The Week In Review
12/31-1/4/13January 4, 2013
The S&P 500 gained 0.5% to punctuate a week which saw the index climb over 4.0%. Today's advance was notable as it took the benchmark average to its best close since December 2007. The weeklong rally arrived after Washington lawmakers were able to avoid the fiscal cliff by agreeing to a tax plan. However, it should be noted that the country is nearing the debt ceiling, which sets up the stage for another lengthy debate during the first quarter of the year. Today's session saw some notable moves as the SPDR Financial Select Sector ETF (XLF 17.05, +0.20) gained 1.2% and settled at its highest level since February 2011. Also of note, the tech sector was the only declining space in the S&P 500 after Apple (527.00, -15.10) slid 2.8%. The weakness followed comments from Deutsche Bank's Japan unit which believes the company will report disappointing end-of-year sales. The weakness spilled over to several Apple suppliers as Cirrus Logic (CRUS 28.32, -1.03) and Skyworks Solutions (SWKS 20.95, -0.54) lost 3.5% and 2.5% respectively. Next week, investors will turn their attention to fourth quarter earnings as Alcoa (AA 9.26, +0.19) is scheduled to kick-off the earnings season after Tuesday's close. The Capital IQ consensus expects the aluminum producer to report earnings of $0.07 on $5.64 billion in revenue. On Monday afternoon, we published a review of the global market performance in 2012. For those who missed it, we would like to revisit the report and look back at the past year: 2012 proved to be a positive year for world equities despite a number of macroeconomic challenges. Markets across the globe registered strong gains as Germany's DAX and Greece's ASE General Index both added over 30%. Domestically, the S&P 500 registered a solid 13% gain, and was slightly outperformed by the Nasdaq and Russell 2000. The renewed worries regarding the weakening fundamentals of the Eurozone persisted into the summer and weighed on market sentiment. However, late-summer efforts from the European Central Bank and the Federal Reserve alleviated some of the fears, and propelled the markets to a strong second-half performance. The rally was cut short after the election, when the market focus turned to the budget debate, which lasted into the New Year. Below we summarize some of the key developments, which contributed to market sentiment.
January 3, 2013
The S&P 500 shed 0.2% after the Federal Reserve released the minutes from its December policy meeting. The markets keyed in on comments from several members who voiced concerns over the duration of the asset purchase program. In addition, some participants "thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013." Traditional safe-haven assets saw some selling in reaction the report. Gold dropped nearly 1.5% to its session low in the 1660.00 area. Meanwhile, Treasuries saw some selling, and the 10-yr yield jumped six basis points to 1.899%, its highest close since May. Financials were some of the top performers during yesterday's rally. However, the market focus is now turning to the next step in the debate as the country nears the debt ceiling. The special measures currently being undertaken by the Department of Treasury are expected to delay the breach of the ceiling for about two months. Also of note, recent reports have indicated Treasury Secretary Tim Geithner will leave his post by the end of January. In addition, the approval of a tax plan was met with less-than-positive feedback from rating agencies which said more action on the deficit will be needed soon. Among individual financials, Goldman Sachs (GS 130.94, -0.72) and Wells Fargo (WFC 34.76, -0.29) both shed over 0.5%. Shares of automakers responded to December car sales data. Among the notable movers, Ford Motor (F 13.46, +0.26) rose by 2.0% after the company reported a 5.0% increase in December car sales. Meanwhile, the company's utility vehicles saw 7.0% sales growth. In total, Ford sold nearly 2.2 million vehicles in 2012. General Motors (GM 29.82, +0.69) sales also grew by 5.0%, and the stock added 2.4% in response to the positive data. Looking at foreign-based carmakers, Toyota Motor (TM 95.37, -0.62) shed 0.7% despite reporting a 9.0% rise in its December sales. During 2012, Toyota sold almost 2.1 million vehicles. Consumer discretionary stocks outperformed after retailers reported their December same store sales. Overall, the results were mixed as ten retailers beat the Retail Metrics consensus, while eight fell short of expectations. Among the companies which reported notable beats, Ross Stores (ROST 58.78, +4.34) and Zumiez (ZUMZ 21.22, +1.72) surged 8.0% and 8.8% respectively. Ross Stores saw strength after its sales grew 6.0%, while the general consensus expected an increase of 3.0%. However, Zumiez rallied after the company's December sales slipped by just 1.0%, while analysts expected a 3.5% decline. Among the names which reported disappointing sales growth, Limited Brands (LTD 44.71, -2.69) slumped 5.7% after its 3.0% monthly sales growth disappointed the market, which expected an uptick of 4.7%. The Dow Jones Transportation Average settled higher by 0.6%, and the bellwether complex outperformed the broader market. With today's gains, the index has added over 4.5% since Monday's open. In addition, transports ended the session at their best level since July 2011. Among individual components, airlines displayed relative strength as United Continental (UAL 24.93, +0.74) and Delta Air Lines (DAL 12.58, +0.35) both gained near 3.0%. Trucking stocks underperformed. CH Robinson (CHRW 62.34, -0.82) lost 1.3% and was the biggest laggard. The market received several economic data points this morning. According to the ADP National Employment Report, employment in the nonfarm private business sector rose by 215K in December. This was above the 140K increase expected by the Briefing.com consensus. The latest weekly initial jobless claims count totaled 372,000, which was worse than the 365,000 that had been expected by the Briefing.com consensus. The tally was above the revised prior week count of 362,000. As for continuing claims, they rose to 3.245 million from 3.201 million.
January 2, 2013
Equities began the New Year with a robust open after the U.S. Congress approved measures aimed at averting the fiscal cliff. As a result of yesterday's agreement, individuals making less than $400,000 per year will see an extension of their recent tax rates, while those making over that amount will see their top rate rise to 39.6%. However, as part of the deal, the payroll tax, which applies to all workers, will revert back to 6.2% from 4.2%. Lastly, the $109 billion sequestration has been delayed for two months. At midday, the S&P 500 is higher by 1.7%. As expected, financials are seeing broad strength after the fiscal cliff was avoided. The SPDR Financial Select Sector ETF (XLF 16.77, +0.38) is higher by 2.4%, and is the top performing sector ETF. Among individual financials, Citigroup (C 41.03, +1.47) is the strongest major, up 3.7%. JPMorgan Chase (JPM 44.40, +0.73) is adding 1.7% as it underperforms its peers. The materials sector is one of the biggest beneficiaries of the broad market rally and the SPDR Materials Select Sector ETF (XLB 38.25, +0.71) is rising by 1.9%. The strength comes as a result of yesterday's budget pact as well as recent Chinese economic data, which has allayed some fears regarding a possible slowdown in the Middle Kingdom. An increase in the country's economic activity would bode well for materials demand especially steel. As such, steelmakers are outperforming the sector. Mechel Steel (MTL 7.34, +0.41) and United States Steel (X 25.62, +1.77) are seeing respective gains of 5.9% and 7.5%. Despite the on-going market rally, retailers are lagging ahead of tomorrow's December same store sales reports. Early indications have suggested consumers showed more caution with regards to their spending habits during the recent holiday season. As such, the SPDR S&P Retail ETF (XRT 62.54, +0.16) is adding 0.3% after being up as much as 2.2% at the open. Among individual retailers, Kohl's (KSS 42.20, -0.78) and Macy's (M 38.23, -0.78) are down 1.8% and 2.0%, respectively. Earlier, Buckingham downgraded Kohl's to 'Neutral' from 'Buy.' Elsewhere, American Eagle Outfitters (AEO 19.85, -0.66) is slipping 3.2% after Jefferies downgraded the stock to 'Hold' from 'Buy. The December ISM Index was reported at 50.7, while the Briefing.com consensus expected the reading to come in at 50.5, ahead of November's reading of 49.5. Meanwhile, November construction spending decreased by 0.3% month-over-month, against the expected increase of 0.5%. The key European indices surged following the news of a U.S. budget compromise. France's CAC gained 2.6% while the United Kingdom's FTSE and Germany's DAX both rose by 2.2%. France's CAC saw gains among all 40 of its components. Financials were among top performers as BNP Paribas, Credit Agricole, and Societe Generale all jumped in excess of 4.0%. German stocks were led by financials and producers of basic materials. Commerzbank advanced 3.8% and was the top performing bank. Meanwhile, steelmaker ThyssenKrupp led the materials sector, and settled higher by 4.6%. In the United Kingdom, miners paced the rally. Eurasian Natural Resources, Glencore International, and Xstrata all booked gains near 7.0%.
January 1, 2013
Closed for the holiday. Happy New Years.
Dec 31, 2012
Today's session began on a slightly lower note after the weekend failed to advance the budget negotiations. The talks are now entering the 11th hour, but the likelihood of a timely, comprehensive agreement has become dim. However, recent reports from Washington have indicated the two sides may be nearing a deal on revenues. The materials sector is the top performer as steelmakers display relative strength. Cliffs Natural Resources (CLF 37.96, +2.38) is rising by 6.7% and the Market Vectors Steel ETF (SLX 48.41, +0.98) is adding 2.1%. The metal producers are enjoying an upbeat session after last night's Chinese HSBC Manufacturing PMI report beat expectations. The strong PMI reading was received as a positive sign for the country's economy, which in turn would be a positive for future steel demand. Technology stocks are outperforming, and the SPDR Technology Select Sector ETF (XLK 28.66, +0.30) is adding 1.1%. The notable strength among tech names comes as Apple (AAPL 526.87, +17.28) trades higher by 3.3%. Elsewhere, Intel (INTC 20.45, +0.22) is firmer by 1.1% after earlier reports indicated the company is readying the launch of a set-top box which would allow consumers to stream video and access additional digital content. Also of note, Facebook (FB 26.53, +0.61) is higher by 2.4% after Stifel Nicolaus reiterated its 'Buy' rating on the stock. In addition, the investment bank raised the price target for Facebook to $31. Financials saw an uptick in recent trade after reports indicated the president is scheduled to speak at 13:30 ET. Bank of America (BAC 11.49, +0.13) and Morgan Stanley (MS 18.81, +0.18) are seeing respective gains of 1.2% and 1.0%. On balance, the financial sector saw notable strength in 2012, and the SPDR Financial Select Sector ETF (XLF 16.26, +0.08) is poised to register a 22% gain for the year. Into the close, fittingly, the major averages ended on a high note. Up 7.3% from a year ago, the Dow Jones Industrial Average added 166.03 points, or 1.3%, to 13,104.14. The S&P 500 index climbed 23.76 points, or 1.7%, to 1,426.19, leaving it up 13% for 2012. The Nasdaq Composite climbed 59.2 points, or 2%, to 3,019.51, rising almost 16% for the year.