Market Monitoring – Week Ended 7 March 2014

Edited by Vani Rao

US Stock Markets Show Mixed Reactions on Jobs Report, Ukraine Crisis

S&P 500 notches record high; shows signs of overheating as it edges to a 177% gain from its lowest level

Stocks ended mostly higher on Friday, 7 March 2014, after more jobs than earlier expected were created in February and January’s figure was revised higher. However, concerns that the Ukraine crisis my heat up anew offset any further significant gains.

Source: Bloomberg
Source: Bloomberg

The S&P 500 index rose 1.01 points, or 0.1%, to close at 1,878.04, adding to the previous record set on Thursday. The S&P 500 advanced 1% for the week.

The Dow Jones Industrial Average rose 30.83 points, or 0.2%, to 16,452.72. The Dow gained 0.8% for the week.

The Nasdaq Composite ended lower, bucking the trend, dropping 15.90 points, or 0.4%, to 4,336.22. The index recorded a fifth straight weekly gain, rising 0.7% since last Friday.

A number of warning signals are flashing in the stock market, and while not indicative of an imminent crash, they’re telling investors to exercise caution, according to market strategists.

The S&P 500 has gained more than 177% since this day in 2009, where it hit its nadir closing of 676.53.

The gains haven’t come without a share of fretting that the good times can’t last. Among the warnings signs are the string of record highs of major indices, high levels of margin debt, and borrowings to finance stock buys.

The average bull market only lasts about 4.5 years, putting the current one in a rare territory. Of the 12 bull markets since World War II, only half have lasted five years.

Even though heavily weighted sectors like Technology and Healthcare (-0.21%) weighed on the broader market, the S&P 500 held up relatively well, thanks to the relative strength of the Financial sector (+0.50%), which continued its recent outperformance, finishing the week with a gain of 3.0%.

Elsewhere, Energy (+0.40%) and Industrials (+0.30%) outperformed, while Consumer Discretionary (-0.11%) and Materials (-0.45%) lagged. The Energy sector posted a modest gain as crude oil rose 1.0% to $102.54/bbl. Despite today’s increase, the energy space remains the weakest cyclical group of the year, down 1.8%.

Movers & Shakers

MM pic 1Skullcandy (NASDAQ:SKUL) soared 24.23% after the headphone maker topped analyst estimates for fourth-quarter earnings, which fell 69% last quarter. The firm earned 13 cents a share, while analysts had expected 9 cents a share.

Source: WSA
Source: WSA

Palo Alto Networks Inc. (NYSE:PANW) shares rallied 11.04%. The network security company said on Friday that a mistrial was declared in a patent lawsuit brought by Juniper (NYSE:JNPR) because the jury was unable to reach a verdict. Shares of Juniper were down 0.7%.

Shares of Coupon.com Inc. (NYSE:COUP) soared 87.50% on their first day of trading in the market. The operator of a digital promotion platform offered 10.5 million shares at $16 a share as part of its initial public offering.

Peabody Energy Corp (NYSE:BTU) fell 5.33% in response to a weak outlook on the coal industry from Goldman Sachs. The investment bank lowered its benchmark metallurgical coal price to $141 from $150 per metric ton in 2014 and $152 to $165 in 2015.

FireEye Inc. (NASDAQ:FEYE) dropped 9.50% after the firm raised $1.1 billion in a follow- on stock offering of 14 million shares. The stock has rallied sharply since its initial public offering in September.

Futures

Currency

The US dollar moved higher against the GBP on Friday, 7 March 2014, following stronger- than-expected data on the US employment report for February. According to the US Department of Labor report, initial jobless benefits last week fell by 26,000 to 323,000, bettering analyst estimates who were expecting jobless claims to fall by 11,000 to 338,000. The better-than-expected jobless claims data enabled the US dollar to hold itself against the GBP. For more details, please access the full report.

Oil & Gas

On Friday, March 7, 2014, light sweet crude for April delivery gained 1%, or $1.02 a barrel, on the New York Mercantile Exchange (NYMEX) to end the week at $102.58 a barrel. WTI crude fell 1 cent a barrel during the week. For more details, please access the full report. US natural gas prices fell as the warmer climate drove households to cut down their gas usage for heating purposes. For more details, please access the full report.

Treasury yields rose to their highest levels in six weeks after jobs gains were stronger than expected in February, which could ease fears of an abrupt slowdown in economic growth and keep the Federal Reserve on track to reduce its monetary stimulus. Treasuries may also stay under pressure ahead of new supply next week, when the government will sell $64 billion in new coupon-bearing debt. This will include $30 billion in three-year notes, $21 billion in 10-year notes and $13 billion in 30-year bonds.

Benchmark 10-year notes were down 16/32 to yield 2.79%. The benchmark yields rose as high as 2.82%, the highest level since January 23. The 30-year bonds dropped 23/32, yielding 3.73%.

Gold tumbled nearly 1% after data showed US job growth accelerated sharply, easing fears of an abrupt economic slowdown and keeping the Federal Reserve on track to continue reducing its monetary stimulus. Spot gold fell 0.87% to $1,338.96 an ounce. Gold futures for April delivery fell 0.92% to $1,339.30 an ounce.

Economic Front

US job growth offers upbeat sign for weather-beaten economy

Job growth accelerated sharply in February despite the harsh winter weather that gripped much of the nation, easing fears of an abrupt economic slowdown and keeping the Federal Reserve on track to continue reducing its monetary stimulus. Employers added 175,000 jobs to their payrolls last month after creating 129,000 new positions in January, the Labor Department said. The unemployment rate, however, rose to 6.7% from a five-year low of 6.6%. Separately, the US Commerce Department said the trade gap was at $39.1 billion from December’s revised shortfall of $39.0 billion. December’s trade gap was previously reported as $38.7 billion. When adjusted for inflation, the trade gap dipped to $48.5 billion in January from $49.2 billion the prior month.

Top News

Boeing reports wing cracks on 787 Dreamliners in production stage

Boeing (NYSE:BA) said that “hairline cracks” had been discovered in the wings of 787 Dreamliner jets that are still under production. This could delay deliveries of some jets, but will not affect its 2014 guidance on overall deliveries for the year. Boeing said wing maker Mitsubishi Heavy Industries notified it of the problem, which arose after a change in the manufacturing process. The cracks in the shear ties on wing ribs in the 787 affects about 40 planes and the fix will take one to two weeks per plane. “We are confident that the condition does not exist in the in-service fleet,” Boeing added.

MasterCard, Visa form group to enhance payment security

Visa (NYSE:V) and MasterCard (NYSE:MA) have formed a new cross-industry group to improve payment system security following a number of high-profile data breaches. The new group, which will include banks, credit unions, retailers and industry trade groups, will initially focus on the adoption of the safer EMV chip technology in the US, MasterCard and Visa said. MasterCard and Visa had already set a deadline of October 2015 for US retailers to adopt the new payment technology. However, banks and retailers have been dragging their feet over the required upgrade, at odds over who should bear the cost, which experts say could be as much as $10 billion.

Coming in the Next Week

Economic Releases

The US retail sales report for February will be the star attraction in a slow week for economic data. The report on Thursday, 13 March 2014, is expected to report sales growth of 0.3%, after dropping 0.4% in January as severe winter weather dried up foot traffic at auto dealerships, malls, and restaurants. Even a small gain would further fuel hopes that the economy is beginning to thaw after its deep freeze.

The report on producer prices, to be released on Friday, 14 March 2014, is expected to show that producer prices edged higher last month, with a core year-on-year reading moving up to a 1.4% gain from 1.3%.

The latest weekly report on initial jobless claims should show jobless claims rising marginally from last week’s three-month low.

Earnings Releases

Men’s Wearhouse (NYSE:MW) is likely to release results for the fourth quarter on Monday, 10 March 2014. The men’s apparel retailer is close to acquiring suit and tuxedo retailer Jos. A. Bank (NASDAQ:JOSB) after its smaller rival agreed to open its books more than three months after the first bid, paving the way for a deal that may be worth more than $1.8 billion.

Baytex (NYSE:BTY) on Thursday, 13 March 2014, is likely to report a profit in its recent quarter as production from its Lloydminister and Peace River areas in Alberta and Saskatchewan continued to rise. The company had previously said that it expected to achieve the upper end of its 2013 production guidance range.

Rice Energy (NYSE:RICE) is expected to report its first quarterly profit on Thursday, 13 March 2014, since it went public in January. Founded by former BlackRock portfolio manager Daniel Rice and his family in 2008, the company is expected to give a detailed outlook for the year on the investor call. Analysts will also look for details on spending, production growth, and new investments.

Aeropostale (NYSE:ARO) is likely to report fourth-quarter results on Thursday, 13 March 2014. Analysts are expecting the teen apparel retailer to post a sharp drop in holiday quarter profits as it comes off a period of deep discounting amid competition from “fast fashion” rivals and a colder-than-usual winter.

Diamond S Shipping Group (NYSE:DSE), backed by billionaire-investor Wilbur Ross, is expected to raise as much as $224 million from its initial public offering on Wednesday. At the top end of the estimated IPO price range, the company is expected to be valued at $5.33 billion.

Carnival Corp. (NYSE:CCL), the world’s largest cruise operator, is likely to report first-quarter results amid high expectations as smaller rival Royal Caribbean Cruises (NYSE:RCL) has forecast a stronger-than expected profit for 2014. This signals resurgence in demand in an industry plagued by mishaps over the past two years. Investors will want to know about a possible rebound in demand for Carnival’s European and Carribbean cruises. They will also be looking out for comments on the impact of new fuel rules for ships.

McDonald’s (NYSE:MCD) is likely to report February same-restaurant sales results on Monday, 10 March 2014. The world’s biggest restaurant chain by revenue has been grappling with turbulent sales at established US restaurants amidst lackluster economic growth, intense competition, and internal missteps that have complicated its menus and slowed service at its popular drive-thrus.

Other Major Events

The Federal Reserve Bank of Philadelphia President Charles Plosser participates in “Central Bankers” discussion before the Global Interdependence Center “Monetary Policy & Banks and the Rise of Global Protectionism” conference. The Federal Reserve Bank of Chicago President Charles Evans speaks on current economic conditions and monetary policy before the Turner College of Business Executive Speaker Series hosted by Columbus State University.

A final pre-trial conference is scheduled in a lawsuit by the US Securities and Exchange Commission against Samuel Wyly and the estate of his late brother Charles, who are accused of running a $550-million fraud operation and conducting insider trading.

The Senate Banking Committee on Thursday, 13 March 2014, will hold a hearing on the nomination of former Bank of Israel Governor Stanley Fischer to become the Vice Chairman of the Federal Reserve. It 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 nominated for a fresh term.

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