Market Monitoring – Week Ended 31 January 2014

Edited by Vani Rao

US Stocks End Month on Lower Note Following Disappointing Earnings

After rocky January, all eyes on consumer data, European Central Bank stance on deflation measures

Weak fourth-quarter earnings sent stock markets crashing on Friday, 31 January 2014, while the impact was lessened due to the encouraging consumer sentiment data provided by Thomson Reuters/University of Michigan.

Source: Yahoo FInance
Source: Yahoo FInance

The Dow Jones Industrial Average fell 149 points, or 0.94%, on Friday, capping a monthly decline of more than 5%, the worst that the index has seen since January 2009, when it fell 8.8%.

The S&P 500 Index closed down 11 points, or 0.65%, extending its monthly decline to 3.6%, its worst January since 2010, when it fell 3.7%.

Finally, the Nasdaq Composite Index dropped 19 points, or 0.47 %, finishing the month down 1.7%, its worst January since 2010, when it dropped 5.4%.

The declining emerging market currencies such as the Turkish lira and the South African rand, coupled with a contraction in the Chinese Manufacturing sector, weighed heavily on markets as the Federal Reserve pushed forward with its tapering of monthly asset purchases during the past week.

Seven of 10 sectors ended in the red with Energy (-1.48%) witnessing the largest decline. The sector was pressured by Dow component Chevron (NYSE:CVX), which tumbled 4.1% following disappointing earnings. The broader Energy sector ended January behind the remaining nine groups with a loss of 6.3%.

Meanwhile, the second-weakest sector of the month, Consumer Discretionary, lost 1.27%, extending its January decline to 6.0%. The sector was weighed down by Amazon.com (NASDAQ:AMZN), which plunged 11.0% following disappointing earnings and a cautious guidance.

The Information Technology sector drew strength from Google Inc. (NASDAQ:GOOG), which jumped 4.0% after reporting earnings. Meanwhile, Consumer Staples (-0.43%), and Healthcare (-0.81%) lagged behind the other sectors.

Movers & Shakers

MM pic 2Zynga (NASDAQ:ZNGA) soared 23.60% after it announced late Thursday that it is buying NaturalMotion, a mobile videogame company, for $527 million. It will also cut its headcount by 15% or 314 workers. During the fourth quarter, the company recorded a loss of 3 cents a share, compared with a loss of 6 cents a share in the year-ago period.

MM pic 3Wynn Resorts Ltd. (NASDAQ:WYNN) added 7.9%, after the casino company reported a big jump in fourth-quarter earnings and revenue late Thursday, beating analysts’ expectations. Gains in Macau, the only area in China where gambling is legal, boosted results.

Google Inc. (NASDAQ:GOOG) gained 4.01%. The company said its fourth quarter profit and revenue rose, although profits missed expectations. Its shares were buoyed by its announcement of selling Motorola Mobility to Lenovo. The board also approved the distribution of Class C shares that will not have any voting power. The new shares will trade under the ticker ‘GOOG’ starting April 3. Class C shares were created by Google to have more options when it comes to compensation and acquisitions.

Amazon.com (NASDAQ:AMZN) slid 11% after it reported higher fourth-quarter profits late Thursday. However, the numbers came in well below analysts’ expectations.

Newmont Mining Corp.’s (NYSE:NEM) shares declined 10.37%. The gold producer on Thursday reported production data for 2013 and said it expects impairment charges of $350- 400 million in 2014 as it re-evaluates its gold price target from $1,400 an ounce to $1,300.

MasterCard Inc. (NYSE:MA) dropped 5.12% after its fourth-quarter earnings missed analysts’ expectations. The company reported a profit of $623 million, or 52 cents per share, up from $605 million, or 49 cents a share, in the year-ago period. Revenue rose 12% to $2.13 billion. Analysts had estimated a profit of 60 cents a share on revenue of $2.14 billion.

Futures

Treasuries rose on month-end buying and lingering concerns about emerging market economies, putting safe-haven bonds on track to notch their strongest gains in 20 months in January. Ten-year notes were up 13/32 to yield 2.65%. Thirty-year bonds rose 19/32, yielding 3.60%.

The euro fell as soft euro zone inflation data rekindled concerns that the European Central Bank may have to take prudent measures to combat deflation. On the other hand, the dollar strengthened on mildly encouraging data to close out its best month since May. The euro fell 0.49% against the dollar at $1.3488. The single currency was down 0.98% against the yen at 137.82 yen. The dollar fell 0.51% to 102.18 yen. The dollar index rose 0.23% to 81.27.

Crude fell as traders took profits ahead of the weekend, although losses were stemmed by rising heating oil futures prices. Analysts said fall in the US crude prices was evidence that the Fed announcement and strengthening dollar finally caught up with crude prices that had been underpinned by cold weather, driving up the demand for distillates. Oil shed 0.79% to $97.45 a barrel.

Gold edged up, but suffered its first weekly drop in six weeks due to strong US economic growth, concerns over the US Federal Reserve’s withdrawal of monetary stimulus, and a slump in Chinese demand. Spot gold was up 0.09% at $1,244.31 an ounce. Gold futures for February delivery were up 0.23% to $1,245.00 an ounce.

Bitcoin witnessed a week of ups and downs amid the crucial meeting in New York, where the Bitcoin Foundation is considering a proposal to bring Bitcoin dealings under a regulatory framework. Talks have been positive until now. Bitcoin started the week at the high of $1,017 per Bitcoin on the Mt. Gox Index, where it reached a low of $910 on 28 January. Since then, the price has recovered slightly, with the price of one Bitcoin standing at $955 on 3 February 2014.

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

Economic Front

US consumer spending rose in December, confidence slips this month

US consumer spending rose in December, but consumer confidence has slipped in January over signs of tepid factory activity. It is believed that the economic growth could moderate in the first quarter. The US Department of Commerce said that consumer spending increased 0.4% in December after advancing 0.6% in November. Separately, the Thomson Reuters/University of Michigan’s Consumer Sentiment Index slipped to 81.2 in January from 82.5 in December. In another report, the Institute for Supply Management-Chicago business barometer fell to 59.6 in January from 60.8 in December.

Earning Releases

MasterCard reports superior Q4 earnings, but falls short of expectations

MasterCard Inc. (NYSE: MA) reported an 11% rise in fourth-quarter net revenue to $2.1 billion from $1.9 billion in the year-ago quarter, marginally missing consensus estimates of $2.14 billion. The company’s net income stood at $623 million or 57-cents per share, 3-cents short of the analysts’ estimate. The company reported a 13% improvement in its annual net revenue to $8.3 billion from the prior year. MasterCard’s net annual income was $3.1 billion, or $2.56 per share, which is below the analysts’ consensus estimate of $2.64 per share. MasterCard Inc. declared a 10-for-1 common stock split during the quarter under review. The company repurchased 9.8 million Class A shares during the fourth quarter and 41 million shares worth $2.4 billion during the year. MasterCard Inc. repurchased 4.2 million shares of worth $351 million, in the current quarter until January 24, and is authorized to repurchase additional $3.3 billion worth of shares under its repurchase program.

Aon profits up 16.4%, meets Wall Street’s expectations

Aon PLC (NYSE: AON) reported fourth-quarter profit of $355 million, or $1.14 per share, compared with $305 million, or $0.93 per share per share, in the year-ago quarter. The company’s net income per share attributable to shareholders improved 21% to $1.54, from $1.27 in the year-ago quarter. The company reported a 3% rise in total revenue to $3.21 billion owing to an 8% rise in revenue generated by HR Solutions. The analysts’ expected earnings of $1.50 per share from continuing operations and total revenue of $3.21 billion. Aon PLC’s operating margin improved from 17.0% in the prior year quarter to 21% in the last quarter. The company repurchased $77 million worth of 965,487 Class A shares during the fourth quarter. The company spent $65 million as restructuring expenses and has completed all its restructuring activities.

Legg Mason beats expectations with Q3 earnings of $125 million

Legg Mason Inc. (NYSE: LM) reported third-quarter 2013 adjusted income of $125 million, or $1.03 per diluted share, which is above the analysts’ consensus estimate of $1.00 per share. The company’s total revenue improved 8% quarter over quarter at $720.1 million, exceeding expectations of $716.0 million. The company reported a 4% upswing in Assets Under Management (AUM) at $679.5 billion, from $656.0 billion in the prior quarter. The company accredited its improved Q3 results to better average equity AUM and increased performance fees. Legg Mason’s adjusted operating margin stood at 24.1%, compared to 22.3% in the year-ago quarter. The company repurchased 2.3 million shares during the third quarter.

Simon Property’s profit rise 21% as malls and shopping centers business improves

Simon Property Group Inc. (NYSE: SPG) net profit surged 21% to $381.6 million, compared to $315.4 million in the year-ago period. The company’s diluted EPS in the fourth-quarter was $1.23, which is 22 cents above the diluted EPS in the year-ago period. The company reported a 5.3% rise in the net revenue from $1.34 billion in the year-ago period to $1.42 billion in the fourth quarter of 2014. Simon Property Group’s quarterly earnings call overshadowed the analysts’ net profit expectations of $1.16 a share and revenue expectations of $1.39 billion. Due to an upbeat performance of its malls and shopping centers business, the company’s Funds from Operations (FFO) improved 7.9% from $827.4 million, or $2.29 in the year-ago period, to $894.8 million, or $2.47 per diluted share in the fourth quarter. Analysts were expecting an FFO of $2.42 per share for the same period. Simon Property Group announced a quarterly dividend of $1.25 per share, an increase of 5 cents from the last quarter and 8.7% from the prior year quarter. The company’s expects FFO and net income for the year ending December 31, 2014 to be in the range of $9.50-9.60 and $4.55-4.65 per diluted share, respectively.

National Oilwell reports strong Q4 revenue and earnings, optimistic outlook

National Oilwell Varco Inc.’s (NYSE: NOV) revenues for the fourth quarter improved 9% from $5.7 billion in the prior quarter to $6.17 billion, fairly above the market expectation of $5.8 billion. Net income for the quarter was $658 million, or $1.53 per diluted share, outperforming the consensus estimates of $1.39 per share. The company also reported an annual adjusted EPS of $5.52, which is 28 cents more than the analysts’ expectations. The company’s annual revenue stood at $22.77 billion, 13.6% and 1.8% higher than the prior year and the consensus estimates, respectively. In 2014, National Oilwell is scheduled to divestiture its distribution business segment from its main business. This is expected to enhance productivity and operational flexibility in both the businesses.

PACCAR posts strong Q4 performance, meets Wall Street expectations

PACCAR’s (NASDAQ:PCAR) net sales surged 15% to $4.60 billion in the fourth quarter, compared to $3.99 billion in the year-ago period. PACCAR reported earnings of $334.2 million, or 0.94 cents per share, up from $253.5 million, or 0.72 cents per share, a rise of 32% from the year-ago quarter. The company recorded revenues of $17.12 billion in 2013, its third highest ever. Moreover, PACCAR declared cash dividends of $1.70, including special dividend of $0.90 per share, during 2013. PACCAR’s strong performance in Q4 has bettered the Wall Street earnings expectations of 0.93 cents per share for the quarter under review.

Mattel’s Q4 sales decline on account of lackluster holiday season sales

Mattel Inc.’s (NASDAQ:MAT) sales fell 6.3% to $2.11 billion in the fourth quarter, mainly on account of lukewarm response from the North American markets, where the sales declined by 10%. The company had a lackluster holiday season, as the global sales of company’s flagship product Barbie doll fell by 13% in Q4. However, Mattel’s net income grew 23% to $1.07 a share, or $369.2 million, from 87 cents a share, or $306.5 million, from the year-ago quarter. The world’s largest toy-maker reported revenue of $2.11 billion in Q4 2013, falling short of Wall Street estimates of $2.37 billion. Post declaration of Q4 results, the company’ stock lost 12% or $5.17 to close Friday’s trading session at $37.84.

LyondellBasell profit rises 86%, outperforms Wall Street estimates

LyondellBasell Industries (NYSE:LYB), reported an 86% rise in its fourth-quarter profit to $1.17 billion, or $2.11 per share, beating analysts’ expectations of $1.40 per share. The company’s revenue grew 0.4% to $11.14 billion, outperforming the projected $10.71 billion by Thomson Reuters. The company’s surge in revenue is attributed to its increased profitability in all business areas, indicating that the company has emerged from its bankruptcy in 2010. According to the company’s Chief Executive Jim Gallogly, the shareholders have realized the total stock return of 45% in 2013, as compared to the S&P 500 returns of 32%. LyondellBasell’s Q4 2013 results have bettered Wall Street estimates, and the company is maintaining a highly positive outlook for its olefins project in North America emerging in 2014.

Chevron’s Q4 profit falls 32%, hit by lower production

Chevron Corp.’s (NYSE:CVX) fourth-quarter profit declined 32% as the company struggled with the lower global production and the low refined product margins. The company’s profit in the fourth quarter declined to $4.93 billion, or $2.57 per share, compared with $7.25 billion, or $3.70 per share, in the year-ago period. However, the second-largest US oil company did meet Wall Street expectations in terms of profit per share, but its revenue of $56.16 fell short of the projected $64.93 billion. In 2014, the company is planning to curtail its expenditure by $2 billion on capital and exploratory investments. Following the results, Chevron’s stock slid 4.14% on Friday to close at $111.63.

AbbVie’s revenue dips, but meets Wall Street expectations

AbbVie Inc. (NYSE:ABBV) posted lower fourth-quarter revenue of $5.11 billion, which was in line with Wall Street expectations. AbbVie’s revenue was boosted by its top rheumatoid arthritis drug, Humira, whose sales increased 13%. AbbVie posted fourth-quarter earnings of $1.13 billion, or $0.70 per share, as compared to $1.54 billion, or $0.98 per share, for the comparable period. The company earned $0.82 per share, excluding special items, matching with the analyst estimates, as compiled by Thomson Reuters. The company, which spun off from its parent company Abbott Laboratories in 2013, projected its profit to range between $3.00 and $3.10 a share in 2014.

Tyson Q1 2014 profit rises, topping Wall Street estimates

Tyson Foods Inc. (NYSE:TSN) reported better-than-expected first-quarter results, helped by higher sales in the Prepared Food segment. The company’s net income rose to $254 million, or 72 cents per share, as compared to $173 million, or 48 cents per share, in Q1 2013. The company reported first-quarter revenue of $8.76 billion, topping analyst predictions of $8.75 billion and EPS of $0.63. As guidance for 2014, Tyson is expecting $36 billion in sales during the year. With the better-than-expected results, the company’s stock hit a new 52-week high of $37.97 on Friday, closing the session 8.44% higher at $37.40.

News to look forward to next week

Economic Releases

  • All eyes will be on January’s employment report on Friday, 7 February 2014, as investors seek confirmation that December’s surprise deceleration in job growth.
  • Weekly jobless claims to be provided by the US Department of Labour on Thursday, 6 February 2014, are expected to witness a decline.
  • The Institute for Supply Management is expected to report on Wednesday, 5 February 2014, that the Services sector expanded a bit in January.
  • Trade data provided by the Foreign Trade Division (FTD) on Thursday, 6 February 2014, is expected to show a widening of the deficit in December.

Earnings Releases

  • As investors lick their wounds after January’s losses and seek clues on the gravity of the emerging markets turmoil that’s gripping the markets, corporate results like those of General Motors (NYSE:GM), reporting on Thursday, 6 February 2014, and Yum Brands (NYSE:YUM), on Monday, 3 February 2014, will be in the spotlight, as much for their conference call comments and outlooks as for what they say about their fourth-quarter performance.
  • It’s also a huge week in the media space, with Twitter (NYSE:TWTR) reporting on Wednesday, 5 February 2014. Hollywood studios, including Walt Disney (NYSE:DIS) and Time Warner (NYSE:TWX), will also report on Wednesday, 5 February 2014, while Twenty First Century Fox (NASDAQ:FOXA) would report on Thursday, 6 February 2014.
  • Ralph Lauren (NYSE:RL), Gap Inc. (NYSE:GPS), and Costco (NASDAQ:COST) are among the 11 US retailers reporting January sales results on Thursday, 6 February 2014. This will give Wall Street a sense of how the holiday season ended and whether the clearance discounts ended up being deeper after the disappointing sales in November and December.

Important Events

  • A handful of top Federal Reserve officials will give speeches and field questions on their decision last week to continue with the trimming of the policy stimulus, even in the face of turmoil in the emerging markets. A pushback against the decision appears to be building after Raghuram G Rajan, Governor of the Reserve Bank of India, reprimanded the Fed for a lack of awareness of how its policies affect the rest of the world. Also, on Friday, 31 January 2014, the International Monetary Fund (IMF) said the market turbulence underscores the need for central bankers to be vigilant about a global liquidity crunch. Among those on the docket this week is Philadelphia Fed President Charles Plosser, member of the Fed’s policy-setting Federal Open Market Committee (FOMC) who backed last week’s decision to cut another $10 billion from the monthly US bond-buying program.
  • It may also turn out to be an important week for Microsoft (NASDAQ:MSFT), whose board is expected to meet – on an unannounced day – could finally anoint a successor to Steve Ballmer as CEO.

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