Market Monitoring – 18 November 2013

Edited by Vani Rao

The Week That Was

The Dow Jones Industrial Average and the S&P 500 index reached historic highs during the week ended 15 November. The Dow Jones Industrial Average rose 1.3% during the week, closing at 15,961.70.The S&P 500 index closed at 1,798.18, with a weekly gain of 1.6%extending its winning streak for the sixth consecutive week. The tech-savvy Nasdaq Composite Index was up at 3,985.96 with a weekly gain of 1.7%.

Source: Bloomberg
Source: Bloomberg

Stock markets began the week on flat note, going down on Tuesday, but continued the march upwards through the rest of the week, even on disappointing news on unemployment claims and larger-than-expected trade deficits. The data signaled that the US economy growth continues to be sluggish. Last year marked the fourth consecutive year of stock market gains. As a result of last week’s overall strength, the stock market remains on track for another year of impressive returns across major sectors.

The Dow is approaching 16,000 and has gained more than 20% this year, while the S&P 500 index is few points shy of 1,800,up more than 25%. This is an all-time high for both the Dow and the S&P 500.The Nasdaq Composite Index is closing in on 4,000 for the first time since September 2000, up 32% year to date.

The continuous stimulus measures from the Federal Reserve have fuelled the bull market for the past several years. Added to this, supporters were encouraged from the positive comments made by Janet Yellen Federal Reserve chair nominee, on continuing stimulus measures to support the economy.

The markets may continue moving higher in the short run if retail investors, who have seen the rally from outside so far, would rush to get in while stocks are still trading at compelling valuations compared to other assets.

Gold futures edged higher on Friday, scoring their first weekly gain in three weeks and adding 0.2% for the week after Janet Yellen voiced support for the central banks’ monetary stimulus.

Gold for December delivery (GCZ3) added $1.10 or 0.1%, closing at $1,287.40 an ounce on the New York Mercantile Exchange on Friday.

Silver rose 0.2% on Friday to close at $20.72.Despite the gains, Silver prices fell 2.76% for the week, the third consecutive weekly loss. There was, however, some good news as sales of the American eagle one ounce silver coins reached 40.17 million ounces, surpassing the previous high of 39.86 million in 2011.

Crude oil futures ended at $93.84, adding 0.09% on Friday. During the week, US oil futures lost 0.8%, a sixth straight weekly decline and the longest losing streak since December 1998.Concernsover the recent US government shutdown created a drag on economic growth and eroded demand in the world’s largest oil consuming country.

Treasury prices rose on the week as investors priced in a dovish monetary policy from the Federal Reserve, but fell on Friday .The 10-year note , rose 1.5 basis points to 2.707%, after a two-session drop of 8.5 basis points. The benchmark note yield dropped 3.5 basis points on the week.

JPMorgan Chase and Co reaches settlement with institutional investors for $4.5 billion

The deal resolves one of the many legal problems that JPMorgan Chase and Co. (NYSE: JPM) the company is facing. The settlement deal relates only to securities associated with JPM and Bear Stearns, and does not include those associated with Washington Mutual. JPM acquired the ailing Bear Stearns and Washington Mutual in 2008 during the financial crisis.

The group of investors includes Blackrock, PIMCO, Fannie Mae, and Freddie Mac, which are the government-sponsored enterprises. Fannie and Freddie have also reached a separate settlement last month with JPM worth $5.1 billion over the crises-era mortgage securities.

The US Department of Justice is also in separate talks with JPM over a potential multi-billion dollar settlement on the same issue.

The settlement still requires approval from the court and trustees who managed the mortgage base securities pools. The payment would be allocated by a financial expert selected by the trustees.JPM has said that it has sufficient reserves set aside for Friday’s settlement and other ongoing litigations.

Boeing launches 777X

Boeing (NYSE: BA) received bookings and commitments worth $95 billion for 59 jets after it officially unveiled the next-generation 777X at the Dubai Air Show, making it one of the largest product launches by value in commercial jet liner history. Emirates have ordered 150 airplanes with an option for 50 more. Etihad, Lufthansa, and Qatar Airways were the other major customers.

Battle of Consoles!

Sony Corp. (NYSE: SNE) has sold more than one million PlayStation 4 (PS4) consoles in North America in the first day following the launch of the product. The record sales have surpassed the initial sales of its predecessor, the PlayStation 3, which was launched in 2006.

Sony is getting a head start in the console battle against Microsoft Corp. (NASDAQ:MSFT NASDAQ),which is releasing the Xbox One later this week in the $493-billion gaming industry, just before the start of the Christmas shopping season. Sony has priced its console at $399, which is $100 lesser than Microsoft’s Xbox.

Sony has projected sales of five million units by March 2014 and will have adequate supplies of the PS4 through Christmas.

Sony is employing a newer, faster type of memory that could provide it an edge over rival products. The PS4 also has enhanced graphics to help win over hardcore game players. Both Sony and Microsoft are trying to respond to the paradigm shift in the video games industry, thanks to the advent of tablets and mobile phones. The gaming consoles are not only for pure gaming, and would be capable of delivering entertainment by enabling people to watch TV, films, and listen to music.

What’s in Store!

Investors would be paying close attention to a slew of earnings reports from some of the nation’s largest retailers to gauge the consumer pulse ahead of the holiday shopping season, which accounts for nearly 50% of the annual sales for some retailers.

Results have been mixed till now with Macy’s (NYSE:M) and L .Brands well above the market expectation, while Wal-Mart (NYSE: WMT) and Kohl’s (NYSE: KSS) issued disappointing guidance.

Struggling retailer J.C.Penny (NYSE:JCP) is expected to report a drop in sales and a wider loss than last year when it announces its results on 20 November 2013 .However, the stock has rallied lately on hopes that the worst is over. Major hedge funds, Highfields Capital, Jana Partners, and Farallon Capital have bought or increased their stake in J.C.Penny, another sign that the stock may have bottomed.

Best Buy (NYSE:BBY),which has recently implemented its turn around strategy, would be reporting its results on 19th November 2013Tuesday.Shares of the electronics retailer have rallied 270% so far this year, the second best performing stock after Netflix (NASDAQ:NFLX) on the S&P 500.

Earnings from TJX (TJX), owners of T.J.Maxx and Marshalls, Ross (ROST), and discount chain Dollar Tree (DLTR), will also report their results during the week starting 18 November. Their results would provide an insight on whether customers are continuously patronizing the biggest bargain providers.

Earnings of home improvement retailers Home Depot (HD) and Lowe’s would be a key gauge to understand the recovery in the housing sector.

Target (NYSE: TGT) and high-end fashion retailer Gap (NYSE:GPS) are scheduled to report their latest results this week. Teen retailer Abercrombie & Fitch (NYSE:ANF), which has already warned of a huge sales decline, will also report its latest earnings.

News to look forward in the next 24 hours

NAHB Housing Market Index – November

NAHB Housing Market Index will release its numbers on Monday, which is an important gauge on the performance of the housing market as well as the economic momentum. Consumers have to feel confident about their financial position to own a house. Furthermore, the data has a powerful multiplier effect through the economy. Sale or resale of homes not only provides revenue for builders and realtors, it also has a ripple effect on other household items like furniture and white goods. Thus, home sales data have a direct bearing on stocks of the home builders, mortgage lenders, electronic retailers, and home furnishing companies.

The NAHB Housing Market Index for September was at 55 vs. 57 for August and is expected to remain same or lower amid the US government shutdown.

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