Strong Reports in Earnings and Economic News Drive Markets Higher

Markets

For the week of Monday, January 21, 2013, through Friday, January 25, 2013:

• Standard & Poor’s 500 Index: 1.14%
• Dow Jones Industrial Average: 1.80%
• NASDAQ Composite: 0.48%

The holiday-shortened week started strong with better-than-expected earnings reports that helped propel blue-chip stocks to a five-year high. Stocks continued their rise on Wednesday, as lawmakers voted to extend the nation’s borrowing limit. On Thursday, the Dow industrials got a boost from a better-than-expected report on the labor market. However, technology shares lagged after a disappointing earnings report from Apple (NASDAQ: AAPL).

Stocks closed higher on Friday, sending the S&P 500 up for an eight straight session. This is its longest winning streak since November 2004. Better-than-expected earnings news from several companies helped to drive the rally, despite news December new home sales fell 7.3%.

Economic Data

• Existing Home Sales:
  • Existing home sales surprised to the downside, dropping 1% from November to an annualized 4.94 million in December.
    • Despite the drop in sales, existing-home sales are still at their fastest pace since beginning of 2007.
  • 2012 sales were up 9% from 2011;
  • Months of supply was at 4.4 months for December, and
  • The median existing-house price is up 11.5% year-over-year.
• Chain Store Sales Snapshot:
  • The ICSC Chain Store Sales Index fell 1.5% for the third straight week.
    • The decline was similar to the comparable week in 2012.
    • The current year-over-year growth rate of 3.2% remains above the 3% 2012 average.
• MBA Mortgage Applications Survey:
  • The mortgage applications composite index rose 7% for the third straight week of improvement.
  • The refinance index led the gains, up 7.7% from the prior week.
  • The purchase index was also up 2.5% higher.
• Jobless Claims:
  • Initial claims for unemployment insurance fell 5,000 to 330,000.
  • Continuing claims fell 71,000 to 3.16 million, the lowest level since July 2008.

Earnings:

• Verizon Communications Inc. (NYSE: VZ)
  • Verizon reported revenue of $30.01 billion.
    • This was ahead of analysts’ estimates of $29.83 billion.
  • Adjusted profits of $0.38 a share were short of the analysts’ estimate of $0.50 per share.
  • Considering non-cash pension items, non-operational debt retirement and other restructuring items, the company lost $1.48 a share.
• International Business Machines Corp. (NYSE: IBM)
  • IBM Corp. reported net income increased $5.83 billion, back on track after a disappointing previous quarter.
  • Net income increased 6.3% to $5.83 billion.
  • Overall revenue declined nearly 1% to $29.3 billion.
• Google Inc (NASDAQ: GOOG)
  • Google beat fourth quarter earnings forecasts, but fell short on revenue, as a result of the ongoing integration of Motorola Mobility.
  • Google earned $10.65 a share excluding items, compared to $9.50 a year ago.
    • This also beat analyst estimates of $10.47.
  • Revenue grew 39.5% to $11.34 billion; however, analysts expected $12.34 billion.
• Coach, Inc. (NYSE: COH)
  • Coach, Inc. missed analysts’ estimates for the quarter citing a “challenging” holiday season.
    • Stores open at least a year were down 2% for the quarter, and
    • Overall lower North American demand hurt the company’s bottom line.
  • Net income rose 1.5% to $352.8 million, or $1.23 a share, from $347.5 million, or $1.18, a year earlier.
    • Analysts projected $1.28 a share.
  • Revenue rose 3.8% to $1.5 billion, which was also below the estimated $1.6 billion.
• McDonald’s Corporation (NYSE: MCD)
  • McDonald’s Corp. reported profits rose 1% to almost $1.4 billion, or $1.38 a share, compared to $1.38 billion, or $1.33 a share, a year-ago.
  • Sales rose 2% to $6.95 billion, beating analysts’ estimates of $1.33 a share.
• Apple Inc. (NASDAQ: AAPL)
  • Apple reported a record quarterly profit at $13.1 billion last quarter.
    • This was the second highest quarterly profit by a U.S. corporation.
    • Strong iPhone and iPad sales contributed to the quarterly gains.
  • The company sold 47.8 million iPhones during the past quarter.
    • However, the popularity of cheaper versions of its mobile devices pinched the company’s profits.
• Netflix, Inc. (NASDAQ: NFLX)
  • Netflix surprised reporting net income of $7.9 million, compared to $35.2 million a year ago.
    • Analysts had forecast a loss of $0.13 cents.
  • Revenue rose 8% to $945.2 million, beating the $934.5 million estimate average.
  • The service added 2 million subscribers during the quarter, which pushed it to a profit for the final three months of 2012.

Interest Rates

• Yields slid slightly lower over the past week.
  • The two-year Treasury rate fell two basis points to 0.25%.
  • The five-year Treasury rate dropped one basis point to 0.78%, just above the one-year average.
  • The 10-year Treasury rate lost one basis point to 1.87%.
  • The 30-year Treasury yield fell one basis point to 3.06%, staying above the key 3% mark.

Disclosures:

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