Despite Dow High, Investors Sold Off by Late Week

For the week of Monday, April 30, 2012 through Friday, May 4, 2012:

• Standard & Poor’s 500 Index: -2.44%
• Dow Jones Industrial Average: -1.44%
• NASDAQ Composite: -3.68%

Tuesday saw the Dow hit its highest point in more than four years; however, equities slid down as investors decided to take some of their year-to-date profits late in the week. The S&P 500, NASDAQ and Dow experienced their worst week of 2012. The Dow’s 168-point loss on Friday gave the Industrial Sector its second worst week of the year. Economic news was hot and cold with the Manufacturing Index posting positive results, while the Services Index fell for the second straight month. Friday’s Jobs Report continued the mixed-bag trend reporting only 115,000 jobs were added, short of the 170,000 expectation. However, the unemployment rate fell to 8.1%.

 Economic Data

• Personal Income:
  • There was a slight acceleration in income growth in March, as wage income grew 0.3%, led by rental, dividend and proprietors’ income.
    • The saving rate inched up to 3.8%;
    • Nominal personal income rose 0.4%, and
    • Real disposable income rose 0.2%.
  • Consumer spending slowed.
    • Nominal consumer spending rose 0.3%, the slowest growth of the year.
    • Spending growth was led by nondurable goods.
• Institute for Supply Management Manufacturing Index:
  • The April ISM manufacturing index rose from 53.4 to 54.8.
  • This was the fifth increase in the last six months, putting the index above its first-quarter average of 53.3.
  • The report appeared solid, as new orders increased from 54.5 to 58.2 in April.
• Institute for Supply Management Services Index:
  • Weaker than expected services lead to the second consecutive monthly decline in April from 56 to 53.5.
  • This is the index’s lowest reading since December 2011.
  • New orders fell from 58.8 to 53.5 for April, suggesting that the economy has lost some momentum.
  • Business activity fell to its lowest level since October 2011, as the employment index also declined.
• Productivity & Costs:
  • Nonfarm business productivity dropped 0.5% in the first quarter of 2012.
    • However, this reading outperformed the expectation of a larger decline.
  • Productivity growth will be harder to achieve in the coming stages of the recovery, calling firms to add more workers to expand output.
• Employment:
  • Weekly jobless claims dropped sharply after several weeks at an elevated level.
    • Initial claims fell by 27,000 to 365,000 for the week ending April 28.
    • The prior week’s results were revised from 388,000 to 392,000.
    • Continuing claims also decreased in the prior week.
  • The Bureau of Labor Statistics’ Jobs Report showed unemployment fell to 8.1% in April.
    • Unfortunately, the drop was largely the result of people leaving the work force.
    • The economy created only 115,000 new jobs, which was substantially lower than the 154,000 jobs added in March.

Earnings

• Becton, Dickinson and Co. (NYSE: BDX):
  • Increased expenses led to the company’s fiscal second-quarter earnings falling 6.7% despite stronger-than-expected revenue growth.
  • Last month, the maker of products like surgical blades and test kits struck a deal to sell the bulk of its lab-products business to Corning Inc. (NYSE: GLW) for $730 million in cash.
    • The move may strip the company of a cash cow, but should allow it to focus on businesses with higher growth potential.
• Emerson Electric Co. (NYSE: EMR):
  • Emerson Electric Co. reported earnings that fell short of Analyst expectations slipping 2% from a year ago.
    • The demand from China and Europe has continued to deteriorate, causing the company to rein in its sales and profit outlook for the year.
  • For the quarter ended March 31, the company posted a profit of $545 million, down from a year-earlier profit of $556 million.
  • Earnings rose to $0.74 per share from $0.73 on a decline in outstanding shares.
  • Sales from the quarter edged up 1.1% to $5.92 billion.
• Archer Daniels Midland Company (NYSE: ADM):
  • Archer Daniels Midland Co. beat expectations as a result of larger-than-expected savings from job cuts, even though the company posted a 31% drop in its fiscal-third-quarter earnings.
  • For the quarter ended March 31, the company posted a profit of $399 million, or $0.60 per share, down from $578 million, or $0.86 per share, a year earlier.
  • Revenue increased 5.4% to $21.16 billion.
• IntercontinentalExchange, Inc. (NYSE: ICE):
  • The first quarter of 2012 was another revenue record for ICE, as trading in over-the-counter energy markets offset a slowdown in futures markets.
  • For the first quarter, ICE posted a profit of $147.9 million, or $2.02 a share, up from a year-earlier profit of $128.9 million, or $1.74 a share.
  • The company matched the consensus estimate of analysts.
  • Total revenue rose 9.2% to $365.2 million, as stronger performance in the over-the-counter energy business lifted ICE’s transaction and clearing revenue.
• Apache Corp. (NYSE: APA):
  • Apache Corp. reported a first-quarter net income fall of 30%.
  • This was after a drop in natural gas prices forced the company to write down the value of its Canadian properties.
  • The Houston oil and natural gas producer reported earnings of $778 million, or $2 per share, for the first three months of the year.
  • That compares with $1.12 billion, or $2.86 per share, in the same part of 2010.
  • Revenue increased by 15.6% to $4.54 billion.
  • Excluding the $390 million write down of its Canadian properties and other special items, Apache’s adjusted earnings were $3 per share.
  • Analysts expected earnings of $3.10 per share on revenue of $4.5 billion, excluding special items.
• ANSYS Inc. (NASDAQ: ANSS):
  • ANSYS Inc. reported a record net income of $45.5 million in the first quarter.
  • ANSYS earned $0.48 per share in the first quarter compared to $42.2 million, or $0.45 per share, in the same period a year ago.
  • Revenues were up to $185.3 million in the first quarter, compared to $158 million a year ago.

M&A Activity and More

• Delta to acquire refinery:
  • Delta Air Lines Inc.(NYSE: DAL) reached an agreement to buy a refinery from Phillips 66 (NYSE: PSX) in a bid to cut the carrier’s yearly jet-fuel costs by $300 million.
    • The Atlanta-based Delta becomes the first U.S. carrier to buy a refinery.
    • The airline intends to invest $150 million to acquire the complex.
    • The company also expects to receive $30 million in Pennsylvania state-government aid to help preserve jobs at the site.
• Microsoft takes a stake in the Nook:
  • Microsoft Corp (NASDAQ: MSFT) agreed to invest hundreds of millions of dollars in Barnes & Noble’s (NYSE: BKS) Nook division.
    • This gives the bookstore chain stronger footing in the hotly contested electronic book market.
    • The deal gives Microsoft a 17.6% stake, and values the Nook unit at $1.7 billion—roughly double Barnes & Noble’s entire market value as of last Friday.
• Ascena Retail to acquire Charming Shoppes:
  • Charming Shoppes (NASDAQ: CHRS) has agreed to sell itself to a rival, the Ascena Retail Group (NASDAQ: ASNA), for about $890 million.
  • Ascena will pay $7.35 a share, a nearly 25% premium to Charming Shoppes’ closing price on Tuesday.
  • The merger unites two players in the specialty-women’s clothing industry: the Lane Bryant line of women’s clothing stores and Ascena’s Dressbarn stores.

Interest Rates

• The two-year Treasury rate held at 0.26%.
• The five-year Treasury fell one basis point to 0.82%.
• The 10-year Treasury had little change at 1.93%, marking its third consecutive week below 2%.
• The 30-year Treasury remained flat at 3.11%, holding at its six-month average.

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.