For the week of Tuesday, September 4, 2012 through Friday, September 7, 2012:
- Standard & Poor’s 500 Index: 2.23%
- Dow Jones Industrial Average: 1.65%
- NASDAQ Composite: 2.26%
It was a relatively slow week with the Labor Day holiday on Monday. Tuesday and Wednesday saw the markets down, but Thursday’s rally was led by strong employment numbers from ADP and news from the European Central bank.
The ECB made a commitment to buy back short-term debt from troubled countries. The ECB is looking to return liquidity and solvency to countries like Spain and Italy. Countries will have to approach the ECB and request help. The ECB will then buy debt from the country, which should increase demand and the price for bonds. In turn, that should decrease the bond yields and lower the country’s effective borrowing rate. As debt falls off, the country can replace it at lower costs. Countries will not be allowed to extend their debt, and they will have to commit to more austerity measures, so the program is not without strings.
Fundamentally, the program is not really different than what the EU proposed in the past; however, news of it buyoed the U.S. markets on Thursday. While the ECB’s rules for help have some teeth, right now the commitment appears nothing more than lip service.
Economic Data
- ISM Manufacturing Index:
- The ISM manufacturing index was 49.6 for August, down slightly from July’s 49.8.
- The index came in below expectations, and has been below its neutral threshold of 50 for three consecutive months.
- While worrisome, it has not dropped below the key threshold of 45.
- A drop below that level has historically meant the U.S. economy is in or near recession.
- The details in August were weak as new orders fell from 48 to 47.1.
- Foreshadowing additional slowing in factory output, manufacturers cut production, and the employment index declined from 52 to 51.6.
- The ISM manufacturing index was 49.6 for August, down slightly from July’s 49.8.
- MBA Mortgage Applications Survey:
- In a fifth consecutive decline, the mortgage applications composite index decreased by 2.5% in the week ending August 31.
- Both subcomponents retreated, led by a 3% drop in the refinance index.
- The purchase index has failed to make any progress over the past two years and remains near a 15-year low.
- In a fifth consecutive decline, the mortgage applications composite index decreased by 2.5% in the week ending August 31.
- Productivity & Costs:
- Nonfarm business productivity rose 2.2% in the second quarter of 2012 on a seasonally adjusted annualized basis.
- This was revised sharply higher from the first reading as output rose more and hours worked rose less than previously reported.
- The reading was comfortably above forecast and consensus.
- Productivity growth is proving surprisingly resilient, dampening the need for hiring in the near term but signifying a very competitive U.S. workforce.
- Nonfarm business productivity rose 2.2% in the second quarter of 2012 on a seasonally adjusted annualized basis.
- Jobless Claims:
- Initial claims for unemployment insurance fell by 12,000 in the week ending on September 1.
- Claims in the prior week were revised higher by 3,000.
- The four-week moving average edged slightly higher by 250.
- Continuing claims fell by 6,000 in the week ending August 25 after two weeks of increase.
- ISM Services Index:
- The ISM nonmanufacturing index rose 1.1 points to 53.7 in August, which was stronger than expected.
- While the current quarter is shaping up to be slightly better for the service economy than the prior quarter, slowing in goods industries will limit any improvement in overall GDP growth.
- Production and new orders dipped but continue to signal modest expansion in service sector activity.
- The best news was a jump in the employment index, which might be a sign that firms remain confident enough in the outlook to add workers despite uncertainty from the fiscal cliff.
Earnings
- Campbell Soup (NYSE: CPB):
- Campbell Soup reported a stronger-than-expected profit for its fiscal fourth quarter as retailers ran promotions to warm up soup sales and stocked up on inventories.
- The company said it earned $127 million, or $0.40 per share, for the period ended July 29.
- In the year ago period — when the company was weighed down by restructuring charges — it earned $100 million, or $0.31 per share.
- Stripping out acquisition-related costs in the latest quarter, earnings were $0.41 per share.
- Revenue was basically flat at $1.61 billion, but beat Wall Street’s $1.59 billion estimate.
- For the full year, Campbell earned $774 million, or $2.41 per share, down from $805 million, or $2.42 per share, in the previous year.
- Annual revenue dipped slightly to $7.71 billion from $7.72 billion.
M&A Activity and More
- Nokia Shares Tumble Following the Unveiling of New Phone:
- Nokia Corp. (NYSE: NOK) lifted wraps on its newest Lumia smartphones on Wednesday.
- A launch date and price were not specified, leaving investors unclear as to the chances for the new device in a hotly competitive market.
- Samsung has already launched its Galaxy SIII for the Android platform, and Apple Inc., (NASDAQ: AAPL) is expected to unveil its latest iPhone next week for a late-September launch.
- Analysts feel a limited fourth quarter launch will likely be a big disappointment for stock estimates.
Interest Rates
- Treasury prices slipped following ECB bond buying announcement.
- The two-year Treasury rate inched up one basis point to 0.26%.
- The five-year Treasury rate rose two basis points to 0.67%, but still sits well below its 2012 average of 0.79%.
- The 10-year Treasury rate increased three basis points to 1.66% and remains well off the historical lows seen in July.
- The 30-year Treasury yield rose one basis point to 2.77%.
Disclosures
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