The Week In Review
9/19/14The stock market finished an upbeat week on a mixed note. The S&P 500 shed less than a point, ending the week higher by 1.3%, while the Dow Jones Industrial Average (+0.1%) cemented a 1.7% advance for the week. High-beta names underperformed, which weighed on the Nasdaq Composite (-0.3%) and the Russell 2000 (-1.3%).
Equity indices displayed strength in the early going with the S&P 500 tagging the 2,019 level during the opening 30 minutes of the action. However, that represented the high watermark for the benchmark index, which returned to its flat line by the close.
The early advance followed the failed independence referendum in Scotland, which averted a potential storm in the financial markets. Once the uncertainty was cast aside, participants directed their focus to the Alibaba Group (BABA 93.89, +25.89) IPO, which represented the largest public debut to date. Shares of Alibaba opened at $92.70 after pricing at $68/share, but could not settle above the opening print.
Alibaba followed a similar pattern as the broader market with the latter being weighed down by influential sectors like financials (-0.3%), technology (-0.4%), and industrials (-0.1%).
Despite today's underperformance, the financial sector finished the week among the leaders with a solid gain of 1.5% since last Friday. Meanwhile, technology lagged since the open following disappointing quarterly results from Oracle (ORCL 39.80, -1.75). The stock tumbled 4.2% in reaction to below-consensus earnings/revenue and news that CEO Larry Ellison will step down from his post.
Also of note, Oracle's peer, SAP (SAP 74.00, -3.35), lost 4.3% after announcing the acquisition of Concur Technologies (CNQR 126.82, +19.02) for $129 per share. High-beta chipmakers were unable to fill the void left by the two software giants as evidenced by a 1.2% decline in the PHLX Semiconductor Index. Despite today's slide, the index still finished the week with a strong gain of 1.5%.
For its part, the industrial sector lagged amid weakness in machinery stocks after Caterpillar (CAT 102.47, -1.87) provided a disappointing update regarding its sales over the past three months. The Dow component lost 1.8%, while peer Joy Global (JOY 58.02, -1.20) fell 2.0%.
Caterpillar was the weakest performer in the Dow and the only stock that fell more than 1.0%. On the upside, 22 index components posted gains with Coca-Cola (KO 42.05, +0.26) leading the pack. The stock climbed 0.6%, contributing to the relative strength of the consumer staples sector (+0.2%).
Similar to consumer staples, the remaining three countercyclical groups settled ahead of the broader market. Telecom services and utilities both jumped near 1.0%, while health care (+0.1%) ended among the leaders despite volatile action in the biotech space. The iShares Nasdaq Biotechnology ETF (IBB 275.23, +0.16) tacked on 0.1%.
Treasuries spent the session in a steady climb, pressuring the 10-yr yield to 2.58%. Participation was well ahead of average thanks to the Alibaba IPO and quadruple witching. More than 1.8 billion shares changed hands at the NYSE floor.
Economic data was limited to the Leading Indicators report for August, which showed an increase of 0.2% on top of an upwardly revised 1.1% (from 0.9%) reading for July. The Briefing.com consensus estimate called for an increase of 0.4%. The difference between what was expected and what was reported can be traced directly to the building permits contribution, which subtracted 0.18 percentage points in August. Consensus estimates could not be updated in a timely manner to reflect the impact of the weaker than expected building permits report, which was released yesterday.
On Monday, the Existing Home Sales report for August will be released at 10:00 ET.
Nasdaq Composite +9.7% YTD
S&P 500 +8.8% YTD
Dow Jones Industrial Average +4.2% YTD
Russell 2000 -1.6% YTD
Week in Review: Stocks Rally While FOMC Stays the Course
The stock market welcomed the new trading week with a mixed session that saw relative strength among large-cap stocks, while high-beta names underperformed. The Dow Jones Industrial Average (+0.3%) and S&P 500 (-0.1%) finished near their flat lines, while the Nasdaq Composite and Russell 2000 both lost 1.1%. Equities began the day on a cautious note amid continued concerns regarding the strength of the global economy. Over the weekend, China reported its first decline in electricity production since 2009, while Industrial Production (6.9%; expected 8.8%) grew at its slowest pace since December 2008. Likewise, the Industrial Production report from the U.S. (-0.1%; Briefing.com consensus 0.3%) also left a bit to be desired.
The major averages posted solid gains on Tuesday ahead of Wednesday's policy directive from the Federal Open Market Committee. The S&P 500 rallied 0.8%, while the Russell 2000 (+0.3%) could not keep pace with the benchmark index. Equity indices hovered near their flat lines during the first two hours of action, but surged in reaction to reports from the Wall Street Journal concerning next day's FOMC statement. Specifically, Fed watcher Jon Hilsenrath indicated that the statement would once again reflect the Fed's intentions to keep the fed funds rate at the zero bound for a considerable time after quantitative easing is wound down. The report sent the market higher since it contrasted with recent speculation that the Fed would drop the 'considerable time' language from its guidance, thus implying a swifter rate hike.
Stocks ended the midweek session with slim gains after showing some intraday volatility in reaction to the release of the latest policy directive from the Federal Open Market Committee. The S&P 500 added 0.1%, while the relative strength among small caps sent the Russell 2000 higher by 0.3%. The key indices spent the first half of the session near their flat lines as participants stuck to the sidelines ahead of the FOMC statement, which conveyed no changes to the Fed's current policy course. As expected, the Fed reduced the monthly pace of its asset purchases by $10 billion to $15 billion, setting expectations for the program to be wound down at the next meeting. Furthermore, the Fed maintained the "considerable time" language in its forward guidance, suggesting the first rate hike remains somewhat distant.
The market finished the Thursday session on a higher note with the S&P 500 climbing 0.5%. The benchmark index registered an early high within the first 90 minutes and inched to a new session best during the final hour of the action. Equities rallied out of the gate with the financial sector (+1.1%) providing noteworthy support for the second day in a row. The growth-oriented sector extended its September gain to 1.9% versus a more modest uptick of 0.4% for the S&P 500. Although financials did some heavy lifting, other influential sectors like health care (+0.8%) and technology (+0.7%) also served up a measure of support.