Market Monitoring – Week Ended 24 January 2014

Edited by Vani Rao

US Stocks Tumble on Global Selloff; Dow Nosedives to 318 points

Stocks end lower amidst fears of the Fed’s stimulus withdrawal

The US stocks finished the week with deep losses as investors fled equities and emerging-markets currencies on weak Chinese data and fears that emerging markets are facing headwinds.

Source: Yahoo Finance
Source: Yahoo Finance

The Dow Jones Industrial Average dropped 318 points, or 1.96%, to 15,879.11 on Friday, its worst one-day percentage decline since 20 June 2013. The Dow also fell 3.5% for the week, its worst weekly drop since 25 November 2011, with the drop coming in the holiday shortened week.

The S&P 500 dropped 38.17 points, or 2.09%, to 1,790.29. The S&P closed below the psychological level of 18,000 for the first time since 17 December 2013. The benchmark index shed 2.6% over the past week, its worst weekly percentage loss since June 2012. The index is now 3.1% below its record high as on 15 January 2014.

The Nasdaq Composite Index lost 90.70 points, or 2.15%, to close at 4,128.17. The Nasdaq posted a weekly loss of 1.7% after two weeks of gains. Moreover, the tech-heavy index reversed its early 2014 gains and is now down 1.2% since the start of the year.

In addition, the Fed’s likely announcement of the stimulus tapering could have a negative impact on the stock markets in the forthcoming week. This is mainly because the tapering will reduce the liquidity in the economy. As a result, the stock market may witness a massive sell-off in the coming days. The negative sentiment is seen to be a temporary phenomenon only. On a positive note, the earnings results in the coming days coupled with the expected fall in stock prices should make the stock market more attractive to investors. Given the bearish trend in the stock market, it could be the right time to pick up stocks.

Due to the sharp selling all the sectors were in the red. The Industrial sector (-3.11%) ended at the bottom of the leaderboard. Elsewhere, Financials (-2.29%) and Materials (-2.73%) lagged while Energy (-2.06%) ended in line with the other laggards. The Healthcare sector lost 2.33%.

Movers & Shakers

mm pic 2Juniper Networks Inc. (NYSE:JNPR) rallied 6.1% on reports that the hedge fund Jana Partners has increased its position in the network equipment company.

Source: WSA
Source: WSA

Discover Financial Services (NYSE:DFS) shares gained 2.82%. The card issuer announced that it earned $1.23 a share in the fourth quarter, above the $1.17 a share forecast by analysts.

Starbucks Corp. (NASDAQ:SBUX) shares advanced 2.17%. The coffee company reported late Thursday that its fiscal quarter earnings of 71 cents per share beat its earnings per share forecast. Net revenue rose 12% to $4.24 billion. Starbucks also raised its EPS outlook for the fiscal year.

Kansas City Southern (NYSE:KSU) shares tumbled 15.17%. The railroad company announced that its fourth quarter earnings rose to $1.03 a share from 83 cents a share a year earlier. Revenue increased 8.3% to $615.6 million. However, analysts estimated the company to earn $1.10 per share on revenue of $618 million.

Avon Products (NYSE:AVP) fell 5.26% in part due to concerns relating to a slowdown in China, one of its biggest markets.


Treasury bill rates jumped amid concerns that Washington won’t raise the government’s $16.7 trillion statutory borrowing limit in time before it is expected to be exhausted by early March. The interest rate on T-bills due March 6 traded as high as 0.10% before moving down to 0.08%. Rates on T-bills that mature after mid-March, while higher on the day, were lower than those on T-bills due in late February and mid-March, as traders anticipated any delay in repayments will be fairly brief, analysts said. Ten-year notes were up 13/32 to yield 2.73%. Thirty-year bonds rose 23/32, yielding 3.64%.

The yen surged to a seven-week high against the dollar, while the Swiss franc climbed to a five-week peak against the euro as investors sought refuge in safe-haven assets after a sell-off in emerging market currencies. The dollar fell to a seven-week low of 101.98 yen and was last at 102.26, down 0.96%. The euro last traded at 1.2235 francs, 0.26% lower. The euro was down 0.14% versus the dollar at $1.3675.

Crude settled lower on reports of a slowing economy in China and a downward slide in US equities, while Brent saw slight gains on spread trading. Oil fell 0.43% to $96.90.

Gold rose to a two-month high, posting its fifth consecutive weekly gain as a global flight from emerging market assets and declines in equities increased the bullion’s safe-haven appeal. Volatility in the currency market led by the plummeting Argentina peso and Turkish lira prompted investors to buy gold, traders said. However, gold investment demand remains weak, with the world’s largest gold-backed exchange-traded fund SPDR Gold. Shares posted a 5.4-tonne outflow on Thursday. Spot gold inched up 0.32% to $1,267.94 an ounce. Gold futures for February delivery settled up 0.47% at $1,268.20 an ounce.

Bitcoins remained range bound for the week. It started the week at 946 while it ended on 942, reaching a high of 972.


Earning Releases

Procter & Gamble betting on emerging markets

Procter & Gamble (NYSE:PG) forecast strong sales gains in emerging markets, quelling investor fears that slowing growth in some countries would hurt its prospects. P&G said that revenue rose 8% in developing countries in the fiscal second quarter, but barely edged up in mature markets. The company also stood by its 2014 sales and profit forecasts. The growth in the emerging markets was one reason why P&G reported a decline of 0.9% point in its profit margins. P&G earned $3.43 billion, or $1.18 per share, in its fiscal second quarter. Core earnings per share, which exclude restructuring charges, fell 1% to $1.21. Sales rose 0.5% to $22.28 billion.

Bristol-Myers beats sales, profit forecasts

Bristol-Myers Squibb’s (NYSE:BMY) quarterly sales and earnings beat Wall Street expectations, helped by cost cutting and growing sales of its treatments for cancer, blood clots, and diabetes. The company said it earned $726 million, or 44 cents per share, in the fourth quarter. Excluding special items, the drugmaker earned 51 cents per share, well above the average analysts’ estimate of 43 cents. Global revenue rose 6% to $4.44 billion, topping Wall Street expectations of $4.3 billion. The company said it continues to expect earnings of $1.65 to $1.80 per share, excluding special items, this year.

Honeywell profit beats estimates on sales rise

Honeywell International (NYSE:HON) reported higher-than-expected fourth quarter profit and revenue, as sales grew across its major segments. Its fourth-quarter net income rose to $947 million, or $1.19 per share. Revenue increased 8% to $10.39 billion, nearly $200 million more than earlier estimated. In its two largest segments, Aerospace and Automation and Control Solutions, profit rose 6% and 8%, respectively. Honeywell confirmed its 2014 financial targets, which include 8-10% growth in earnings per share and a 3-4% increase in sales.

Xerox revenue misses estimate as services growth stalls

Xerox (NYSE:XRX) reported weaker-than-expected quarterly revenue as growth in its services business stalled. Growth in IT outsourcing slowed as Xerox won fewer deals during the quarter. Revenue from its printing business dropped 6% to $2.4 billion in the quarter ended 31 December 2013. The services business generated $3.0 billion in revenue. Total revenue dropped 3.4% to $5.57 billion. Net income from continuing operations attributable to Xerox slipped to $310 million, or 25 cents per share, from $334 million, or 26 cents per share, a year earlier. Excluding items, the company earned 29 cents per share. The company also forecast adjusted earnings per share from continuing operations at 23-25 cents for the quarter ending March 31.

News to look forward to next week

Economic Releases

  • The US Department of Commerce is expected to report the Gross Domestic Product Data on Thursday 30 January 2014. It is expected to show that the country ended 2013 on a strong note and that the economy is on a firm footing.
  • The US Department of Commerce is also expected to report on Tuesday 28 January 2014 that new orders for durable goods increased in December and core capital goods orders are forecast to rise as well. Other reports on Tuesday are expected to show home prices maintaining their streak of double-digit gains. Consumer spending data on Friday 31 January 2014 is likely to show some moderation in domestic demand as 2013 ended.
  • Retail sales on Tuesday 28 January 2014 will point to whether consumer spending was as frigid during the month as was the pace of hiring. That said, a weak reading for retailers would likely reverse subsequently if the cold weather persists during the month.
  • A measure of core consumer prices due on Thursday 30 January 2014 is likely to show minimal inflationary pressure, although that remains unsurprising given the slack that most economists think remains in the economy.

Earnings Releases

  • Apple’s (NASDAQ:AAPL) profit and handset retail sales data will be in the spotlight when the company posts results for the first full quarter of iPhone 5S and 5C sales. Moreover, it would be worth noting how Apple is performing on its once-unassailable margins in the light of intense global competition and rising production costs.
  • US Internet industry giants will submit their report cards to Wall Street, including Yahoo (NASDAQ:YHOO) on Tuesday 28 January 2014, Facebook (NASDAQ:FB) on Wednesday 29 January 2014, and Google (NASDAQ:GOOG) on Thursday 30 January 2014.
  • A busy earnings week includes fourth-quarter results on Tuesday 28 January 2014 from Ford (NYSE:F), which is likely to provide an outlook for 2014, the busiest launch year in the company’s 111-year history.
  • Boeing’s (NYSE:BA) results on Wednesday 29 January 2014 are expected to be strong since the company delivered a record 648 jetliners this year. Investors are likely to focus on Boeing’s profit margin from commercial aircraft, which is pressured by increased deliveries of its low-margin 787 jetliner.
  • Amazon (NASDAQ:AMZN), which will post results on Thursday 30 January 2014, may again defy profit hopes as it spends for the future. The online bookseller releases quarterly results for an increasingly disparate portfolio of major businesses from media and entertainment and cloud computing to traditional online retail.

Important Events

  • Ben Bernanke chairs his last Federal Reserve policy meeting on Tuesday 28 January 2014 and Wednesday, when the US central bank is expected to make another $10-billion cut to its stimulus bond-buying program. The big question for the Federal Open Market Committee is how to adjust its forward guidance on when it will consider raising rates, which for now is tied to an uptick in inflation and a drop below 6.5% unemployment.
  • President Barack Obama delivers his fifth State of the Union Address on Tuesday 28 January 2014.

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