Market Monitoring – 14 Apr 2014

Edited by Vani Rao

Tech Selloff Continues; Nasdaq’s Worst Drop Since June 2012

Biotech, internet stocks crumble; Dow drops 0.89%

US stocks dropped on Friday, April 11, 2014, amid a multi-session selloff in the Technology and Biotechnology sectors, as investors felt valuations have grown too lofty. The disappointing earnings from JPMorgan Chase dampened spirits as well.

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The Dow Jones Industrial Average shed 143.47 points, or 0.89%, to finish at 16,026.75. The blue-chip index slumped 2.4% for the week, snapping its streak of three straight weekly gains.

The S&P 500 index slid 17.39 points, or 0.95%, to close at 1,815.69, losing 2.7% for the week. The benchmark index retreated in a hurry from its April 2 record closing, finishing 4% below its 50-day moving average.

The Nasdaq Composite Index slid 54.37 points, or 1.34%, to 3,999.73, closing under 4,000 for the first time since February 3, 20    14. The tech-heavy index fell 3.1% for the week, with its biggest daily loss coming on Thursday, April 10, 2014. The Nasdaq endured its worst weekly percentage drop since June 2012, and it has fallen for three weeks in a row.

Biotech notwithstanding, other momentum names that comprise a portion of the Consumer Discretionary sector (-1.38%) and a good part of the Information Technology space (-1.17%) were weak once again.

The Financials sector (-1.17%), meanwhile, ended among the laggards. The sector was kept from logging additional losses due to a 0.8% gain in Wells Fargo (NYSE:WFC), which reported above-consensus earnings.

Movers & Shakers

mm pic 2Herbalife Ltd.’s (NYSE:HLF) shares skidded 13.97% on Friday on reports that the company is under investigation by the Federal Bureau of Investigation and the Department of Justice. The nutrition supplement company is already being investigated by the Federal Trade Commission.

mm pic 3Zoe’s Kitchen Inc. (NYSE:ZOES) soared 64.80% to $24.72 on its first day of trading as a public company. Zoe’s Kitchen offered 5.8 million shares at $15 a share.

Shares of JPMorgan Chase (NYSE:JPM) fell 3.66% after the company said that its first-quarter profit dropped 19% as it grappled with a slowdown in trading revenue and mortgage originations.

Cablevision Systems Corp.’s (NYSE:CVC) shares shed 4.29%. The media company this week promoted Brian Sweeney as President and Kristin Dolan as Chief Operating Officer. Sweeney is Jim Dolan’s brother-in-law and Kristin Dolan is Jim Dolan’s wife, according to the Wall Street Journal.

Gainers

Allergan Inc.’s (NYSE:AGN) shares rose 3.65%. Shares of the healthcare company have dropped sharply recently although they are still up over 8% year-to-date.

ConocoPhillips Co.’s (NYSE:COP) shares rose 1.66%. The oil major on Thursday outlined its growth plan and reaffirmed its goal to deliver 3-5% annual production growth and improving financial returns.

C.H. Robinson Worldwide Inc.’s (NASDAQ:CHRW) shares gained 1.99%. C.H. Robinson was the only stock in the Nasdaq 100 that finished higher in Thursday’s selloff. The stock was upgraded to “Buy” from “Hold” at BB&T Corp. on Friday, Analyst Ratings Network reported.

Futures

Treasuries rose in choppy trading as nervous investors pulled out of stock markets worldwide and piled into less risky government debt, sending the US 30-year bond yield to its lowest level since July. Benchmark 10-year notes edged up 3/32 to yield 2.62%. The 30-year bonds were last up 16/32, to yield 3.48%.

The US dollar rose, benefiting from a selloff in equities around the world, as investors fretted about what seemed like overstretched valuations. The dollar gained 0.12% against the yen to 101.62 yen. The euro dipped 0.04% against the greenback to $1.3882. The euro against the yen was up 0.06% to 141.08 yen. The dollar index gained 0.14% at 79.50.

Crude oil pared early gains and edged down on profit booking and a declining demand outlook. Oil was last at 0.07% lower to $103.33 a barrel.

Gold held around 2-1/2-week highs on sagging risk appetite and increasing hopes the Federal Reserve will hold off on raising interest rates as soon as early next year. Spot gold edged down 0.07% to $1,317.46 an ounce. Gold futures for June delivery were down 0.20% to $1,317.90 an ounce.

Economic Front

US producer inflation accelerates in March

Producer prices recorded their largest increase in the nine months to March 2014, but that jump will probably not ignite inflation pressures as economic growth remains moderate. The US Labor Department said that its seasonally adjusted producer price index for final demand increased 0.5% last month, after slipping 0.1% in February. In the 12 months through March, producer prices advanced 1.4%. A broader gauge of core producer prices rose 0.3% after ticking up 0.1%. In the 12 months through March, core PPI for final demand rose 1.4% after increasing 1.1% in February. Separately, the Thomson Reuters/University of Michigan’s consumer sentiment index rose to 82.6 in early April, the highest since July, from 80.0 in March.

Top News

JPMorgan reports weaker-than-expected earnings as trading revenue falls

JPMorgan Chase (NYSE:JPM) posted weaker-than-expected quarterly profits as uncertainty about the US economy weighed on investor trading volumes and consumer borrowing. The bank’s bond trading revenue plunged 21% and mortgage lending revenue fell 84% from the same quarter last year. “It’s not like selling cereal – it’s not like your volumes go up 2% every day,” Chief Executive Jamie Dimon said to reporters on a conference call. The business will grow over the next decade or two, he added. Overall, net income fell 19% to $5.27 billion, or $1.28 per share, from $6.53 billion, or $1.59 per share, in the same quarter of 2013, the biggest US bank said. Analysts on an average had expected earnings of $1.40 per share. Total net revenue fell 8.5% to $22.99 billion, falling well short of the average estimate of $24.53 billion.

Wells Fargo profit beats estimates helped by one-time gains

Wells Fargo (NYSE:WFC) reported a higher-than-expected 14% rise in first-quarter net profit, as a series of one-time gains helped offset the continued slowdown in its home loan business. Net income applicable to common shareholders rose to $5.60 billion, or $1.05 per share, during the quarter, from $4.93 billion in the year-ago period. Analysts on an average had expected the bank to earn 97 cents per share. Income from mortgage banking fell by 46% to $1.5 billion. Wells Fargo’s new home loans fell to $36 billion in the quarter from $109 billion a year earlier and from $50 billion in the fourth quarter. Total lending rose 4% to $826.4 billion. Total revenue fell to $20.6 billion from $21.3 billion a year earlier. Wells Fargo’s net interest margin fell to 3.20% from 3.49% a year earlier and 3.27% in the fourth quarter.

US government says hackers trying to exploit ‘Heartbleed’ bug

The government warned banks, infrastructure operators, and other organizations to be on alert for hackers who may take advantage of the “Heartbleed” bug to steal data from vulnerable networks. On a website for advising critical infrastructure operators about emerging cyber threats, the Department of Homeland asked organizations to report any Heartbleed-related attacks. The Department of Homeland Security was working with federal, state, and local governments to uncover and mitigate potential threats, Larry Zelvin, Director of the DHS’s National Cyber security and Communications Integration Centre, said separately in a blog post on the White House website. Companies including Cisco Systems and Intel have rushed to release updates to protect against the threat, warning customers that they may be at risk.

Coming up in the Next Week

Economic Releases

Housing starts data next week will likely confirm that the economy has put the cold winter behind and is on track for faster growth in the second quarter. On Wednesday, April 16, 2014, the US Commerce Department will likely report that housing starts increased to a 975,000-unit rate in March from 907,000 units in February. Permits are seen increasing to a 1.02 million-unit pace from 1.01 million units in February.

Data from the Federal Reserve on Wednesday, April 16, 2014, is expected to show that industrial production increased 0.5% in March after rising 0.6% in February. Manufacturing output is seen increasing 0.6% after advancing 0.9% in February. US Labor Department data on Tuesday, April 15, 2014, is expected to show that inflation still remains muted, despite a surprise jump in producer prices in March. The consumer price index is seen up 0.1% after rising by the same margin in February. Excluding food and energy, the CPI is expected to have risen also by 0.1% in March after witnessing a similar gain in February.

Earnings Releases

Google Inc. (NASDAQ:GOOG) is likely to report that prices of its online ads continue their decline as lower-priced smartphone ads make up a greater portion of the internet company’s business. However, investors would be keen on hearing about the company’s initiatives such as Google Fiber, the acquisition of home automation company Nest, and changes at its YouTube video site when it reports first-quarter results on Wednesday, April 16, 2014.

Global beverage giant Coca-Cola Company (NYSE:KO) is scheduled to announce first-quarter results on Tuesday, April 15, 2014. The company has set aside nearly $1 billion for advertising and marketing investments this year, hoping to accelerate soda sales around the world. However, the company could face a setback in its biggest market, North America, where a severe winter is expected to have curbed soda consumption.

Diversified healthcare company Johnson & Johnson (NYSE:JNJ) is expected to report moderately higher first-quarter earnings on Tuesday, April 15, 2014, with strong sales of newer medicines overshadowing far slower growth for its array of medical devices and consumer products.

Bank of America (NYSE:BAC) is scheduled to report first-quarter earnings on Wednesday, April 16, 2014. The second-largest US bank will look to keep the positive momentum going in its investment banking and wealth management divisions and overcome some expected weakness in mortgages.

Intel Corp. (NASDAQ:INTC) is scheduled to report first-quarter results on Tuesday, April 15, 2014. The chipmaker’s earnings missed expectations by a penny in the previous quarter due to weak spending on servers. In the quarter, its PC revenue stayed flat, which the company said was slightly better than its expectations.

IBM Corp. (NYSE:IBM) is scheduled to report first-quarter results on Wednesday, April 16, 2014. IBM’s revenue is expected to slightly beat estimates, helped by growth in software and services. Hardware revenue is likely to continue to decline due to lower demand from emerging markets.

Goldman Sachs Group Inc. (NYSE:GS) is expected to report earnings for the first quarter on Thursday, April 17, 2014. Analysts are expecting Goldman to report a profit of $3.44 per share, down from $4.29 a year earlier. CFO Harvey Schwartz is likely to face questions about how new regulations and changes in market structure are affecting its long-term business plan.

Yahoo Inc. (NASDAQ:YHOO) is scheduled to report first-quarter earnings on Tuesday. The company’s struggling online advertising business is not expected to show much of a revival in the quarter despite a slew of updates to Yahoo’s Web products by Chief Executive Marissa Mayer, aimed at sparking interest among consumers and marketers.

BlackRock Inc. (NYSE:BLK) is scheduled to report first-quarter results on Thursday, April 17, 2014, before the markets open. Analysts expect the New York-based asset manager, which manages more than $4 trillion in assets, to earn $4.16 per share, up from $3.65 per share a year earlier.

World’s No.1 toymaker Mattel Inc. (NASDAQ:MAT) is scheduled to report first-quarter results on Thursday, April 17, 2014, after witnessing one of its weakest holiday seasons since 2008. The company’s Barbie doll and Hotwheels toys have been losing sheen with kids who are turning their focus on tablets and building blocks. Investors will be looking for comments on the progress of its acquisition of Canadian toymaker MEGA Brands and how it plans to expand its toy portfolio once the deal goes through.

Diversified manufacturer Honeywell International Inc. (NYSE:HON) is scheduled to report first-quarter results on Thursday. Earnings per share are expected to rise 4% at the maker of aerospace parts and climate control systems that recently announced a management reshuffle, designed in part to help execute its new five-year financial plan.

Other Major Events

Fed Chair Janet Yellen speaks in a forum in New York on Wednesday, April 16, 2014, which is likely to shed light on the US economic outlook and how much further strengthening would be needed before considering raising interest rates from their current rock-bottom levels. Also speaking next week are Board Governor Jeremy Stein, who has sounded alarms about the threat easy money may pose to financial stability, and Narayana Kochelarakota, President of the Federal Reserve Bank of Minneapolis, who believes that the central bank should be doing more to boost the economy.

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