Markets End Mixed After Rocky Week

Markets

For the week of Monday, February 18, 2013, through Friday, February 22, 2013:

• Standard & Poor’s 500 Index: -0.28%
• Dow Jones Industrial Average: 0.13%
• NASDAQ Composite: -0.95%

It was a holiday-shortened week, with the U.S. markets closed for President’s Day on Monday. Tuesday saw corporate deal news and an upbeat reading on German investor confidence, which emboldened U.S. stock investors, helping send major benchmarks to five-year highs. The Dow Jones Industrial Average closed at its highest level since October 2007. The Standard & Poor’s 500 Index also advanced, after its seventh consecutive weekly gain. This is the longest such stretch since January 2011.

Stocks slumped Wednesday, after the Federal Reserve showed rising unease about its efforts to support the economy, sending the Dow to its second-biggest drop this year. The S&P 500 also took its biggest tumble since November. This came after the S&P 500 banked its highest close since 2007 on Tuesday. Stocks dropped again on Thursday, as world markets took a big step lower and weekly unemployment claims data showed the number of applications for benefits rose 20,000 to 362,000 for the week. However, by Friday, sentiment changed yet again, as the Dow saw its third triple-digit-point gain this year and closed right at 14000. The Dow has risen every Friday so far in 2013. Investors are bracing for possible rocky market next week, with the chance of sequestration on Friday.

Economic Data

• Chain Store Sales Snapshot:
  • The ICSC Chain Store Sales Index was up 2.7% for the week, but only up 1.8% year-over-year.
  • Higher gasoline prices and smaller paychecks appear to be weighing on consumers.
• MBA Mortgage Applications Survey:
  • The Mortgage Applications Composite Index fell 1.7% during the week ending February 15th.
  • Refinancing and purchases were both down for a second consecutive week.
• Producer Price Index:
  • Producer prices rose 0.2% in January, below the forecast and the consensus.
    • The increase is the first in four months.
    • Higher food prices largely drove the index higher.
    • Energy prices were unexpectedly weak.
• Housing Starts:
  • Housing starts were down 8.5% from December to January, decreasing to 890,000 units.
    • The starts are 24% faster than the same period in 2012.
  • Moreover, the volatile multifamily category led the January decline.
  • Single-family housing starts increased.
  • Permits and completions were up month to month.
• Federal Open Market Committee Minutes:
  • The minutes from the January 29-30 meeting of the FOMC showed policymakers remain divided on the future course of quantitative easing.
    • There was continued debate on when to scale back its asset purchases.
    • This discussion is constructive and policymakers should be weighing the cost and benefits of continuing its asset purchases.
  • For now, we believe the benefits outweigh the costs, and expect the central bank not to make any changes to its balance sheet policy over the next few months.
    • This could change midyear, particularly, if the economy continues to improve.
    • The minutes showed the Fed was cautiously optimistic about the economy’s prospects.
• Consumer Price Index:
  • The Consumer Price Index was unchanged from December to January.
    • Energy prices fell sharply.
    • The food index was unchanged.
    • Core CPI advanced 0.3%.
• Existing Home Sales:
  • Sales of existing homes were stable in January.
    • After December sales were revised downward, January sales are up 0.4% to 4.92 million annualized units.
    • Annual revisions to the data indicate the past three years of sales have been slower than originally reported.
  • Months of supply are down to 4.2 months and continuing to drop.
  • The median existing-home price is up 12.3% year-over-year.
  • Inventory is down 25% from a year ago.

Earnings:

• Dell Inc. (NASDAQ: DELL)
  • Dell Inc. reported profits fell 31%, and revenue was down 11%, but they were still on the high end of the company’s earlier forecast.
    • Dell reported net income of $530 million, or $0.30 a share, compared to $764 million, or $0.43 a share, last year.
  • Revenue was down to $14.3 billion, from $16 billion a year ago.
• Genuine Parts Company (NYSE: GPC)
  • Genuine Parts reported quarterly earnings of $160.2 million, or $1.03 per share, compared to $135 million, or $0.86 per share a year earlier.
    • Analysts expected earnings of $0.93 per share.
  • Revenue was up 3% to $3.12 billion from $3.01 billion, but missed analysts’ expectations of $3.19 billion.
  • For the year, Genuine Parts Co. reported earnings of $648 million, or $4.14 per share.
    • In 2011, they earned $565.1 million, or $3.58 per share.
    • Annual revenue was up 4% to $13.01 billion from $12.46 billion.
• Garmin Ltd. (NASDAQ:GRMN)
  • Garmin Ltd. earned $129.3 million, or $0.66 per share, down from $165.6 million, or $0.85 per share, year-over-year.
    • Excluding the effect of foreign currency exchange rates, the company said it posted an adjusted profit of $0.68 per share for the recent quarter.
  • Revenue fell from $909.6 million to $768.5 million.
    • Analysts expected a profit of $0.74 per share on $833.7 million in revenue.
    • The company said the revenue drop reflects a 25% decline at the company’s automotive and mobile segment to $437 million.
  • For the year, Garmin earned $542.4 million, or $2.76 per share, on sales of $2.72 billion.

M&A Activity and More:

• Office Max and Office Depot to Merge
  • In a deal that was released early and appears to not be fully negotiated yet, Office Max and Office Depot are set to merge.
    • The deal was posted to Office Depot’s website on Wednesday, and then quickly removed as both companies had not intended to release the details of the deal or earnings.
  • The companies said they will split the board equally.
    • Directors from both companies and would have governance rights from each of the two companies.

Interest Rates

• The two-year Treasury rate held flat at 0.26%.
• The five-year Treasury rate fell about one basis point to 0.85%.
• The 10-year Treasury rate slipped just below the key 2% mark to 1.99%.
• The 30-year Treasury yield rose one basis point to 3.19%.

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