investigationinto the cyber-attack. The personal information of at least 70million customers was stolen by cyber-criminals, includingnames, mailing addresses, phone numbers, and email addresses, Target said. The retailer lowered its fourth-quarter profitforecast, in part due to weaker-than-expected sales since reportsof the cyber-attack emerged in mid-December. Target cutits fourth-quarter adjusted earnings forecast for its US operationsto $1.20-1.30 per share from $1.50-1.60. The companyalso forecast a 2.5% decline in fourth-quarter same-storesales. Target expects full-year earnings per share to includecharges related to the data breach, but said it could not estimatethe costs.

Iran to get first $550 million of blocked $4.2 billion on February 1

Iran would receive the first $550-million installment of a total of $4.2 billion in previously blocked overseas funds on or about 1 February2014, Reuters reported in an exclusive report.

Six major powers agreed to give Iran access to $4.2 billion in revenues blocked overseas, if it carries was party to a dealthatoffers sanctions relief in exchange for curbing its nuclear program under the 24 November2013 nuclear agreements.

Some payments are contingent on Iran diluting its stockpile of 20% enriched uranium to no more than 5% enriched uranium. The US official, who spoke on condition of anonymity, described the payment schedule as follows in 2014:

Feb 1 – $550 million
March 1 – $450 million (payment for half of dilution)
March 7 – $550 million
April 10 – $550 million
April 15 – $450 million (payment for completion of dilution)
May 14 – $550 million
June 17 – $550 million
July 20 – $550 million

Obama administration to end ties with HealthCare.gov contractor

The Obama administration is cutting ties with contractor CGI Federal over its handling of the problem-plagued HealthCare.gov, months after the troubled 1 October launch. The decision to move from CGI Federal to Accenture was confirmed Saturday by a statement from the US Centres for Medicare and Medicaid Services (CMS).

“As CMS moves forward in our efforts to help consumer’s access quality, affordable health coverage, we have selected Accenture to become the lead contractor for the HealthCare.gov portal and to prepare for next year’s open enrollment period,” the statement read.

The statement continued: “We are pleased that more than 1.1 million consumers already have enrolled in a private plan in the federal Marketplace thanks to existing efforts and look forward to working with all of our contract partners to ensure a smooth transition of this work.”

The contract with CGI was to be renewed in February 2014, but the administration decided not to renew it.

News to look forward to next week

Economic Release

Tuesday’s report on December retail sales will point to whether consumer spending was as frigid during the month as was the pace of hiring. That said, a weak reading for retailers would likely reverse subsequently if the cold weather during the month persists.

A measure of core consumer prices due on Thursday is likely to show minimal inflationary pressure, although that remains unsurprising given the slack that most economists think remains in the economy. On a negative note, data on Friday is expected to show a slowdown in new home construction and weaker output growth at factories.

Earnings Releases

  • Bank earnings week kicks off with the country’s largest bank, JPMorgan Chase & Co (NYSE:JPM), as well as Wells Fargo (NYSE:WFC), on Tuesday morning. Bank of America (NYSE:BAC) reports on Wednesday, followed by Citigroup Inc (NYSE:C) and Goldman Sachs Group Inc. (NYSE:GS) on Thursday and Morgan Stanley (NYSE:MS) on Friday. Analysts are expecting that revenue from core lending businesses could be slightly better than a year ago, but huge legal and regulatory costs are weighing down on the industry. Big bank stocks have risen dramatically in recent months on expectations that higher interest rates and economic growth will help the sector grow in 2014.
  • Elsewhere in the US corporate world, earnings season picks up, with highlights to include chipmakerIntel (NASDAQ:INTC) on Thursday, GE (NYSE:GE) on Friday, and UnitedHealth Group (NYSE:UNH), the largest US health insurer, which may provide insights about its experience selling health plans on the Obamacare exchanges.
  • Both American Express Co (NYSE:AXP)and Capital One Financial Corp (NYSE:COF)are likely to beat quarterly profit estimates when they report on Thursday, helped by increased card spending and lower default rates.

Important Events

  • The Food and Drug Administration is expected to post its initial review of Merck & Co’s (NYSE:MRK) heart attack and no history of stroke or transient ischemic attack on Monday. An advisory committee to the FDA will meet on Thursday to discuss an application by Johnson & Johnson (NYSE:JNJ) market its blood-thinner Xarelto to patients in the first 90 days after suffering acute coronary syndrome.
  • >The big three US automakers will show they have the right stuff to keep the momentum going this year after sales boomed in 2013 at the Detroit Auto Show, which kicks off on Sunday. Closely watched vehicles will include Ford’s (NYSE:F) redesigned F-150 pickup, the top-selling vehicle in the US market, and the Chrysler 200, the first Chrysler vehicle to share a Fiat platform.
  • Tuesday is the deadline for Tesla (NASDAQ:TSLA) to provide National Highway Traffic Safety Administration (NHTSA) investigators with record of consumer complaints, property damage claims and other details as part of NHTSA probe of Model S fires, as well as any information about design modifications to the car. NHTSA is investigating two Tesla Model fires in the US, but not the fire in Mexico.
  • International Monetary Fund chief Christine Lagarde speaks on Wednesday about the global economic outlook and policy challenges at a National Press Club luncheon in Washington.

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