Dow Flirts with 13,000 Mark but Gas Prices eye $4 a Gallon

For the week of Monday, February 20, 2012 through Friday, February 24, 2012:

• Standard & Poor’s 500 Index: 0.33%
• Dow Jones Industrial Average: 0.26%
• NASDAQ Composite: 0.41%

The Dow Jones Industrial Average inched above the 13,000 mark for the first time in nearly four years this week in intraday trading. We believe a continued increase in earnings should allow the market to close above the significant level.

The concern in the market is the forecast for $4 a gallon gas during the summer months. We overlaid the retail gas prices to the gross domestic product (GDP) and retail sales prices, excluding energy, over the past several spikes, and we realized that the high gas prices haven’t hurt us that badly. We believe the consumer is in a better position this time, so the increase in gas, while unpleasant, should not affect our economy, unless we see gas prices go above $150 a barrel. For every $10 increase in price per barrel, it cuts GDP by a fifth of a point. However, that increase would have to be sustainable, and it depends on for how long.

While America is a large exporter of unrefined oil and diesel, we import gasoline. Much of the oil and shale we drill, we export. While we have some of the best refineries in the world, we do not have enough. Thus, it benefits us to export the diesel.

Greek Bailout Reached

• Greece has reached its second bailout by reaching an agreement with the International Monetary Fund, European Finance officials, and private collectors.
• There are several measures that Greece must implement for the bailout to take effect.
  • Private bondholders will take a 53.5% cut instead of the 50% that was expected and they will swap for new bonds that yield a much lower rate (2% to 4.2%, depending on maturity).
  • They must establish an escrow and pay into it to cover the bond payments for the next quarter.
    Greece must change their laws to guarantee priority is given to debt services payments.
  • Implement a permanent team of inspectors in Greece to continually monitor its progress in reaching its fiscal goals.
• However, Greece has yet to implement these measures.

Economic Data:

• Existing Home Sales
  • Existing home sales rose 4.3% in January compared to December.
  • This makes January’s pace the strongest month since April 2010.
  • Inventories were almost stable after the supply declined to the lowest point since the housing market started to plunge.
  • Median house prices, however, declined 2% year-over-year in January.
• Jobless Claims
  • Jobless claims were unchanged for the week, holding at 351,000.
  • Claims from last week were adjust from 348,000 to 351,000.
  • Firms are becoming more willing to hold on to workers and continuing claims dropped in the prior week.

Earnings

• Wal-Mart Stores, Inc. (NYSE: WMT)
  • Wal-Mart’s profits fell short of analyst expectation’s despite earning $5.19 billion, or $1.51 a share.
    • Excluding $0.07 a share from certain tax matters and real estate transactions, the discount retailer earned $1.44 a share.
    • Excluding benefits, Wal-Mart forecasted a profit of $1.42 to $1.48 a share, while analysts expect it to be around $1.45 a share.
  • For the second straight quarter, Wal-Mart’s U.S. same store sales rose 1.5% after nine straight quarterly declines.
• The Home Depot, Inc. (NYSE: HD)
  • Home Depot’s earnings rose 32%, exceeding expectations, as homeowners spent more on renovations.
  • The home improvement retailer earned $774 million, or $0.50 a share, compared to $587 million, or $0.36 a share, last year.
  • Home Depot’s full-year earnings grew 16% to $3.88 billion, or $2.47 a share, from $3.34 billion, or $2.10 a share last year.
• Kraft Foods Inc. (NYSE: KFT)
  • Earnings were in line with estimates, as revenue was $14.7 billion, 6.6%.
  • Kraft expects earnings to rise 9% this year even though it will split into two companies later in the year.
    • One company will focus on snacks, with the Cadbury chocolate and Oreo cookies.
    • The other will focus on North America grocery brands, such as, Maxwell House coffee and Oscar Mayer lunch meat.
• Genuine Parts Company (NYSE: GPC)
  • Genuine Parts Company’s profit rose 14%, as sales across most of its businesses increased.
  • The increase was slightly less than what analysts predicted.
  • Genuine Parts company announced an increase of 10% in its regular quarterly dividend to 49.5 cents

Interest Rates

• Rates edged higher this week. The biggest move was five basis points.
• The two-year Treasury increased one basis point to 0.30%, almost the highest level since November 2011.
• The five-year Treasury moved up five basis points to 0.91%.
  • It has now gained just over 20 basis points, since the start of February when it was at an all-time low of 0.70 %.
• The 10-year Treasury gained four basis points to 2.04%, continuing for its fourth month near the 2% level.
• The 30-year Treasury yield rose three basis points to 3.18%, as its 0.20 percent trading range continues to push higher.

Disclosures

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