Bumpy Week Despite Tuesday’s Record

Markets

For the week of Tuesday, May 28, 2013 through Friday, May 31, 2013:

• Standard & Poor’s 500 Index: -1.11%
• Dow Jones Industrial Average: -1.19
• NASDAQ Composite: -0.08%

Stocks soared Tuesday after U.S. home prices rose the most in seven years.  Consumer confidence also reached a five-year high. The 30-stock Dow Jones Industrial Average closed higher for the 20th straight Tuesday—the longest day-of-the-week string of consecutive gains in the Dow’s history. The next day, stocks declined broadly, with high-yielding sectors lagging for a second day, as Treasury yields began to rise.  Thursday brought another direction change as stocks advanced, following the Dow’s biggest drop in four weeks.  Stocks closed sharply lower on Friday, beaten down by concerns that the Federal Reserve might taper its stimulus programs and rising interest rates.

Economic Data

• Case-Shiller Home Price Index:
  • Existing-home prices appreciated on a year-ago basis.
    • The 10-city composite is up 10.3% over last year.
    • The 20-city composite is up 10.9% over last year as well.
  • Not seasonally adjusted, both the 10- and 20-city composites are up 1.4% month-over-month.
• Conference Board Consumer Confidence:
  • The Conference Board Consumer Confidence Index gained 7.2 points in May, moving to 76.2.
    • This increase puts the index at a new recovery period high.
• MBA Mortgage Applications Survey:
  • Mortgage interest rates were higher for the week, but remain near the historically low levels.
    • The composite mortgage applications index fell 8.8%.
    • Refinance applications fell 12.3%.
    • However, the purchase index increased 2.6%.
• Jobless Claims:
  • Initial claims for unemployment insurance rose 10,000 to 354,000.
  • The previous weeks’ claims were revised upward from 340,000 to 344,000.
  • Continuing claims rose 63,000 to 2.99 million.
• Gross Domestic Product:
  • Real GDP increased by 2.4% in the first quarter, according to the second estimate.
    • This is up from 0.4% growth in the fourth quarter; however, the estimate was 2.5%.
    • The increase was helped by faster inventory accumulation, consumer spending on utilities, and a smaller decline in defense spending.
  • Net exports were a negative drag on growth.
  • Disposable income fell sharply, after extraordinary dividends and bonus payments in the fourth quarter, causing the savings rate to drop from 4.7% to 2.6%.

Earnings:

• Tiffany & Co. (NYSE: TIF)
  • Tiffany & Co. beat expectations, reporting a 3% increase in net income.
  • Tiffany’s earned $83.6 million, or $0.65 per share, compared to $81.5 million, or $0.64 per share, last year.
    • Excluding costs tied to staff and occupancy cuts, earnings were $0.70 cents per share.
  • Revenue was up 10% to $895.5 million from $819.2 million, beating estimates of $855.7 million.
• Michael Kors Holdings Limited (NYSE: KORS)
  • Michael Kors reported net income of $101.1 million, or $0.50 a share, compared to $43.6 million, or $0.22 one year ago.
    • Analysts’ expected $0.39 cents.
  • Revenue rose 57% from a year ago to $597 million.
  • Same-store sales, a key growth metric that measures sales at stores open longer than a year, rose 36.7%.
• Costco Wholesale Corporation (NASDAQ: COST)
  • Costco’s reported earnings of $459 million, or $1.04 per share compared to $386 million, or $0.88 cents per share, last year.
    • Analysts expected earnings of $1.02 per share.
  • Revenue was up 8% at $24.08 billion from $22.32 billion, slightly missing analysts’ expectations of $24.09 billion.
    • Revenue generated from membership fees increased to $531 million from $475 million.
    • This accounts for a large portion of Costco’s profit.

Interest Rates

• The two-year Treasury rate gained five basis points to 0.30%.
• The five-year Treasury rate soared 13 basis points to 1.02%.
• The 10-year Treasury rate rose 11 basis points to 2.13%—the highest level in almost 14 months.
• The 30-year Treasury yield increased nine basis points to 3.28%.

Disclosures

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