Market Monitoring – 15 November 2013

Edited by Vani Rao

The markets closed on a slightly higher note on Thursday after Federal Reserve chair nominee Janet Yellen signaled that the stimulus will continue until the economy improves. Yellen has raised concerns about the high unemployment rate of 7.3% in the US as her top concern.

On Thursday, November 14, the Dow Jones Industrial Average rose 54.59 points, or 0.35%, closing at 15,876.22 and the S&P 500 rose 8.62 points, or 0.48%, closing at 1,790.62. While both these indexes reached new heights, the Nasdaq lagged behind, closing at 3,972.74, up 7.16 points, or 0.18%, primarily due to Cisco Systems Inc.’s (NASDAQ: CSCO) fall in the tech heavy index. The Nasdaq is 1% from 4,000, its highest level since September 2000.

Shares of major technology companies led by Cisco fell on Thursday; Cisco on Wednesday missed revenue estimates, providing a grim outlook, citing weak demand among emerging markets. Cisco also said that it has taken a beating because of the Federal government shutdown and concerns among customers about Spy scandal on U.S. tech firms in China

Cisco’s grim outlook had a domino effect on the shares of other major tech companies. Shares of Hewlett Packard Co. (NYSE: HPQ) shed 5.4% to close at $25.07, IBM Corp. (NYSE: IBM) fell about 1% to close at $182.21, and EMC Corp. (NYSE:EMC) fell 2% to close at $23.74.

On the other hand, Twitter Inc. (NYSE: TWTR) rallied 4.91% to close at $44.69, while Facebook Inc. (NASDAQ: FB) and Google Inc. (NASDAQ: GOOG) inched up marginally by 0.27% to $1,035.23.

Source: Bloomberg
Source: Bloomberg

The Asian markets surged ahead on Friday, November 15, as investors took comfort on prospects of extended US monetary stimulus. The Nikkei jumped 1.9% to breach the 15,000 level for the first time since December 2009, while the HangSeng surged 383 points, or 1.69%, closing at 23,032 on optimism following China’s reform policies.

The European markets opened to mixed signals on downbeat euro zone economic data, despite encouraging comments from the Federal Reserve chair nominee Janet Yellen.

The Stoxx was down by 6 points, or 0.2%, at 3,047 at 11:30 AM, while the FTSE was up 11 points, or 0.17%, at 6,677.

Top Stories

Buffet bets high on Exxon

The Warren Buffett-led Berkshire Hathaway disclosed to the US Securities and Exchange Commissionon Thursday, November 14, that as of 30 September 2013, it held roughly 40 million shares of Exxon (NYSE: XOM),the world’s largest publicly traded oil company. The stake is worth $3.74 billion at Thursday’s closing price.Following Berkshire’s disclosure, Exxon shares rose 84 cents, or 0.9%, to $94.06 in after-hours trading.

Hedge funds shops at J.C.Penny

Ailing retailer J.C.Penny Company Inc. (NYSE:JCP) witnessed mixed fortunes after Bill Ackman’s Pershing Square Capital sold all its 39 million shares to Citigroup at a massive loss of nearly $500 million. Institutional investors Jana Partners, Highfields Capital, and Farallon Capital Management took positions of 3.2 million shares and 500,000 shares each, respectively, while Glenview Capital added another 3.9 million shares to hold 12.4 million shares at the close of 30 September 2013.

Cisco misses revenue estimates;stock plunge 11%

On Thursday, November 14, Cisco Systems Inc. reported lower-than-estimated revenue and provided a grim outlook citing weak demand among emerging markets and service –provider customers. Following the announcement, Cisco stocks plunged 11% to close at $21.36.Cisco was the worst performer on the Dow Jones Industrial Average (DJIA), which gained 0.40%. As a result, Goldman Sachs has removed Cisco from its Conviction Buy list.

Moody’s cuts rating for senior debt off our major US banks

Moody’s has downgraded the long-term unsecured debt rating for Goldman Sachs (NYSE: GS), JPMorgan Chase and Co. (NYSE:JPM), Morgan Stanley (NYSE: MS) and the Bank of New York Mellon in its review of eight major US banks by one notch, to reflect the chances of being rescued by the government in case of failure. Moody’s believes that the US government is less likely to bail out troubled financial institutions based on the Dodd – Frank banking reforms, which curbs banks’ ability to make risky reforms and place new regulations on financial trading with their own money. The new rule ensures that the failure of one financial institution will not lead to the collapse of the entire financial system. Moreover, if the bank fails, the onus would be on the bondholders to bail out the bank, rather than the taxpayers.

Moody’s has reiterated a Stable Rating Outlook for the eight bank holding companies and their main operating subsidiaries.

Release/Event – Next 24 hours

Industrial production data for October 2013 would be announced on 15 November. This will cover the Federal Reserve’s monthly Index of industrial production, the related capacity indexes, and the capacity utilization rates covering manufacturing, mining, and electric and gas utilities. The industrial sector, together with construction, accounts for the bulk of the variation in national output over the course of the business cycle.

Industrial production gained 0.60% in September 2013 following a rise of 0.40% in August and consensus is expected to rise only 0.10% this month. The manufacturing component only gained 0.10% in September following a 0.40% rise in August.Based on consensus, the manufacturing component is expected to edge up by 0.30%. The capacity utilization for the overall industry rose to 78.3% from 77.9% in August and is expected to remain at the same level during October 2013.

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