Market Monitoring – Week Ended 28 February 2014

With the Contribution of Junior Analysts
Edited by Vani Rao

US Stocks End February on Record High; All Eyes on Ukraine, Job Market Data

S&P closes at its 48th record high in the past one year

The US stock markets finished the week ended 28 February 2014 and the month with solid gains, even as Friday’s rally gave way to choppy trading alongside rising concerns over the precarious situation in Ukraine. Stocks were initially boosted by better-than-expected Chicago PMI and consumer-sentiment reports and shrugged off a sharp cut in the estimates for fourth-quarter US economic growth that nonetheless matched expectations.

Source: Bloomberg
Source: Bloomberg

The S&P 500 ended the day up 5.16 points, or 0.30%, at 1,859.45. The benchmark index, which turned positive for the year on Thursday, posted a 1.3% weekly gain, bringing its February rise to 4.3%.

The Dow Jones Industrial Average added 49.06 points, or 0.3%, to clsoe at 16,321.71. The blue-chip index rose 1.4% on a weekly basis. The index saw a February rise of 4%, its largest monthly percentage gain since January 2013.

The Nasdaq Composite Index closed the session with a loss of 10.81 points, or 0.3%, at 4,308.11. The index rose 1.6% for the week and 5% over the course of the month, its biggest monthly gain since September 2013.

Ukraine ordered its military to full combat alert after Russia’s threat of military intervention in the country, but Kiev’s new politicians didn’t offer immediate countermoves to Moscow, amid reluctance by its Western supporters to stand with it militarily.

The US and its European allies vowed to isolate Russian President Vladimir Putin and punish his nation’s economy, demanding he withdraw in what they called an occupation force from Ukraine’s Crimean region.

The S&P 500 maintained its positive territory thanks to the relative strength of heavily-weighted sectors like Consumer Discretionary (+0.34%), Consumer Staples (+0.70%), and Financials (+0.52%).

Movers & Shakers

MM pic 2Best Buy Inc. (NYSE:BBY) shares rose 4.15%, recovering from the previous session’s 1% drop. The retailer on Thursday reported adjusted fourth-quarter earnings of $1.24 a share. Although it was below the $1.47 a share earned in the same period a year ago, it beat consensus analyst estimates of $1.01.

Source: WSA
Source: WSA

Monster Beverage Corp. (NASDAQ: MNST) shares rose 3.99%. The company posted fourth-quarter per share earnings that rose to 44 cents from 39 cents a year earlier. Net sales rose to $540.85 million from $471.52 million in the year-ago period.

Men’s Wearhouse Inc. (NYSE:MW) jumped 6.68% while Jos. A. Bank Clothiers Inc. (NASDAQ:JOSB) rose 2.95%. Jos. A. Bank on Thursday rejected the latest offer from its rival, which came to $63.50 a share. However, Jos. A. Bank left the door open for a deal, saying it is willing to talk with Men’s Wearhouse about a higher price.

Salesforce.com Inc. (NYSE:CRM) shares dropped 5.81%. The business software company on Thursday reported that its fourth-quarter loss widened due to higher expenses.

Southwestern Energy Co. (NYSE:SWN) shares fell 4.17%. The oil and gas company on Friday reported better-than-expected fourth-quarter earnings. However, the stock came under pressure after an analyst at Morgan Stanley reiterated Underweight rating for the company.

Shares of J.C. Penney Co. Inc. (NYSE:JCP) shed 2.54% following a 25% rally in the previous day. The retailer reported an adjusted fourth-quarter loss of 68 cents a share late Wednesday.

Futures

Currency

Weaker than expected gross domestic product (GDP) data caused the US dollar to slump against the GBP during the week ended 28 February 2014. The US dollar slid against the GBP on Friday, post the announcement of disappointing US production, indicating softness in the US economy. For more details, please access the full report.

Oil & Gas

On Friday, 28 February 2014, the US crude April futures gained 0.19%, or $0.19 cents, to end the week at $102.59 a barrel. The light sweet crude rose 0.38% during the week, the seventh consecutive weekly gain and 4.62% in the last one month, the biggest monthly gain since August 2013. For more details, please access the full report.

Benchmark treasuries pared most of their losses on month-end buying, as investors balanced their portfolios, traders said. Benchmark ten-year notes were down 5/32, sending yields up to 2.66%. Thirty-year bonds rose 2/32, pulling yields down to 3.59%. Traders predicted that yields will remain bound to the 2.65-2.76% range as investors wait for the payrolls report for February.

Gold fell as US equities climbed, but the yellow metal still posted its biggest monthly gain since July as persistent concerns about a slowdown in the U.S. economy boosted the bullion’s safe-haven status. Spot gold was down 0.45% to $1,325.06 an ounce. Gold futures for April delivery fell 0.49% to $1,325.30 an ounce.

The Mt. Gox, once the world’s biggest bitcoin exchange, filed for bankruptcy protection in Japan on Friday, saying it may have lost nearly half a billion dollars worth of virtual coins due to hacking into its faulty computer system. The collapse caps a tumultuous few weeks in which the company has remained virtually silent after halting trades of the crypto-currency, shaking the nascent but burgeoning bitcoin community.

Mt. Gox said that the exchange, used overwhelmingly by foreigners, had lost 750,000 of its users’ bitcoins and 100,000 of its own. At the current bitcoin price of about $565, the loss would amount to approximately $480 million, representing about 7% of the estimated global total of bitcoins. Bitcoin was trading at $577.71 at the Bitstamp exchange at the time of reporting.

Source: markets.blockchain.info
Source: markets.blockchain.info

Economic Front

US Government Revises its GDP Estimates

The US government slashed its estimates for fourth-quarter economic growth in the latest sign of a loss of momentum, but some tentative signs that emerged suggested the worst of the slowdown may be over. GDP expanded at an annual rate of 2.4%, the US Commerce Department said, down sharply from the 3.2% that it had reported last month and the 4.1% logged in the third quarter.

The National Association of Realtors said its pending home sales index, based on contracts signed last month, rose 0.1% to 95.0 in January.

The Institute for Supply Management-Chicago business barometer edged up to 59.8 from 59.6 in January. The Thomson Reuters/University of Michigan’s final reading on the overall index on consumer sentiment for February came in at 81.6, slightly above the 81.2 in both the preliminary February numbers and the final January reading.

Fed Officials Downplay Worries over US Growth

Despite recent signs of a possible slowdown, the growth story of the US economy remains intact, top Federal Reserve officials said, suggesting they will continue to support reductions in the Fed’s massive bond-buying program. Recent bad weather in many parts of the US has had an adverse impact on economic activity, but that is no reason for less optimism about economic prospects for the rest of the year, St. Louis Federal Reserve President James Bullard told CNBC television. Charles Plosser, President of the Federal Reserve Bank of Philadelphia, said he was optimistic about the nation’s turnaround and said the economy is “in a firmer position than it’s been in a number of years.” He also reiterated the forecasts, saying he sees close to 3% growth for 2014.

News to look forward to next week

Economic Releases

The government’s closely watched monthly jobs report on Friday 7 March 2014 ,is expected to show that employers stepped up hiring a bit in February, but there’s a greater-than-usual amount of uncertainty around forecasts given that the weather remained unseasonable. If the payroll growth figure comes in around the consensus of 148,000, that’s likely to fuel optimism that the economy is pulling out of its weather-induced funk. A weak reading, in contrast, will lead to more hand-wringing and fuel debate over whether the economy is weakening. Another report from ISM on Wednesday, 5 March 2014, is expected to show how the expansion of the services sector slowed down in February.

Earnings Releases

A steadily growing membership base has spurred Costco’s (NASDAQ:COST) comparable store sales in the past year. When it reports second-quarter results on Thursday, 6 March 2014, investors will focus on new membership signups, renewal rates, and the rise in the number of executive members. They will also be interested to see how the company fared during the holiday season.
Office retailer Staples (NASDAQ:SPLS) is scheduled to release its fourth-quarter results on Thursday, 6 March 2014. Investors will keep an eye out for evidence that the company’s strategy of focusing more on how new categories, such as tablets, breakroom supplies, and copy and print services, is boosting sales, particularly after rival Office Depot (NYSE:ODP) reported a surprise loss and said it expected sales to continue to decline in 2014.

Other Major News

Citigroup’s (NYSE:C) Chief Financial Officer John Gerspach will speak to institutional investors before the stock market opens on Wednesday, 5 March 2014. Gerspach is expected to be asked about the first-quarter outlook for the company’s capital markets business, as well as the company’s outlook for meeting its 2015 targets for financial performance.

Former Bank of Israel Governor Stanley Fischer testifies before the Senate Banking Committee on Tuesday, 4 March 2014, as it considers his nomination for the No. 2 spot at the Federal Reserve. The committee will also hear from former US Treasury official Lael Brainard, who has been nominated for a Fed board seat, and Fed Governor Jerome Powell, who has been reappointed for a fresh board term.

The European Central Bank is likely to hold its rate unchanged at Thursday’s, 6 March 2014, Monetary Policy Committee meeting. However, a few economists have predicted a cut in the refinancing rate. The European Central Bank may be forced to print money this year to fight deflation risks and boost the fragile economic growth in Europe.

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