Stocks Rally Before Holidays

Markets

For the week of Monday, December 17, 2012 through Friday, December 21, 2012:

  • Standard & Poor’s 500 Index: 1.17%
  • Dow Jones Industrial Average: 0.43%
  • NASDAQ Composite: 1.67%

The markets ended the pre-holiday week on a positive note. On Monday, blue-chip stocks snapped a three-session streak of declines amid signs of progress in U.S. budget talks. Gains continued into Tuesday, as the Dow Jones Industrial Average finished at its highest level in two months, with energy and technology shares leading, as all sectors notched gains.

By mid week, U.S. stocks pulled back after two days of strong gains, as investors reassessed the latest smoke signals from the fiscal negotiations in Washington. By Thursday, stocks tallied slight gains as Republican House Speaker John Boehner delayed until Thursday night a vote on his plan to hike taxes on incomes of more than $1 million. Without support for his “Plan B” proposal that would see income tax rates rise on incomes above $1 million, Boehner withdrew his bill before holding a vote and dismissed the House of Representatives until after Christmas.

Economic Data

  • Chain Store Sales Snapshot:
    • The ICSC chain store sales index surged 4.3% last week, fully out of the post-Thanksgiving lull.
    • The largest weekly gain on record puts growth at 3.5% year over year.
    • This is above the 3% year-to-date average.
  • Semi Book-to-Bill:
    • The book-to-bill ratio for North American semiconductor equipment firms had its first increase since March, coming in at 0.79 for November, up from 0.75 in October.
    • Both bookings and billings decreased from the previous month.
    • The decline in billings was significantly larger.
  • Housing Starts:
    • Residential construction declined in November, with starts decreasing to a seasonally adjusted rate of 861,000 for November.
      • Single-family construction declined 4.1%.
      • Multifamily starts fell 1%.
    • While permits actually rose 3.6% month-over-month, completions declined 9.7%.
  • Jobless Claims:
    • Initial claims for unemployment insurance saw the first increase since the Hurricane Sandy spike.
      • Claims were up 17,000 to 361,000.
      • The four-week moving average fell 13,750 to 367,750.
      • Continuing claims rose 12,000 to 3.23 million for the week.
    • Last week’s increase is likely a result of the unusually large declines in prior weeks, not a signal of a weakening job market.
  • Gross Domestic Product (GDP):
    • The third quarter’s real GDP was revised up a second time.
    • According to the Bureau of Economic Analysis’ third estimate, growth came in at 3.1%, up from 1.3% in the second quarter.
      • Government spending and strong nonfarm inventory investment contributed to the growth.
      • Drought lowered farm inventories.
    • Top-line measures of inflation accelerated, but core measures did not.
    • Corporate profits grew 2.4% (not annualized) after 1.1% growth in the second quarter
    • Gross domestic income grew 1.4% in the quarter after falling 0.7% in the second quarter.
  • Existing Home Sales:
    • Home sales rose in November to 5.04 million units, up 5.9%.
    • At the highest level in three years, November sales are 14.5% above November 2011‘s sales.
    • Hurricane Sandy caused disruptions in the Northeast, but was offset by gains elsewhere.
    • Total inventory fell to 2.03 million, representing 4.8 months of supply, the lowest level since mid-2005.

Earnings:

  • Oracle Corporation (NASDAQ: ORCL)
    • Business software maker Oracle’s profits rose 18% in its most recent quarter.
      • Companies spent more on software and other technology as the year was winding down.
    • Oracle reported earnings of $2.6 billion, or $0.53 a share, compared to $2.2 billion, or $0.43 a share, a year earlier.
    • Revenue increased to $9.1 billion, a 3% increase over last year.
    • Adjusted earnings for the quarter range from $0.64 to $0.68 per share on revenue ranging from $9.1 billion to $9.5 billion.
  • Accenture Plc (NYSE: ACN)
    • Overall revenue inched up 2% to $7.22 billion, but was short of analysts’ average estimate of $7.29 billion.
      • During the just-concluded first quarter, revenue from Europe, Middle East and Africa fell 6% to $2.82 billion.
      • This region accounted for nearly 41% of Accenture’s revenue last fiscal quarter.
    • Revenue from the company’s communications, media and technology business fell 5% to $1.46 billion.
      • The decline was most pronounced in the Europe, Middle East and Africa region,  where clients continued to defer investments.
    • Net income rose to $766 million, or $1.06 per share, from $712 million, or $0.96 per share, a year earlier.
      • Analysts were looking for $1.04 per share.
  • Bed Bath & Beyond Inc. (NASDAQ: BBBY)
    • Bed Bath & Beyond Inc. reported its fiscal third-quarter profit increased nearly 2%.
    • Bed Bath and Beyond earned $232.8 million, or $1.03 per share, up from $228.5 million, or $0.95 cents per share, for the same period last year.
      • Revenue increased to $2.7 billion.
      • Both numbers were just shy of analysts’ expectations of $1.02 per share on revenue of $2.73 billion.
  • FedEx Corporation (NYSE: FDX)
    • The FedEx Corporation reported a 12% decrease in profit tied to a decline for express shipments, as customers turn to slower, less costly methods of delivery.
    • FedEx reported earnings of $438 million, or $1.39 a share in comparison to $497 million, or $1.57 a share, a year earlier.
      • Disruptions relating to Hurricane Sandy reduced earnings by about $0.11 per share.
    • Revenue rose to $11.1 billion from $10.6 billion one year earlier.
  • General Mills, Inc. (NYSE: GIS)
    • General Mills reported it earned $541.6 million, or $0.82 a share, compared to $444.8 million, or $0.67 per share, last year.
    • Revenue increased to $4.88 billion.
  • Darden Restaurants, Inc. (NYSE: DRI)
    • Darden Restaurants’ fiscal second-quarter net income fell 37%, as revamped menus and new ad campaigns failed to draw diners into its Olive Garden and Red Lobster chains.
    • The restaurant operator earned $33.6 million, or $0.26 per share, down from $53.7 million, or $0.40 per share, last year.
      • Analysts predicted slightly higher earnings of $0.27 per share.
    • Revenue was up to $1.96 billion from $1.83 billion.
    • Revenue at U.S. restaurants open at least a year fell 3.2% at Olive Garden and 2.7% at Red Lobster.

M&A Activity and More:

  • ICE to buy NYSE:
    • The owner of the 220-year-old New York Stock Exchange agreed to an $8.2 billion deal that would give control to IntercontinentalExchange (NYSE: ICE) for about $33.12 a share in cash and stock.
    • The combined company would have headquarters in both ICE’s home of Atlanta and in New York.
    • ICE itself had partnered with NYSE Euronext’s main rival, the Nasdaq OMX Group, in an $11 billion hostile bid for the Big Board’s parent, only to see that offer blocked by the Justice Department.

Interest Rates

  • Treasury prices continued to fall following a better-than-expected third quarter GDP report.
    • The two-year Treasury rate rose three basis points to 0.26%.
    • The five-year Treasury rate climbed seven basis points to 0.76%.
    • The 10-year Treasury rate increased eight basis points to 1.78%.
    • The 30-year Treasury yield rose 11 basis points to yield 2.98%, just below the key 3% rate.
Disclosures:
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.

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