A Slight Retreat on Friday Left the Markets Mixed for the Week

For the week of Monday, February 27, 2012 through Friday, March 2, 2012

• Standard & Poor’s 500 Index: 0.28%
• Dow Jones Industrial Average: -0.04%
• NASDAQ Composite: 0.42%

The markets ended the week mixed, but the S&P 500 Index is up more than 8% year-to-date.  Tuesday saw the Dow finally closing above the psychologically important 13,000 mark.

The rally of the early week was cut short Wednesday afternoon when Federal Reserve Chairman Ben Bernanke explained the Fed’s cautious view on the U.S. recovery and hinted that the Fed would potentially pursue a third round of quantitative easing measures to help the economy.

Economic Data

• Durable Goods
  • New orders for durable goods fell 4% in January, down from the 3.2% gain in December.
  • Excluding transportation, new orders declined 3.2%, shipments rose 0.4% and inventories added 0.7%.
  • New orders for core capital goods dropped 4.5% and shipments fell 3.1%.
• Case-Shiller Home Price Index
  • On a year-ago basis, existing home prices worsened in the three months ending in December relative to the same period in November.
  • The 10-city composite dropped by 3.9% from last year compared with a 3.8% decline last month.
  • The 20-city composite is down more than 4% over the same period compared to the 3.9% decline last year.
  • The national index in the fourth quarter 2011 declined 4% from a year earlier, a decline from the 3.8% year-to-year decline in the third quarter.
• Conference Board Consumer Confidence
  • Consumer confidence rose more than expected—9.3 points in February—jumping from a revised 61.5 to 70.8.
  • The expectations component led the increase rising from 76.7 to 88.
  • The present conditions component rose strongly from 38.8 to 45.
  • The index is now at its highest level in a year.
• Gross Domestic Product
  • Real GDP growth for the fourth quarter jumped to 3% from 1.8 % in the third quarter, according to the Bureau of Economic Analysis’ second estimate.
    • It was originally reported to be a 2.8% increase.
  • Upward revisions were led by fixed investments and lower imports.
  • Growth has slowed in the recent quarter, as a result of reduced fiscal stimulus and the drag from Europe’s recession.
• ISM Manufacturing Index
  • U.S. manufacturing conditions unexpectedly softened in February, as the ISM index fell from 54.1 to 52.4.
  • This snapped a streak of three consecutive months of gains and reverses.
  • Both employment and production edged lower in February, but the inventory index remained the same for the second consecutive month at 49.5.
  • Though the Manufacturing Index reading fell, it remains steady with gains in factory output, and does not justify a change in our forecast for the first quarter.
• Personal Income
  • Income and spending rose modestly in January.
    • Nominal consumer spending rose 0.2 %.
    • Nominal personal income rose 0.3%.
  • Disposable income rose 0.1% as tax payments jumped and wage income rose for the second straight month by 0.4%.
  • The savings rate dipped to 4.6% from 4.7%.
  • Overall prices were up 0.2% ,as were core prices.
• Jobless Claims
  • Initial claims fell for the week ending February 25th to 351,000 from 353,000.
  • Prior week data was revised from 351,000, which was more than expected.
  • Continuing claims from the previous week also edged lower.

Earnings

• Berkshire Hathaway Inc.  (NYSE: BRK)
  • A drop in the value of Berkshire’s derivatives contracts hurt profits, but some of its subsidiaries performed well enough to offset some of the loss.
  • BRK posted net income of $3.05 billion, or $1,846 a share, down from $4.4 billion, or $2.656 a share, last year.
  • The change in BRK’s investments and derivative contracts was the biggest change, falling from $1.4 billion last year to $382 million.
  • Strength in the Burlington North, MidAmerican Energy, and Marmon groups helped offset some the insurance underwriting losses related to catastrophes like the Japan tsunami.
  • Lubrizol a newly acquired chemical company added $1.7 billion in revenues since September.
• Lowe’s Company Inc. (NYSE: LOW)
  • Lowe’s reported higher than expected sales as warmer weather has allowed home owners to work on improvement projects earlier than usual.
  • The home improvement retailer’s sales rose 11% to $11.63 billion beating analysts’ estimates of $11.34 billion.
  • Same store sales rose 3.4% and net income rose to $322 million, or $0.26 a share, from $285 million, or $0.21 a share last year.
  • Excluding special items, profits were $0.29 a share beating analysts’ estimates of $0.24.
• AutoZone Inc. (NYSE: AZO)
  • AutoZone’s net income jumped 11% as retailers servicing the auto industry has seen a strong few years with many people making their cars last longer.
  • Topping analysts’ predictions for the quarter AZO earned $166.9 million, or $4.15 a share, up from $148.1 million or $3.34 a share, last year.
  • Sales rose 8.6% to $1.8 billion from $1.66 billion.
  • Same store sales increased 5.9%, and gross margin increased to 51.3% from 50.9% last year.
• Costco Wholesale Corporation (NASDAQ: COST)
  • Costco’s profits rose as sales improved and it made more money from membership fees.
  • The wholesaler’s net income rose to $394 million, or $0.90 a share, up from $384 million, or $0.79 a share, beating the $0.88 a share that analysts’ predicted.
  • Same store sales increased 7% for the year.
  • February was the same as the quarter with same store sales increasing 8%.
• The Kroger Co. (NYSE: KR)
  • Kroger reported a loss of $307 million, or $0.54 a share, from a profit of $279 million, or $0.44 a share, last year.
  • The grocer’s sales rose 7.7% to $21.4 billion.
  • Cost associated with consolidating its pension plan for workers led it to post the loss.
  • Kroger expects 2012 earnings of $2.28 to $2.38 a share, compared to analysts’ prediction of $2.22 a share.

Interest Rates

• Rates ticked up slightly this week. The biggest move was 5 basis points.
• The two-year Treasury slid one basis point to 0.30%, but is still among its highest levels in over six months.
• The five-year Treasury inched up one basis point to 0.90%, and has jumped 20 basis points, since bottoming out in January.
• The 10-year Treasury gained five basis points to 2.02%, remaining near the 2% mark for the fourth month.
• The 30- year Treasury yield moved up five basis points to 3.15%.
  • Even though it has been choppy, it has trended much higher overall for the last three months.

Disclosures

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