Market Monitoring – Week Ended 20 December 2013

Edited by Vani Rao

Markets rally on strong economic data; BlackBerry shares surge

US stocks rose on Friday 20 December 2013, lifting the major indices to record levels, after a government report showed that the economy grew at its fastest pace in the last two years during the last quarter.

On Wednesday 18 December 2013, the Federal Reserve announced that it would trim monthly asset purchases by $10 billion from $85 billion to $75 billion in January 2014.The markets have applauded this decision, resulting in a sharp rally of the major indices.

Source: Bloomberg
Source: Bloomberg

The Dow Jones Industrial Average closed at a record level for the third day in a row. The Dow rose 42.06 points, or 0.26%, to 16,221.14, gaining 3% during the week. This was the Dow’s best weekly gain since September 13 and in terms of points, the best since early January 2013.

The S&P 500 Index ended the session off its intraday highs, but still at a record closing level. The benchmark gained8.72 points, or 0.48%, to end at 1,818.31, recording a 2.4% weekly gain after two straight weeks of losses.

The Nasdaq Composite Index rallied 46.61 points, or 1.15%, to 4,104.74, adding 2.6% over the week.

The largest S&P 500 sector, Technology (+0.83%), played a significant role in the rally. The group received support from large-cap names like Apple (NASDAQ:AAPL +4.56), Google (NASDAQ:GOOG, +14.40), and Microsoft (NASDAQ:MSFT, +0.55).

Biotechnology gave a boost to the Healthcare sector (+0.45%), which kept pace with the S&P 500 throughout the session.

Another influential group, Financials (+0.46%), lagged for the majority of the session, but caught up to the broader market in the late afternoon.

Although most sectors had a strong showing, Energy (+0.1%) and Materials (+0.25%) struggled to gain traction. On the downside, the Telecom Services sector (-0.62%) was the lone decliner.

Movers & Shakers

  • mm pic 2BlackBerry (NASDAQ:BBRY) shares initially dropped after the company reported wider third-quarter losses than expected. However, shares rallied 15.52% after the firm announced that it had entered into a five-year strategic partnership with Foxconn to make phones for Indonesia and other fast-growing markets.
  • Source: WSA
    Source: WSA

    Walgreen Co. (NYSE:WAG) shares fell initially, but rebounded to end 3.69% higher after the drugstore chain’s first-quarter profits met expectations. Earnings rose to $695 million, or 72 cents a share, from $413 million, or 43 cents a share, a year earlier.

  • Red Hat Inc. (NYSE:RHT) surged14.49% after the software firm announced that its third- quarter profits rose by 50% on late Thursday.
  • Textron (NYSE:TXT), which makes Cessna planes and Bell helicopters, soared 14.49% following a Financial Times report that said it may acquire Beechcraft Corp., an aircraft maker. The deal would auger well for Beechcraft, which emerged from bankruptcy just nine months ago, the report said.
  • Shares of CarMax Inc. (NYSE:KMX) fell 9.37% after the used-car seller’s third-quarter profit missed Street expectations. Profits rose to $106.5 million, or 47 cents a share, from $94.7 million, or 41 cents a share in the year-ago period. Revenue rose to $2.9 billion from $2.6 billion.
  • Nike Inc. (NYSE:NKE) shares lost 1.18% as investors continued to digest the sportswear company’s mixed quarterly report that was released late Wednesday. While the company beat profit estimates, its sales missed Street consensus.

Futures

  • Treasuries ended on their highs after staging an intraday reversal. The 10-year yield tested resistance earlier this morning at 2.95% (September closing high). Despite the stronger-than-expected Q3 GDP revision, the 10-year came barrelling back on short-covering activity that exacerbated Friday’s gains. The 10-year note settled higher by 11 ticks, with its yield down four basis points to2.89%.
  • The dollar fell from its five-year high against the yen as investors consolidated gains this week and pared positions back ahead of the holidays. However, the strong trend for the US currency remained intact going into next year. The dollar rose to 104.64 yen, its highest since October 2008, and last traded at 104.05 yen, down 0.18 %. The euro rose 0.13% to $1.3680. The dollar index was down 0.14 % at 80.52.
  • Gold rebounded from an early dip to a six-month low on short covering, but is still on track for its largest annual loss in 32 years. The Federal Reserve’s plan to scale back its monetary stimulus and expectations of narrower US government deficits have weighed on bullion. Spot gold rose 0.99% to $1201.35 an ounce. Gold futures for February delivery were up 0.63% to $1,201.10 an ounce.
  • Oil prices rose and gasoline futures hit a three-month high, fuelled by spread trading and supply concerns. Crude oil for February delivery settled 12 cents higher at $99.16 per barrel, while January natural gas slipped 6 cents to $4.40 per one million BTU.

Economic Front

  • US third-quarter growth raised to 4.1%The US economy expanded at its fastest pace in two years during the third quarter owing to stronger consumer spending and business investment than previously reported, according to the newly revised government figures.GDP climbed at a 4.1% annual rate from July through September, the US Department of Commerce said on Friday. Previously, the increase was reported as 3.6%.Consumer spending, the main driver of the US economy, rose 2% instead of 1.4% as initially estimated.Yet the news wasn’t entirely positive. While Americans spent more on recreational pursuits, the bulk of the increase in consumer outlays was directed toward healthcare and gasoline—necessities that deprive households of discretionary income to spend on other goods and services.Still, the rise in spending, especially on hobbies and the like, suggests that households are doing well enough to keep the economy on an improved growth path as a new year gets underway. What’s more, gasoline prices have fallen sharply since the end of the third quarter, giving Americans a bit more money to spend.

    Business investments, meanwhile, was somewhat stronger, mainly on software and similar products. Spending on intellectual property jumped 5.8% instead of the prior estimate of 1.7%.

    The build-up in third-quarter inventories, which accounted for about 40% of overall third-quarter growth, was little changed. Companies stockpiled $115.7 billion worth of goods on warehouse shelves.Economists say that the GDP could fall in the final months of 2013, perhaps sharply, if companies are unable to sell all the goods they stockpiled. In another potentially good sign, businesses continued to build up inventories in the first month of the fourth quarter, indicating that sales will continue to rise. If that’s the case, fourth-quarter growth could be stronger than expected.

    Trade also contributed a bit more to faster growth in the third quarter. The increase in exports was revised to 3.9% from 3.7%, while the rise in imports was trimmed to 2.4% from 2.7%. The annualized pace of inflation was little changed at 1.9%, or just 1.4% on a core basis.

Top News

Traffic at Target stores falls after data breach

In the wake of a massive data breach, Target Corp. (NYSE: TGT) suffered reduced customer traffic during one of the busiest shopping weekends of the year, the Wall Street Journal reported.

The number of transactions at Target fell 3-4% compared with last year’s final weekend before Christmas. Meanwhile, transactions at the other retailers were strong.

Target said on Thursday that hackers had stolen data from as many as 40 million credit and debit cards of shoppers who visited its stores during the first three weeks of the holiday season.

At least two million shoppers who used bank debit cards at Target stores during its recent data breach are facing lower limits on how much cash they can take out of teller machines to spend at stores.

Google running out of time after EU rejects latest antitrust offer

Google (NASDAQ:GOOG) has been told to hurry up to improve its offer to settle a European Union (EU) investigation into anti-competitive behaviour or face formal charges that could lead to a hefty fine. EU antitrust chief Joaquin Almunia rejected the internet search giant’s latest concessions and warned that it has only a short time left to make a satisfactory offer. Almunia said the revised proposals did not go far enough. Almunia said that, in particular, Google’s latest offer did not remove concerns about the treatment of Google’s rivals in so-called vertical searches. Asked about sanctions against Google, Almunia declined saying that the EU will be forced to take action if Google does not set things right in the given time frame.

Oracle to buy Responsys for $1.39 billion in cloud software push

Oracle (NYSE:ORCL) said it would buy web-based marketing software maker Responsys (NASDAQ:MKTG) for about $1.39 billion or $27 a share in cash, excluding debt, to bolster its cloud computing offerings. Oracle has been focusing on cloud software to fend off competition from nimbler rivals such as Salesforce.com andWorkday, which offer web-based products at prices that often undercut Oracle. Oracle’s offer represents a premium of about 38 % to Responsys’ Thursday closing. The deal, which has been approved by the board of directors of Responsys, is expected to close in the first half of 2014.Oracle is one of the most prolific acquirers in Silicon Valley. Including Responsys, it has bought at least seven companies this year. Earlier this year, it struck a deal for network gear makerAcme Packet Inc. for $2.1billion. Responsys was part of the first wave of technology companies to go public after the financial crisis, debuting on the Nasdaq market in early 2011.

News to look forward to next week

US markets would be closed early on Tuesday at 13:00 due to Christmas Eve and would be closed on Wednesday on account of Christmas.

Monday 23 December 2013

  • Core Price Index (Monthly)
  • Personal Spending (Monthly)
  • Michigan Consumer Sentiment (Fortnightly)

Tuesday 24 December 2013

  • Durable Goods Order (Monthly)
  • New Home Sales (Monthly)

Thursday 26 December 2013

  • Jobless Claims (Weekly)

Major Events

  • There could also be signs of movement on the adoption of Obamacare after Monday’s “deadline” for Americans to sign up for insurance plans created under President Obama’s healthcare law. Like many things about the law, the deadline is proving more malleable than it initially appeared. However, the week still could bring some indication of enrolment numbers and whether they continue to lag far beyond the administration’s initial hopes.
  • The Food and Drug Administration (FDA) is due to decide by Friday whether to authorize the marketing of Sanofi’s multiple sclerosis (MS) treatment drug Lemtrada in the US. The drug has been under development for over 20 years. Lemtrada was approved by European regulators in September. The drug’s prospects were key to Sanofi’s $20.1-billion takeover of Genzyme in 2011.

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