Fiscal Cliff Concerns Outweigh Strength in Market Sectors

Markets

For the week of Monday, November 12, 2012 through Friday, November 16, 2012:

• Standard & Poor’s 500 Index: -1.45%
• Dow Jones Industrial Average: -1.77%
• NASDAQ Composite:-1.78 %

Stocks started the week in lackluster fashion, with the Dow Jones Industrial Average inching lower and the S&P 500 eking out a narrow gain, as investors cited lingering concerns about U.S. fiscal issues for the market’s lack of direction. Fiscal cliff concerns outweighed strength in the consumer discretionary sector.

On Wednesday, U.S. stocks fell, again, sending the Dow to the lowest level since June. Concerns about the budget debate in Washington and an Israeli air strike erased an early rally led by technology shares. By Thursday, a line-up of economic reports failed to provide stocks with a clear direction. Economic news provided a mixed view of the state of the U.S. recovery, with readings obscured by Superstorm Sandy.

Economic Data

• Producer Price Index:
  • Producer prices fell 0.2% in October, in a reversal of the previous two months.
  • Analysts expected prices to remain flat with a modest increase in price.
  • Falling energy prices were the biggest factor, and prices at earlier stages of production were mixed.
  • Input prices struggled to advance, while uncertainty about U.S. fiscal policy and global economic growth persists.
• Federal Open Market Committee Minutes:
  • The FOMC minutes were heavy on communication strategies and light on everything else.
  • The minutes showed the Fed is making progress toward adopting thresholds for inflation and the unemployment rate to provide forward guidance on the timing of the first increase in the fed funds rate.
  • As far as surprises, the Fed’s outlook hasn’t changed appreciably.
  • The discussion of the costs of open-ended assets purchases continued.
• Consumer Price Index:
  • The Consumer Price Index was up 0.1% in October, as falling energy prices negated the strong gains in food prices.
  • Core inflation sped up to 0.2% as the Shelter Index notched its biggest gain in more than four years.
• Jobless Claims:
  • Initial claims rose 78,000 to 439,000 for the week.
    • The rise is likely a result of Hurricane Sandy, which does not factor to a deteriorating job market.
    • The increase is the largest weekly increase since Hurricane Katrina in 2005.
  • The four-week moving average rose from 372,000 to 383,750.
  • Continuing claims rose 171,000 offsetting the previous weeks 99,000 decline.

Earnings:

• The Home Depot, Inc. (NYSE: HD)
  • The largest U.S. home-improvement retailer posted third-quarter profit that topped analysts’ estimates.
    • Net income was $947million, or $0.63 a share, compared to $934 million, or $0.60, a year earlier.
    • Excluding certain items, the profit was $0.74.
    • Analysts expected $0.70 a share on average.
  • Home Depot reported sales of $18.1 billion, just above the $17.9 billion average estimate.
  • The rebound in housing has helped sales at Home Depot locations open at least a year gain 4.2%.
    • This was the sixth straight quarterly increase, as customers visited more often and spent more per trip.
• Vodafone Group Plc (ADR) (NASDAQ: VOD)
  • The mobile communications company reported a big half-year loss after booking a hefty charge on its Spanish and Italian operations.
  • Vodafone reported on a half year basis and posted a loss of $3.18 billion, compared to a profit of $10.6 billion last year.
  • Revenue fell $35.01 billion.
• Cisco Systems, Inc. (NASDAQ: CSCO)
  • Cisco reported a profit of $2.09 billion, or $0.39 a share, versus $1.78 billion, or $0.33 a share, one year ago.
  • Revenue was up to $11.88 billion, from $11.26 billion.
  • Analysts expected a profit of $0.46 cents a share, on revenue of $11.78 billion.
• Abercrombie & Fitch Co. (NYSE: ANF)
  • Abercrombie and Fitch reported better than expected earnings and raised its guidance for the year.
  • Abercrombie reported profits that rose to $71.5 million, or $0.87 a share, up from $50.9 million, or $0.57 a share, a year earlier.
• PetSmart, Inc. (NASDAQ: PETM)
  • PetSmart reported net income of $82.3 million or $0.75 cents a share, compared to $56.2 million or $0.50 cents per share a year earlier.
  • Revenue rose 8.8% from the previous year to $1.63 billion, beating analysts’ expected revenue of $1.6 billion.
• Wal-Mart Stores, Inc. (NYSE: WMT)
  • The discount retailer’s third-quarter profit rose 9%.
    • Wal-Mart reported a profit of $3.64 billion, and $1.08 per share, up from $3.34 billion, or $0.96, one year ago.
    • In August, Wal-Mart estimated earnings per share from continuing operations at $1.04 to $1.09.
  • Revenue was $113.9 billion, well below the $114.96 billion expected by analysts.
    • Operating margin edged up to 5.4% from 5.3%.
    • International sales were up 2.4% to $33.2 billion.

Interest Rates

• The two-year Treasury rate fell almost two basis points to 0.24%.
• The five-year Treasury rate also fell nearly two basis points to 0.62%.
• The 10-year Treasury rate fell three basis points, still below the six-month average of 1.59%.
• The 30-year Treasury yield fell two basis points to 2.72%, still below the 2012 average of 2.93%.

Disclosures

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