A Mixed Week Following Technology’s Rolling Results

Markets

For the week of Monday, February 4, 2013 through Friday, February 8, 2013:

• Standard & Poor’s 500 Index: 0.31%
• Dow Jones Industrial Average: -0.12%
• NASDAQ Composite: 0.46%

On Monday, the Dow Jones Industrial Average posted its first triple-digit drop for the year. This was as a result of weakness in the technology stocks.  Monday’s decline followed Friday’s Dow first-time close above 14,000 since 2007. Technology’s weakness was also felt in the S&P 500 and NASDAQ. However, a day can change things, as Technology shares led U.S. stocks higher on Tuesday, reversing much of Monday’s slide. Investors eyed corporate earnings and steady economic readings in the United States and Europe.

By mid-week, the Dow squeezed out small gains as investors weighed the latest round of earnings reports against weakness in European markets. Stocks were little changed on Thursday after data showed modest improvement in the labor market, and retailers posted mixed monthly sales. Stocks closed higher on Friday, bolstered by solid earnings posted by online networks and technology companies.

Economic Data

• Factory Orders:
  • Manufactured goods orders were up 1.8% in December.
  • Durable goods growth was revised down from a 4.6% increase to a 4.3% increase.
    • Shipments of durable goods were also revised down, to 1.1%, rather than the 1.3% increase previously reported.
  • Unfilled orders rose 0.8%, and inventories grew 0.1%.
  • Core capital goods shipments were revised down to a 0.2% gain, rather than the previously reported 0.3%.
    • Core capital goods orders declined 0.3%, rather than the 0.2% increase that was originally released.
• Institute for Supply Management Services Index:
  • The ISM nonmanufacturing index fell 0.5 point to land at 55.2.
  • The January report adds the new seasonal factors.
  • For 2012, the index was relatively unchanged, according to the revised data.
    • The index edged down to 54.6 from 54.7.
• MBA Mortgage Applications Survey:
  • Mortgage activity rebounded slightly as the mortgage applications composite index rose 3.4%.
  • Purchase and refinance applications advanced.
    • The purchase index increased by 2.2%, and
    • The refinance index rose by 3.5%.
  • Mortgage interest rates also increased slightly.
• Jobless Claims:
  • Initial claims for unemployment insurance fell 5,000 to 366,000.
  • Claims for the previous week were revised higher by 3,000 to 371,000.
  • The four-week moving average fell to the lowest level since March 2008, coming in at 350,500.
  • Continuing claims rose 8,000 to 3.22 million.
• Productivity and Costs:
  • Nonfarm business productivity fell 2% for the fourth quarter of 2012.
    • This was on a seasonally adjusted annualized basis and was a result of output growth slumping.
  • Productivity underperformed consensus estimates, which were already calling for a sharp decline.
    • However, the prior quarter was revised up.

Earnings:

• Aflac Incorporated (NYSE: AFL)
  • The largest seller of supplemental health insurance fell the most since 2011 after forecasting profit that fell short of analysts’ estimates.
    • The insurer declined more than 3%, following the report.
  • The company reported fourth-quarter profit climbed 8% to $581 million, or $1.24 a share.
    • A weaker yen hurt Aflac, which gets most of its revenue in Japan.
• Eaton Corporation, plc (NYSE: ETN)
  • Eaton Corp. reported earnings dropped to $179 million, or $0.46 per share, from $362 million, or $1.07 per share, last year.
  • Eaton earned $0.82 cents a share, still below analyst estimates, when factoring out costs related to its acquisition of Cooper Industries.
    • Revenue rose 7% to $4.33 billion from $4.03 billion a year earlier, but was down close to 6%, when factoring in other expenses.
• The Walt Disney Company (NYSE: DIS)
  • The Walt Disney Company reported profits that beat analysts’ estimates.
  • Disney reported a profit of $0.79 per share versus the $0.77 that analysts expected.
    • Sales increased 5.2% to $11.3 billion, just above estimates of $11.2 billion.
  • Net income declined 5.6% to $1.38 billion, or $0.77 a share, from $1.46 billion, or $0.80 a year earlier.
• Cummins Inc. (NYSE: CMI)
  • Cummins reported a profit of $381 million, or $2.02 a share, compared to $548 million, or $2.86 a share, a year earlier.
    • Revenue fell 13% to $4.29 billion.
    • Sales of engines for commercial trucks and off-road equipment fell 18% from last year to $2.5 billion.
  • Earnings before taxes and interest on engines decreased 26% to $272 million.
• CVS Caremark Corporation (NYSE: CVS)
  • CVS Caremark reported earnings climbed 6%, citing revenue growth at established stores and customer growth as the main contributors.
  • CVS earned $1.13 billion, or $0.90 per share, compared to $1.06 billion, or $0.81 per share, in the same period for fiscal year 2011.
    • Adjusted earnings totaled $1.14 per share, when excluding a loss for the early retirement of some debt.
    • Analysts expected earnings of $1.10 per share on $31.14 billion in revenue.
  • For the year, CVS Caremark earned $3.88 billion, or $3.03 per share, on $123.13 billion in revenue.
• Advance Auto Parts, Inc. (NYSE: AAP)
  • Advance Auto Parts earned $65.1 million, or $0.88 per share, in comparison to $66.4 million, $0.90 per share, a year ago.
  • Revenue increased to $1.33 billion.
  • Analysts expected earnings of $0.75 per share on revenue of $1.33 billion.

M&A Activity and More:

• U.S. Accuses S&P of Fraud:
  • The Justice Department filed civil fraud charges against the nation’s largest credit-ratings agency,
  • Standard & Poor’s, accusing the firm of inflating the ratings of mortgage investments and setting them up for a crash when the financial crisis struck.
    • The suit is the first significant federal action against the ratings industry.
    • The high ratings made many investments appear safer than they actually were, and are now seen as having contributed to a crisis that brought the financial system and the broader economy to its knees.
  • More than a dozen state prosecutors are expected to join the federal suit.
  • The New York attorney general is preparing a separate action.
• It’s Official… Dell is going private:
  • Dell Inc. (NASDAQ: DELL) announced a $24.4 billion deal to take itself private.
    • The move will take the business from Wall Street’s spotlight, as it tries to rebuild with the move away from personal computers.
    • The maneuver will saddle Dell with $15 billion of new debt.
    • It does nothing to divert the forces reshaping the technology industry.

Interest Rates

• The two-year Treasury rate fell one basis point to 0.25%.
• The five-year Treasury rate fell four basis points to 0.84%, still above the one-year average.
• The 10-year Treasury rate lost two basis points to 1.99%, just below the 2% level.
• The 30-year Treasury yield remained flat at 3.18%, still above the key 3% level.

Disclosures

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