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Leigh Baldwin & Co.

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The Week In Review

1/30/15

The stock market ended a down month on a sharply lower note. The Dow (-1.5%) and S&P 500 (-1.3%) widened their respective January losses to 3.7% and 3.1% while the Nasdaq Composite (-1.0%) lost 2.1%. Furthermore, this marked the first time since early 2012 that the market registered losses in two consecutive months.

 

The key indices struggled at the start after a disappointing GDP report for the fourth quarter introduced a new wrinkle into a deteriorating outlook for global growth. Overnight, Japan and the eurozone saw a slowdown in their respective inflation data while a handful of U.S. companies joined a growing chorus of names that have reduced their guidance for the first quarter. On that note, consensus Q1 earnings growth has contracted to just 0.2% from 8.6% on December 1, according to S&P Capital IQ.

 

Equities followed their lower open with another slip, but the S&P 500 turned around just north of the 2,000 level and spent the afternoon working back to its flat line. The rebound coincided with a Der Spiegel report indicating Germany is ready to back EUR20 billion in aid for Greece, but the package would be contingent on Greece accepting reform conditions imposed by the troika. This contrasted with earlier comments from Greek Finance Minister Yanis Varoufakis who said Greece will no longer negotiate with the troika. Furthermore, Germany's government was quick to deny the report from Der Spiegel.

 

The afternoon rebound also featured a surge in crude oil, which spiked to end the day higher by 8.0% at $48.17/bbl. However, crude notched its high just ahead of the 14:30 ET pit close and inched away from that level in electronic trade while the S&P 500 slumped back below its 100-day moving average (2,010) to a new low.

 

Nine of ten sectors registered losses while energy (+0.7%) benefitted from the spike in crude. However, today's surge was a small victory considering the sector lost 4.9% in January. Dow component Chevron (CVX 102.53, -0.47) shed 0.5% after its plans to cut capital expenditures by 13.0% overshadowed better than expected results.

 

Speaking of the Dow, the index stayed near the S&P 500, but a 2.8% spike in the shares of Visa (V 254.91, +6.91) masked the fact that 15 of 30 Dow members lost more than 2.0% while four of the 15 tumbled 3.0% or more. As for Visa, the payment processor spiked after beating estimates and announcing a 4:1 split, which will become effective March 19 and remove some of Visa's influence over the price-weighted index.

 

In other earnings of note, Amazon.com (AMZN 354.53, +42.75) soared 13.7% after beating operating income estimates and issuing cautious guidance for the first quarter. The stock helped the consumer discretionary sector (-1.1%) finish a few steps ahead of the broader market.

 

Although the market endured a whipsaw session, that was not the case with Shake Shack (SHAK 45.90, +24.90), which made its public debut today. Shares of the hamburger chain rocketed higher by 118.6% after pricing the IPO at $21.

 

Treasuries spiked, ending near their highs with the 10-yr yield down eight basis points at 1.67%.

 

Today's participation was well ahead of average with more than a billion shares changing hands at the NYSE floor.

 

Economic data included Q4 GDP, Employment Cost Index, Chicago PMI, and Michigan Sentiment:

 

According to the advance estimate, GDP increased 2.6% in Q4 2014 (Briefing.com consensus 3.2%), down from a 5.0% increase in the third quarter 

Real final sales increased 1.8% in the fourth quarter after increasing 5.0% in the third quarter

Much of the GDP gain was the result of lower prices adding a boost to the "real" economy. Nominal GDP growth was anemic (2.5%), which was down by more than 50% from both second (6.8%) and third quarter (6.4%) growth levels

Consumption spending was a bright spot, increasing 4.3%, which was the largest jump since 2006

The Employment Cost index Increased 0.6% in Q4, down from a 0.7% increase in Q3 while the Briefing.com consensus expected an increase of 0.5% 

Wages and salaries decelerated, up 0.5% after increasing 0.8% in Q3 2014

Benefits spending growth increased 0.6% for a second consecutive quarter

The Chicago PMI for January increased to 59.4 from 58.8 while the Briefing.com consensus expected a drop to 58.0 

Production levels accelerated as the related index increased to 64.1 in January from 62.7 in December

The University of Michigan Consumer Sentiment Index was virtually unchanged in January, ticking down to 98.1 from 98.2 (Briefing.com consensus 98.2) 

Lower gasoline prices and improvements in the labor market were key for overall sentiment growth in January

On Monday, December Personal Income, Personal Spending, and Core PCE Prices will be reported at 8:30 ET while the ISM Index for January and December Construction Spending will be released at 10:00 ET.

 

Nasdaq Composite -2.1% YTD

S&P 500 -3.1% YTD

Russell 2000 -3.4% YTD

Dow Jones Industrial Average -3.7% YTD

Week in Review: Stocks Slide to End January

The stock market began the week on a quiet note with the Dow (unch), Nasdaq (+0.3%), and S&P 500 (+0.3%) settling near their flat lines. The small-cap Russell 2000 (+1.0%) outperformed, but the action took place against the backdrop of anemic trading volume as the East Coast braced for Winter Storm Juno. The intraday lack of trading activity masked the fact that the weekend featured an important election in Greece. As expected, the anti-bailout Syriza party came away victorious, and despite failing to secure absolute majority, the party was able to form a coalition with Independent Greeks—a party that also opposes EU bailouts. So far, Syriza officials have been very careful when discussing the future of Greece with Finance Minister Yanis Varoufakis saying a euro exit is not in the plans and that talks of a 'Grexit' should not be sensationalized.

The major averages stumbled on Tuesday with the S&P 500 (-1.3%) returning below its 50-day moving average (2,047). The benchmark index settled ahead of the Dow Jones Industrial Average (-1.7%), but behind the Russell 2000 (-0.5%). Stocks careened lower at the start of the session after several large companies cautioned that dollar strength will present a headwind to their future earnings. Most notably, Caterpillar (CAT), DuPont (DD), Microsoft (MSFT), and Procter & Gamble (PG) lost between 1.3% and 9.3% while Pfizer (PFE), and United Technologies (UTX) held up relatively well despite their warnings. However, cautious guidance from six Dow components was not the only issue as investors had to digest a disappointing Durable Orders report while Consumer Confidence and New Home Sales beat expectations.

Equities finished the midweek session on a lower note despite showing considerable strength in the early going. The S&P 500 (-1.4%) lost its 100-day moving average (2,010) and settled behind the Nasdaq Composite (-0.9%) while the Russell 2000 (-1.7%) lagged throughout the day. The key indices appeared to be on solid footing at the start with the Nasdaq up 1.0% after Apple (AAPL) reported better than expected results for the quarter and issued strong guidance. The stock surged 5.7% and helped the technology sector (-0.1%) finish near its flat line while most of the remaining sectors struggled. The benchmark index traded little changed ahead of the afternoon release of the latest policy statement from the Fed, but slumped into the close. Once again, the policy directive reiterated the Fed's intent to remain patient in determining the appropriate timing for the first rate hike, which helped send Treasuries to new highs. The 10-yr yield fell ten basis points to 1.73% while the 30-yr yield dropped 11 basis points to register its lowest close on record (2.28%). The Fed described U.S. economic growth as 'solid' while categorizing job growth as 'strong.' The central bank did not spend much time discussing overseas developments, which could help explain some of the selling that developed after the statement was released. Furthermore, the FOMC showed little concern over low inflation, saying that while the price level is expected to decline in the near term, a gradual return to 2.0% should follow once the 'transitory effects of lower energy prices and other factors dissipate.'

The market endured a volatile session on Thursday, but a steady rebound off morning lows helped the major averages register their first gain in three days. The Dow Jones Industrial Average paced the advance (+1.3%) while the S&P 500 (+1.0%) reclaimed its 100-day moving average (2,010). Equities faced some selling pressure at the start amid continued weakness in crude oil. The energy component set a fresh January low in the $43.60/bbl area, but was able to charge back to unchanged by the pit close. That rebound improved the overall risk tolerance and helped the S&P 500 find support just a point above its January low (1988.12). Dip buyers entered the picture about 90 minutes after the start of the session, which helped all ten sectors rebound off their lows. The materials space (+1.4%) finished in the lead thanks to better than expected earnings from Dow Chemical (DOW). The stock spiked 4.6% and gave a boost to its peers. Meanwhile, the other commodity-related sector—energy (+0.2%)—was the weakest performer.

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