Market Monitoring – Week Ended 21 February 2014

With the Contribution of Junior Associates
Verified by Joma Jose
Edited by Vani Rao

US Stocks Snap Winning Streak on Lackluster Data

Tech-heavy Nasdaq marches on, while S&P and Dow fall on weak housing sales

US stocks finished mostly down for the week with the S&P 500 facing resistance as it neared record highs. Treasuries edged up and the US dollar fell against the euro after weak US housing sales stats. Oil fell on expectations of warmer weather curbing heating fuel demand, while gold rose to its third consecutive weekly gain.

Source: Bloomberg
Source: Bloomberg

The Dow Jones Industrial Average and S&P 500 both shed 0.2%, while the Nasdaq slipped 0.1%. For the week ended 21 February 2014, the Dow and S&P 500 posted losses of 0.3% and 0.1%, respectively, while the Nasdaq added 0.5%.

The S&P 500 dipped 3.53 points, or 0.19%, closing at 1,836.25. The benchmark index lost 0.1% for the week, putting it 0.7% below its January 15 record close of 1,848.38.

The Dow Jones Industrial Average shed 29.93 points, or 0.19%, to finish at 16,103.30. The Dow dipped 0.3% for the week, also halting a two-week winning streak.

The Nasdaq Composite index edged down 4.13 points, or 0.10%, to close at 4,263.41. The tech-heavy index finished up 0.5% for the week, its third straight weekly gain.

The tech sector lost 0.34% with top components like Apple (NASDAQ:AAPL), Facebook (NASDAQ:FB), and Intel (NASDAQ:INTC) lost between 1.1% and 1.5%. Another tech component, Hewlett-Packard (NYSE:HPQ), lost 1.3% despite beating earnings and revenue estimates.

MM pic 2The Financial sector was able to climb ahead of the broader market during the late-morning retreat. Despite the slight gain of 0.03%, the sector ended the week behind the remaining nine groups with a loss of 0.9%.

Source: WSA
Source: WSA

Elsewhere, the Consumer Discretionary sector (+0.17%) finished in the lead thanks to all-around strength. On the downside, the Energy sector (-0.70%) spent the entire session in the red .

Movers & Shakers

Groupon Inc. (NASDAQ: GRPN) plummeted 22% on Friday after the daily deals company forecast a weak outlook of 2-4 cents, missing expectations of a 5-cent gain.

Analysts at RBC Capital Markets also cut the stock to Underperform from sector Perform while lowering the price target to $7 versus $11, noting that the goods and travel markets are extremely competitive with tough competitors. (NASDAQ:PCLN) shares rose 2.54%. The online travel agency reported Thursday its fourth-quarter adjusted earnings rose to $8.85 a share, beating expectations. Priceline’s gross bookings jumped 39% in the quarter.

Intuit Inc. (NASDAQ:INTU) shares gained 4.59%. The tax software company on Thursday said that it swung to a second-quarter loss of 13 cents a share from a profit of 23 cents a share a year ago. On an adjusted basis, the maker of TurboTax earned 2 cents a share, in line with expectations.

Safeway Inc. (NYSE:SWY) shares rose 4.30%. The supermarket chain said late Wednesday it is holding talks with a potential buyer. Activist investor Jana Partners took a stake in the firm last fall and has been pressing the company to increase profitability.

Barnes & Noble Inc. (NYSE:BKS) shares climbed 13% on news that private investment firm G Asset Management has offered to buy a 51% stake in the company for $22 a share. G Asset has also proposed to buy 51% of its Nook unit, valuing the business at $5 a share. G Asset believes substantial shareholder value will be created by separating Nook from the Retail and College businesses.

Newmont Mining Corp. (NYSE:NEM) shares dropped 4.42%. The gold and copper producer on Friday said it swung to a fourth-quarter loss due to impairment charges and weaker prices.

Express Scripts Holding Co.’s (NASDAQ:ESRX) shares fell 4.03%. The pharmacy benefit manager late Thursday said fourth-quarter profit came in at $501.9 million, or 63 cents a share, compared with $504.1 million, or 61 cents a share, a year ago. On an adjusted basis, Express Scripts earned $1.12 a share, in line with estimates.



Weak home sales data and the harsh weather conditions played havoc, causing the US dollar to slump against the Euro during the week ended 21 February 2014. However, crucial data releases by both the US and Europe are expected to have a significant impact on the US dollar in the weak ahead. For more details, please access the detailed report.

Oil & Gas

The US crude futures slipped for the second consecutive day during the week as the US reported weaker-than-expected housing data and promising prospects of the climatic getting better. WTI crude fell to a day’s low of $101.69 a barrel, before settling 0.54% lower at $102.20 a barrel.US natural gas price rose on Friday, 21 February 2014, as households consumed above normal fuel to beat the frigid winter temperature. The March delivery for natural gas settled at $6.135 BTU. For more details, please access the detailed report.

Treasuries inched up as investors questioned whether a string of weaker-than-expected economic data is because of severe weather conditions that disrupted normal life schedule in the short term or a symptom of a more structural economic slowdown. Benchmark 10-year notes were up 6/32, yielding 2.73%. The 30-year bonds rose 19/32 to yield 3.69%.

Gold rose, notching its third consecutive weekly gain, as doubts over US economic recovery helped lift bullion’s safe-haven appeal. “I believe that the large investment firms have rebalanced their portfolios to include gold. And that is a main factor sustaining gold and may drive prices up into the future,” said Miguel Perez-Santalla, Vice President at online precious metals market BullionVault. Spot gold inched up 0.07% at $1,323.40 an ounce. Gold futures for February delivery rose 0.60% to $1,325.00 an ounce.

Bitcoin prices spiked almost 200% on the Tokyo-based Mt. Gox Exchange on Sunday to hit an intraday high above $300, amid speculation withdrawals on the troubled exchange will soon resume.

The price of one Bitcoin rallied to a session high of $348.98 on Mt. Gox, before trimming gains to trade at $278.00 during U.S. morning hours, up 151.4%. Investors returned to the market after a rumor posted on internet message board website Reddit said that Mt. Gox was in the process of testing Bitcoin withdrawals again. Prices on Mt. Gox plunged to $91.50 on February 21 as investors were disappointed with a lack of concrete details regarding progress made on resuming withdrawals on the struggling exchange.

Mt. Gox was forced to halt all Bitcoin withdrawals on February 7 due to a technical issue, leading to steep declines as traders shied away from the virtual currency.

In other major news Mark Karpelès, Chief Executive Officer of Mt. Gox, the embattled Toyko-based bitcoin exchange, resigned on Sunday from the board of the Bitcoin Foundation. The Bitcoin Foundation confirmed in a statement on its website that Mt. Gox had resigned its board seat and thanked Mt. Gox for its efforts in launching the group. The move comes amid a string of longstanding technical issues that began last summer when Mt. Gox halted customer withdrawals in US dollars.


Economic Front

US CPI index rises

Consumer price inflation in the US rose in line with expectations in January, while prices excluding food and energy costs also inched up modestly, official data showed on Thursday.

In a report, the US Department of Labor said that consumer prices rose by as a seasonally adjusted 0.1% last month, matching forecasts, after rising 0.2% in December. Year-over-year, consumer prices rose at an annualized rate of 1.6% in January, in line with expectations and up from 1.5% in December.

Consumer prices, excluding food and energy costs, inched up by a seasonally adjusted 0.1% last month, meeting estimates. Core consumer prices rose 0.1% in December.

Core prices are viewed by the Federal Reserve as a better gauge of longer-term inflationary pressure because they exclude the volatile food and energy categories. The central bank usually tries to aim for 2% core inflation or less.

Weekly jobless claims fell by 3,000

The number of people who filed for unemployment assistance in the US last week fell lesser than expected, underlining concerns over the strength of the labor market, official data showed on Thursday.

In a report, the US Department of Labor said the number of individuals filing for initial jobless benefits in the week ending February 15 fell by 3,000 to a seasonally adjusted 336,000 from the previous week’s total of 339,000.

Analysts had expected jobless claims to fall by 4,000 to 335,000 last week. Continuing jobless claims in the week ended February 8 rose to 2.981 million from 2.944 million in the preceding week. Analysts had expected continuing claims to increase to 2.970 million.

Earnings Releases

Ameren reports improved Q4 earnings; positive FY2014 guidance

Ameren Corporation (NYSE: AEE) reported a 5.1% rise in total revenue to $1.32 billion for the fourth quarter of FY2013, below market expectations of $1.34 billion. The company’s net income stood at $0.19 a share, above the prior year’s net income and analysts’ expectations of $0.05 and $0.13 per share, respectively. Thomas R. Voss, Chairman and CEO, attributed the improved fourth quarter earnings to higher tariffs for Missouri Electric and Illinois Transmission services; and greater electric and gas sales volumes due to the colder winter. The company affirmed its positive outlook for FY2014 with net earnings in the range of $2.25-2.45 per share, above Wall Street consensus estimates of $2.28 per share. Further, EPS from continued operations are expected to grow at a CAGR at 7-10% through 2018 considering 2013 as the base year. Ameren’s shares surged 5.33% during the trading session on February 21, 2014, to close the day at $40.88.

Dish Network’s net income swells 38%, but revenue misses expectations

Dish Network Corp.’s (NASDAQ:DISH) net revenue improved 6.6% to $3.5 billion in the fourth quarter, marginally below analysts’ expectations of $3.6 billion. Dish reported net income of $288 million, or 63 cents a share, up from $209.1 million, or 46 cents per share, in the comparable period. Analysts at Wall Street were expecting the satellite TV company’s net income at 41 cents per share. The company added 654,000 pay-TV and 80,000 broadband customers during the quarter. The monthly revenue per pay-TV subscriber improved to $80.37 in 2013 from $76.98 in 2012.

Pinnacle’s earnings drop, but outperforms estimates

Pinnacle West Capital Corporation’s (NYSE:PNW) revenues rose 1% to $699.8 million in the fourth quarter of FY2013 from $693.1 million in the year-ago period. The company reported net earnings of 22 cents a share, compared with 24 cents in the year-ago period. Analysts at Wall Street were expecting an EPS of 19 cents per share on net revenue of $688.22 million. President and Chief Executive Officer Don Brandt attributed the drop in Q4 earnings to a 84% decline in the number of cooling degree-days in October 2013 (due to the coldest day recorded in October 2013), impacting earnings by $0.05 per share. The company provided earnings guidance for FY2014 in the range of $3.60-3.75 per share and a minimum 9.5% average return on common equity through FY2015.

Charter Communications back into the black in Q4 led by broadband segment

Charter Communications Inc. (NASDAQ:CHTR) swung to profits in the fourth quarter with net income of $39 million, compared with losses of $40 million in the prior year quarter. The company’s EPS stood at 35 cents, easily surpassing the earnings estimates of 24 cents by Thomson Reuters. Sales rose to $2.15 billion, marginally short of analysts’ average estimate of $2.16 billion. The company’s fourth quarter sales were primarily driven by growth in internet, video, and commercial revenues. In addition, the fourth-largest cable provider in the US managed to increase its internet customer base to 4.38 million, representing a growth of 2.2% over the third quarter. Shares of Charter Communications declined 5.13% to close the day at $125.08 on Friday, February 21, 2014.

Ecolab sales at all-time high led by product innovation

Ecolab Inc.’s (NYSE:ECL) fourth-quarter sales rose to a record $3.6 billion, representing an increase of 17% from the year-ago period. Fourth quarter 2013 adjusted net income rose 20% to $318 million and adjusted diluted EPS increased 17% to $1.04, compared with 89 cents in the year-ago period. Ecolab achieved robust fourth quarter earnings owing to solid sales growth and operating margin gains. Douglas M. Baker, Jr., Chairman and CEO, marked FY2013 as a year of outstanding accomplishments, during which the company delivered solid organic sales growth through product innovation, industry-leading sales, and service force expertise. Ecolab made terrific progress by integrating its acquisitions of Champion Technologies Inc. and Champion Technologies, and outpacing its own timelines. Going forward, Ecolab forecasts EPS of 71-75 cents in Q1 2014 and full-year adjusted earnings per share of $4.10-4.20, representing a 16% to 19% increase, respectively, over the prior year period.

News to look forward to next week

Economic Releases

Next week’s revision to fourth-quarter US gross domestic product data will likely confirm the economy was losing momentum towards the end of 2013. The US Commerce Department is expected to report on Friday, 28 February 2014, that the economy grew at a 2.6% annual pace instead of the previously reported 3.2%. Trade and consumer spending estimates are expected to be revised lower.

Data on housing is seen offering a mixed picture of the sector, with cold weather expected to have weighed on new home sales in January but supply of properties tightening. The S&P-Case Shiller house price index for 20 metropolitan areas is expected to have risen 13.5% in December from a year earlier. Durable goods data on Thursday, 27 February 2014, is expected to follow the recent trend of weak manufacturing reports as businesses work off excess inventories.

Earnings Releases

The largest US hotel operator Hilton Worldwide (NYSE:HLT) is scheduled to report on Thursday, 27 February 2014, its first quarterly results after going public. US hoteliers have been able to benefit from growing business travel in the country, a result of the rising confidence in an improving US economy. Investors will be looking for any impact of recent cold weather that delayed travel.

Office Depot (NYSE:ODP) is scheduled to report fourth-quarter results on Tuesday, 25 February 2014. This will be the first results after its combination with Office Max closed last year. Investors will be interested to see the progress the company has made since turnaround expert and CEO Roland Smith took office in November last year.

First Solar’s (NASDAQ:FSLR) latest quarterly results on Tuesday, 25 February 2014, is likely to get a small boost from its 550-megawatt Desert Sunlight project in Riverside, California, which has just started generating revenue. The company is focusing on overseas markets and is finishing several major US utility-scale projects.

Ocwen Financial (NYSE:OCN) is likely to miss analysts’ expectations for the fourth quarter, amid a regulatory crackdown on non-bank mortgage servicers to ensure that these companies have the systems in place to collect mortgage payments in large volumes. Investors will look for comments from the company on how it plans to deal with increased regulatory concerns and the impact of such actions on its business. The mortgage servicer is likely to report on Thursday, 27 February 2014.

Investors in Target Corp. (NYSE:TGT) will want to know if the data breach at the retailer during the holidays had a lingering effect on sales through early 2014, when the third-largest US retailer reports its quarterly results on Tuesday, 25 February 2014. In early January, Target lowered its fourth-quarter profit forecasts.

Investors will get an update on Best Buy’s (NYSE:BBY) turnaround efforts when it reports quarterly results on Thursday, 27 February 2014. The world’s largest consumer electronics chain has already warned of a larger-than-expected decline in operating margins for the quarter covering the all-important holiday season. It cut prices sharply to thwart competition from the likes of Wal-Mart and Amazon in what turned out one of the most promotional holiday seasons since the recession.

Abercrombie & Fitch (NYSE:ANF) is expected to report fourth-quarter results on Wednesday, 26 February 2014. The teen apparel retailer sees domestic demand picking up after reporting seven straight quarters of same-store sales declines. The company is also expanding its portfolio to include accessories, shoes and more sizes for women. Analysts will be looking out for sales trends, advertising strategy and cost-cutting measures the company will take to boost profit in the coming quarters.

Macy’s (NYSE:M) is likely to report its fourth-quarter results on Tuesday, 25 February 2014. The company emerged as the big winner among retailers last holiday season and gave a 2014 forecast that suggested the department store chain thinks it can keep its streak going. Analysts will look for more details on the next phase of its multi-year plan to integrate stores and e-commerce and whether it thinks it can weather persistently poor foot traffic at malls.

Sears Holdings (NASDAQ:SHLD) and Kohl’s (NYSE:KSS) are expected to report full quarterly earnings on Thursday, 27 February 2014, after posting disappointing holiday sales numbers. Analysts will want to know whether Sears is planning more store closings and layoffs and how it plans to stanch a disastrous decline in business at its namesake chain. For Kohl’s, the top question will be whether it expects same store sales to finally perk up in 2014 and how it plans to improve its e-commerce.

Toll Brothers (NYSE:TOL) is likely to report its fourth-quarter results on Tuesday, 27 February 2014. The largest US luxury homebuilder has been able to report growth in orders despite a recent slowdown in US housing demand as its more affluent customers are less affected by rising mortgage rates. Toll’s investors will be watching for any slowdown seen in January and February, especially in light of recent data that showed a larger-than-expected drop in housing starts in January.

Western Refining (NYSE:WNR), which operates two refineries located close to the Gulf Coast, is likely to beat analysts’ average estimates. The company’s profit will be driven by access to cheaper crude as new pipelines not only bring inland oil to its refineries but also depress prices of Gulf Coast crude benchmark Light Louisiana Sweet. The results are expected on Thursday, 27 February 2014.

Dreamworks Animation (NASDAQ:DWA) is likely to miss estimates, according to StarMine data, as the company did not release any major movies this quarter. Revenue from the international markets and domestic home video sales is not expected to help the company recoup investments on “Turbo”. The Hollywood Studio has been grappling with a declining home video market for years as DVDs fall out of favor. The producer of movies such as the “Shrek” series and “The Croods” is expected to report on Tuesday, 25 February 2014.

YRC Worldwide (NASDAQ:YRCW) is likely to its report fourth-quarter earnings on Thursday, 27 February 2014. Investors will look out for the trucking company’s response to the concerns about the operational improvements in its freight business as it restructures its balance sheet. A terminal network downsizing plan went awry when enough drivers were not relocated to the consolidated terminals, forcing the company to pay more to overtime and third-party carriers. Recently though, the stock had a good run-up after the company successfully struck a deal with its workers to extend their labor contract for another five years, necessary for it to meet with its lenders to discuss refinancing of debt.

Other Major News

JPMorgan Chase & Co (NYSE:JPM) CEO Jamie Dimon and other executives of the biggest US bank will make their case to institutional investors and securities analysts at a day-long meeting in New York on Tuesday, 24 February 2014. The company traditionally has used the day to announce yearly revenue and expense goals that analysts then factor into their profit estimates. The day usually brings a flood of information about the bank’s business lines which cover much of financial industry, from retail banking and asset management to business lending and investment banking.

Federal Reserve Chair Janet Yellen testifies on monetary policy and the economy before the Senate Banking Committee on Thursday, 27 February 2014. This is the second leg of her testimony on the central bank’s semi-annual monetary policy report. The US market will keep an ear out for subtle shifts in her thinking, given that the preponderance of economic data that has come in since she testified before a House Committee on February 11 has continued to show weak activity. It is unlikely, however, that her prepared testimony has shifted, and her message that the Fed is still likely to press ahead in its effort to wind down its bond-buying program will probably also hold.

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