Fed Worries Keep Investors on Edge

Markets

For the week of Monday, August 12, 2013, through Friday, August 16, 2013:

• Standard & Poor’s 500 Index: -2.04%
• Dow Jones Industrial Average: -2.12%
• NASDAQ Composite: -1.51%

The markets started the week on a flat note, but edged slightly higher Tuesday, as positive economic news and a strong performance in technology stocks helped offset a rise in longer-term Treasury yields. U.S. stocks declined broadly Wednesday, as investor sentiment became concerned about the outlook for the rest of the year. Stocks continued their downward slide Thursday, as Fed fears seeped into the bond market, sending 10-year Treasury yields to a two-year high. Stocks closed lower again on Friday, as the market failed to rebound from Thursday’s major sell-off. Barely offsetting the markets’ worry were weaker-than-expected readings on August consumer sentiment, and July housing starts and building permits. Nonetheless, the possibility of the Fed tapering its stimulus program this year is keeping investors on edge.

Economic Data

• Retail Sales:
  • Retail sales rose 0.2% in July; however, this was the weakest growth since April.
  • Cool wet weather weighed on sales.
  • Core sales rose 0.4%.
  • Auto sales and housing-related sales were the major retraction for the month.
  • Year-over-year growth was 5.4%.
  • In July of last year, growth was stronger.
• MBA Mortgage Applications Survey:
  • Mortgage application activity fell for the eighth week of the last nine.
  • The composite index declined by 4.7%.
  • Mortgage interest rates modestly declined.
  • Both refinance and purchase activity declined.
• Producer Price Index:
  • After strong May and June increases, producer prices were unchanged in July.
  • Lower natural gas, gasoline, and finished food prices contributed to the unchanged report.
  • Intermediate goods prices were unchanged.
  • The crude goods index rose 1.2%.
• Consumer Price Index:
  • The Consumer Price Index rose 0.2% in July.
  • Increases in food and energy prices were the main driver.
  • The core index also rose 0.2%.
• Industrial Production:
  • Industrial production was unchanged in July.
  • The details were weaker than expected with:
  • A 0.1% decline overall;
  • A 1.7% decrease in motor vehicles and parts production, and
  • A 2.1% drop in utilities production.
  • However, mining production increased by a similar amount.
• Jobless Claims:
  • Beating expectations, initial jobless claims fell 15,000 to 320,000.
  • This reversed the prior week’s increase.
  • The four-week moving average fell from 336,000 to 332,000.
  • Continuing claims fell 54,000 in the week.

Earnings:

• Sysco Corporation (NYSE: SYY)
  • For the quarter, Sysco earned $283 million, or $0.47 a share, compared to $309.3 million, or $0.53 a share, year-over-year.
    • Excluding restructuring charges and other items, Sysco earned $0.59 a share, beating analysts’ estimates of $0.55 a share.
  • Operating expenses rose to $1.58 billion from $1.5 billion.
  • Revenue increased to $11.6 billion from $11.05 billion, meeting The Street’s expectations.
  • For the year, Sysco earned $992.4 million, or $1.67 a share, compared to $1.12 billion, or $1.90 a shares, last year.
    • Annual earnings per share for the year were $1.78.
    • Annual revenue rose to $44.41 billion from $42.38 billion.
• Cisco Systems, Inc. (NASDAQ: CSCO)
  • Cisco earned $2.27 billion, or $0.42 a share, versus $1.92 billion, or $0.36 a share, a year ago.
  • Adjusted earnings per share came in at $0.52, beating expectations by $0.01.
  • Revenue rose to $12.42 billion from $11.69 billion, beating analysts’ expectation of $12.41 billion.
  • CEO John Chambers announced that the company would be cutting about 5%of its workforce.
• Kohl’s Corp. (NYSE: KSS)
  • Kohl’s net income declined 4%, as expenses climbed.
  • The family-oriented department store earned $231 million, or $1.04 a share versus $240 or $1.00 a share last year.
    • Revenue increased from $4.21 billion to $4.29 billion.
  • Kohl’s lowered its full year EPS guidance by $0.10.
• Wal-Mart Stores Inc. (NYSE: WMT)
  • Wal-Mart’s reported profits of $4.07 billion, or $1.24 a share, compared to $4.02 billion, or $1.18 a share, last year.
    • Net sales rose 2.4% to $116.2 billion.
    • Analysts expected $1.25 a share on revenue of $118.09 billion.
  • The discount retailer cut its annual profit and revenue outlook as it deals with a tough economy at home and abroad.

Interest Rates

• The two-year Treasury rate rose four basis points to 0.34%.
• The five-year Treasury rate soared 18 basis points to 1.53%
• The 10-year Treasury rate increased 20 basis points to 2.78%.
• The 30-year Treasury yield jumped 17 basis points to 3.81%.

Disclosures

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