The Week In Review
10/8-10/12/12ctober 12, 2012
Today's session got off to a quiet start. The major averages held near their opening levels until the preliminary October University of Michigan Consumer Sentiment Survey registered a reading of 83.1. The survey's best level since September 2007 lifted the major averages to their session highs. However, the exuberance was short-lived as the key indices promptly fell through the unchanged line, to their session lows. The afternoon was generally quiet as the S&P 500 hovered within points of the 1,428 level before settling at 1,428.59, with a loss of 0.3%. Note that today's session punctuated a down week, during which the S&P 500 lost 2.2%. The financial sector was the biggest laggard of the day. Despite record earnings from two major names, the SPDR Financial Select Sector ETF (XLF 15.81, -0.22) shed 1.4%. JPMorgan Chase (JPM 41.62, -0.48) reported earnings of $1.40 per share against expectations of $1.21. Meanwhile, its revenues were reported at $25.15 billion which was ahead of the expected $24.27 billion. The stock traded higher in initial response to the earnings report, but it settled lower by 1.1%. Wells Fargo (WFC 34.25, -0.93) slid 2.6% after reporting mixed earnings. WFC exceeded earnings expectations by one cent, while its revenues fell $200 million short of analyst estimates. Other major financials also showed weakness. Bank of America (BAC 9.12, -0.22) and Morgan Stanley (MS 17.31, -0.55) slipped 2.4% and 3.1%, respectively. Consumer staple stocks were the top performers of the session. Within the space, Dean Foods (DF 14.94, +0.29) added 2.0% after Stifel Nicolaus upgraded the stock to 'buy' from 'hold' with an $18 price target. Cigarette stocks also showing strength among defensive staple stocks. Philip Morris (PM 91.70, +0.86) and Altria (MO 33.12, +0.41) saw respective gains of 1.0% and 1.3%. Elsewhere in the space, Monster Beverage (MNST 57.08, +2.64) advanced 4.9% in a rebound from recent weakness. The Dow Jones Transportation Average outperformed the broader market and settled higher by 0.9%. JB Hunt (JBHT 58.37, +3.58) is the top performer within the space. The freight carrier settled higher by 6.5% after its mixed earnings report showed a top line beat and a slight bottom line miss. Meanwhile, peer CH Robinson (CHRW 59.94, +1.04) added 1.8%. With most transportation stocks on the rise, Overseas Shipholding Group (OSG 5.08, -0.80) was a notable laggard as the shipping stock tumbled 13.6%. AMD (AMD 2.74, -0.46) slumped 14.4% after the company lowered its third quarter revenue guidance below consensus. Peer Intel (INTC 21.48, -0.20) settled lower by 0.9% while the Market Vectors Semiconductor ETF (SMH 30.50, -0.10) slipped 0.3%. Overall producer prices rose during September by 1.1%, which was hotter than the 0.8% increase that had been widely forecast. Core producer prices were unchanged which was lower than the Briefing.com consensus call of a 0.2% increase. The September Treasury Budget showed a $75 billion surplus, which was in-line with expectations. Next week, the earnings season enters full force as more than 230 companies are scheduled to report their third quarter result.
October 11, 2012
Equities began the session on a positive note after the weekly initial claims were reported at their lowest level since January 2008. However, the number may not be entirely comparable to the prior period as one large state was not included in the total. The early bullish sentiment failed to hold as the major averages reversed during the first hour, and headed for the flat line. As a result, the S&P 500 ended flat. The latest weekly initial claims count totaled 339,000, which was lower than the widely-expected 370,000. The tally was below the revised prior week count of 369,000. As for continuing claims, they fell to 3.273 million from 3.288 million. With oil adding in excess of 1.3%, the energy sector outperformed all others. Within the space, coal stocks rallied broadly. Alpha Natural Resources (ANR 8.55, +1.24) and Arch Coal (ACI 7.94, +1.08) both surged near 16.0%. Meanwhile, James River Coal (JRCC 3.74, +0.58) and Peabody Energy (BTU 26.18, +2.15) added 18.4% and 9.0%, respectively. The strength in coal is likely related to the recent surge in natural gas prices as more expensive gas makes coal an attractive alternative. It should also be noted that iron ore prices have been on the rise. This is seen as bullish for coal which is used in conjunction with iron ore to make steel. Other energy names also saw gains, albeit less robust. Oil drilling equipment supplier Schlumberger (SLB 72.42, +1.34) advanced 2.3% after Howard Weil upgraded the shares to 'focus stock' from 'outperform.' SLB's peer, Lufkin (LUFK 54.39, +1.84) also saw its shares upgraded by Howard Weil. The company's rating was raised to 'outperform' from 'market perform' and its shares settled higher by 3.5%. The telecom space was the biggest laggard as a couple of sector components appeared in the headlines. Sprint Nextel (S 5.76, +0.72) advanced 14.3% after the company confirmed reports which indicated Softbank is looking to acquire a stake in Sprint. MetroPCS (PCS 11.64, -0.40) slid 3.3% after separate reports suggested that Sprint has not considered making a bid to rival the one from Deutsche Telekom's T-Mobile USA unit. Other major telecom names were relatively weak as AT&T (T 36.51, -0.41) and Verizon (VZ 45.30, -0.48) ended with respective losses of 1.6% and 1.1%. The Dow Jones Transportation Average remains in the spotlight as the bellwether group looks to recouple with the broader market. After outperforming the remaining industrials during recent sessions, the transportation average traded in-line with the Dow. Heavy vehicle lessor, Ryder Systems (R 42.40, +0.44) led the 20-stock complex with a 1.1% gain. Meanwhile, shipper Overseas Shipholding Group (OSG 5.88, -0.23) trailed the remaining transportation stocks before ending with a loss of 3.8%. It should be noted that Overseas Shipholding Group was weaker while other oil tanker shippers like Nordic American Tankers (NAT 9.33, +0.05), Frontline (FRO 3.53, +0.01), and Teekay (TK 31.91, +0.39) all posted gains between 0.3% and 1.2%. Oshkosh Truck (OSK 28.89, +2.04) spiked 7.6% after Carl Icahn announced his intention to commence a tender offer for "any and all" of the outstanding shares of Oshkosh at $32.50 per share. In addition, Mr. Icahn said he plans to nominate directors to the company's board. Oshkosh responded by saying it will advise shareholders of its positioning regarding the offer and that Carl Icahn was unsuccessful in his prior attempt to elect any of his six director nominees during last year's annual meeting. Navistar (NAV 22.61, +0.62) also surged on the news as Carl Icahn's plan includes merging the two truck makers. The stock settled higher by 2.8%. Elsewhere, Cooper Tire (CTB 19.78, +1.09) surged 5.8% after earlier reports indicated India's Apollo Tyres is looking to acquire Cooper. Peer Goodyear Tire (GT 12.44, +0.11) added 0.9% while American Axle & Manufacturing Holdings (AXL 12.07, +0.09) added 0.8%. The trade deficit widened to $44.2 billion during August after the prior month's reading was revised down to $42.5 billion. Economists polled by Briefing.com had expected that the deficit would come in at $43.6 billion. Separately, export prices, excluding agriculture, increased by 0.7% in September after they had increased by 0.4% in the prior month. Excluding oil, import prices rose by 0.2%, which follows the 0.2% decrease experienced in the prior month.
October 10, 2012
Equities got off to a mixed start as the key indices chopped around their respective unchanged lines during the first hour. Sellers took control after traders digested the wholesale inventories data, pushing the major averages to their worst levels. Afternoon trade was mostly quiet as the three averages hovered near session lows. As a result, the S&P 500 finished lower by 0.6%. Earlier, the Federal Reserve released its September Beige Book. In its report, the twelve Federal Reserve Districts reported that economic activity "expanded modestly since the last report." Residential real estate conditions as well as the nonfinancial services sector also showed modest improvement. The manufacturing sector was described as mixed but somewhat healthier than what was observed in the last report. Meanwhile, the industrial market was also described as mixed. While the Philadelphia, New York, Cleveland, and Atlanta districts all showed strength, conditions in Richmond deteriorated slightly. The Beige Book also commented on consumer spending by saying it was mostly unchanged since the previous report. Financials registered the slimmest losses and the SPDR Financial Select Sector ETF (XLF 15.94, -0.01) shed 0.1%. Among the majors, Citigroup (C 35.14, +0.54) and JPMorgan Chase (JPM 41.77, +0.39) were the top performers. The two names registered respective gains of 1.6% and 0.9% after Bank of America/Merrill Lynch resumed coverage of the two stocks with a 'buy' rating. Note that JPMorgan Chase will report its third quarter earnings before Friday's open. European financials saw mixed performance as Deutsche Bank (DB 41.17, +0.33) added 0.8% while Spanish Banco Bilbao Vizcaya Argentaria (BBVA 7.59, -0.10) slipped 1.3%. Energy stocks were the biggest laggard of the session. Chevron (CVX 112.45, -4.91) slid 4.2% after announcing that its third quarter earnings are expected to be substantially lower than results from the previous quarter. Penn Virginia (PVA 5.10, -0.39) and Tesoro (TSO 38.70, -2.29) lost 7.1% and 5.6%, respectively. The Dow Jones Transportation Average outperformed the broader market with a gain of 0.1%. However, the strength was largely due to FedEx (FDX 89.52, +3.94). The bellwether stock gained 5.2% after announcing a program which targets $1.7 billion in annual profit improvements by the end of fiscal year 2016. In addition, the company reaffirmed its second quarter and full-year 2012 guidance which it had revised down on September 18. Elsewhere, Alcoa (AA 8.71, -0.42) dipped 4.6% after beating on earnings and revenues. However, the company's third quarter revenue of $5.833 billion represents a 9.1% year-over-year decrease. In addition, AA lowered its 2012 global aluminum demand growth forecast from 7.0% to 6.0%. Engine maker Cummins (CMI 87.79, -3.05) slid 3.4% after lowering its third quarter and full-year 2012 guidance due to weak demand. Caterpillar (CAT 83.16, -1.59) slipped 1.9% in sympathy. Ambarella (AMBA 6.06, +0.06) made its public debut today. The producer of video processing semiconductors priced its initial public offering at $6, which was well below the expected price range of $9 to $11. The stock settled higher by 1.0% after shares began trading at $6.66. August wholesale inventories increased by 0.5%. This was slightly lower than the increase of 0.6% which had been broadly forecast.
October 9, 2012
Equities started the day on a mixed note before a broad sell-off sent the major averages to their session lows. The weakness started in the technology sector where a slew of companies lowered their third quarter guidance. After reaching their worst levels of the day, the key indices traded sideways until late day selling coincided with reports the U.S. Attorney in Manhattan filed a civil mortgage fraud lawsuit against Wells Fargo (WFC 35.12, -0.68). The company has since come out and denied any wrongdoing. As a result, the S&P 500 fell 1.0% while the Nasdaq underperformed with a loss of 1.5%. The technology sector was the biggest laggard. Early weakness resulted from Apple (AAPL 635.85, -2.32) slipping as much as 2.0% intraday. However, shares of the tech giant proved to be resilient as the stock reversed and closed with a loss of 0.4%. Despite the intraday recovery in Apple, the rest of the technology sector was unable to reclaim its losses. Technology bellwether Intel (INTC 21.90, -0.61) slipped 2.7% after Bernstein downgraded the stock from 'market perform' to 'underperform.' It should be noted that today's selling dropped Intel to its 52-week low. Netflix (NFLX 65.52, -7.99) slid 10.9% after Bank of America/Merrill Lynch downgraded the stock from 'buy' to 'underperform' with a $72 price target. The downgrade resulted from valuation questions following the recent rally as well as concerns over the company's domestic streaming business and its international profitability. Today's selling follows yesterday's 10.0% rally which resulted from a Morgan Stanley upgrade. VASCO Data (VDSI 7.34, -1.60) adds to the list of technology companies who cut their third quarter outlook. The stock sank 17.9% after the company lowered its third quarter and full-year 2012 guidance below consensus. The company commented on the lowered guidance by saying that "the lower than expected order intake in Q3 requires [the company] to lower [its] estimates of full-year revenue and related operating margins." The energy sector was the top performer as crude oil advanced 3.3%. Within the complex, Gulfport Energy (GPOR 32.65, +2.22) gained 7.3% after reaffirming its 2012 guidance. The company continues to estimate 2012 production to range from 2.9 million to 3.1 million. Coal stocks were broadly higher and the Market Vectors Coal ETF (KOL 24.35, +0.38) added 1.6%. Among individual coal producers, Alpha Natural Resources (ANR 7.28, +0.50) advanced 7.4% while CONSOL Energy (CNX 33.11, +1.38) and Peabody Energy (BTU 23.93, +1.29) saw gains between 4.3% and 5.7%. Meanwhile, Penn Virginia (PVA 5.49, -1.04) fell 15.9% after announcing concurrent public offerings of 12 million shares of common stock and $50 million of depositary shares representing convertible preferred equity. The Dow Jones Transportation Average slid 1.1% to break its recent streak of outperformance. Airlines were among the weakest components as they erased a portion of their recent gains. Delta Air Lines (DAL 9.89, -0.24) slipped 2.4%, while Alaska Air (ALK 36.43, -0.52) and United Continental (UAL 20.49, -0.41) fell between 1.4% and 2.0%. Out of the twenty transportation stocks, only Matson (MATX 21.36, +0.38) advanced. Shares of the shipping company settled higher by 1.8%. Chinese internet stocks were under pressure after Credit Suisse downgraded Baidu.com (BIDU 106.48, -7.80) from 'neutral' to 'underperform.' In addition, the price target was lowered from $118 to $83. As a result of the downgrade, Baidu.com slid 6.8%, and traded at levels last seen in early September. Other Chinese internet names also declined in sympathy. SINA (SINA 60.36, -0.77), Sohu.com (SOHU 39.58, -1.12), and Youku Tudou (YOKU 19.16, -0.36) all registered losses between 1.2% and 2.8%. Tomorrow, the MBA Mortgage Index will be reported at 7:00 ET. In addition, the September Treasury Budget and Federal Reserve's September Beige Book will be released at 14:00 ET.
October 8, 2012
Equities began the day on a negative note after the World Bank cut its growth projections for the Asian region. Lacking an additional catalyst, the key indices spent the majority of the session trading near their opening levels. A late-day buying surge briefly lifted the S&P 500 and Dow to their session highs, but the bulk of the move was promptly retraced. As a result, the S&P 500 shed 0.3% and the Nasdaq ended with a loss of 0.8%. Energy stocks led the broader market. Within the sector, Marathon Petroleum (MPC 57.85, +2.98) advanced 5.4% after announcing the purchase of BP's Texas City Refinery, related logistics, and marketing assets. The base purchase price is said to be $598 million while inventories are estimated at $1.2 billion. Note that today's buying lifted MPC to an all-time high. Coal stocks were broadly stronger as demonstrated by the Market Vectors Coal ETF (KOL 23.97, +0.18), which added 0.8%. Among individual names, Alpha Natural Resources (ANR 6.78, +0.20) gained 3.0%, while Arch Coal (ACI 6.63, +0.03) and Peabody Energy (BTU 22.63, +0.25) closed higher by 0.5% and 1.1%, respectively. The technology sector trailed the broader market and the biggest tech component, Apple (AAPL 638.17, -14.42), settled lower by 2.2%. The weakness stemmed from reports which indicated that Apple's supplier, Foxconn is facing labor strikes at its manufacturing plant in China. As the earnings season nears, guidance cuts continue to put pressure on technology stocks. The latest victim of slumping demand, Oclaro (OCLR 2.38, -0.25), slid 9.5% after lowering its first quarter revenue expectations below consensus. Peers, Finisar (FNSR 13.28, -0.24) and JDS Uniphase (JDSU 10.88, -0.48) lost between 1.8% and 4.2% in sympathy. Semiconductor producers continued to show weakness ahead of the upcoming earnings season. Earlier, ISI Group downgraded four stocks from 'buy' to 'hold.' Of the affected names, Power Integrations (POWI 29.75, -1.34) shed 4.3% while Analog Devices (ADI 39.29, -0.43), Linear Technology (LLTC 32.93, -0.30), and Texas Instruments (TXN 27.99, -0.17) all slid between 0.6% and 1.1%. Elsewhere in tech, Progress Software (PRGS 18.52, -2.96) fell 13.8% after announcing that its Chief Executive Officer Jay Bhatt will step down, effective December 7, 2012. The Dow Jones Transportation Average continued to build on its recent strength. After trailing the broader market for an extended period of time, the gap between the bellwether group and the broader market continues to narrow. Today, the complex added 0.2% as Alaska Air (ALK 36.99, +0.47) led transportation stocks with a 1.3% gain. Railroads also showed relative strength as CSX (CSX 21.61, +0.19) and Norfolk Southern (NSC 67.29, +0.39) settled higher by 0.9% and 0.6%, respectively. Two gun makers rallied on the back of supportive analyst comments. Earlier, the Benchmark Company said that last week's sell-off in Smith & Wesson (SWHC 10.46, +0.24) and Sturm, Ruger & Co (RGR 45.20, +0.55) may have been overdone. The weakness resulted from a slight slowdown in National Instant Criminal Background Checks during the month of September. However, the Benchmark Company notes that handgun background checks were up 23.0%, and that handguns represent the vast majority of sales for both gunsmiths. As a result, the two stocks added between 1.2% and 2.4%.