Fiscal Cliff Sentiment Moves Markets

Markets

For the week of Monday, November 26, 2012 through Friday, November 30, 2012:

• Standard & Poor’s 500 Index: 0.50%
• Dow Jones Industrial Average: 0.12%
• NASDAQ Composite: 1.46%

The Dow Jones Industrial Average cooled off last week after notching its biggest advance in months, with shares of most retailers declining after Thanksgiving-weekend sales growth came in below last year’s levels. Investors took a cautious approach after returning from a holiday-shortened week that saw the Dow surge 421 points, the biggest one-week rise for blue chips since June. The specter of bumpy U.S. budget negotiations surfaced late in the trading day Tuesday, sparking a broad decline in stocks ahead of the market’s close.

On Wednesday, U.S. stocks reversed course to finish with broad-based gains, as investors bought on upbeat political remarks on the fiscal negotiations in Washington. Signs that the Federal Reserve could continue buying bonds next year also helped. By Thursday, U.S. stocks opened higher, as sectors tied to global growth pointed major benchmarks toward a second-straight gain. Friday was mixed, as investors wrapped up a volatile November on uncertainty about whether a fiscal cliff deal could be reached by year-end to avert a potential debt crisis.

Economic Data

• Chain Store Sales Snapshot:
  • The ICSC Chain Store Sales Index had its largest gain since March, rising 3.3%.
  • Thanksgiving weekend sales were reportedly very strong, supported by favorable weather.
  • Growth was up 4% year-over-year, almost doubling last year’s growth and contributing the largest growth since mid-May.
  • Holiday shopping remains further along than recent years, a concern for the outlook.
• Durable Goods:
  • New orders for durable manufactured goods were unchanged in October, following September’s 9.2% increase.
    • Excluding transportation, new orders grew 1.5%.
    • Total shipments were down 0.6%.
    • Inventories were up 0.4%.
  • The report was mixed, as core capital orders rose 1.7%, but shipments declined 0.4%.
• Case-Shiller Home Price Index:
  • Existing-home prices accelerated on a year-ago basis in the three months ending in September, relative to the same period in August.
    • The 10-city Composite is up 2.1% from last year, compared with a 1.3% increase originally reported last month.
    • The 20-city Composite is up 3% over the same period, an improvement on the 2% increase last month.
  • Not seasonally adjusted, month-to-month basis:
    • The 10- and 20-city indices are up 0.3%.
  • Seasonally adjusted basis:
    • The 10-city index is up 0.3%, and
    • The 20-city index is up 0.4%.
• Conference Board Consumer Confidence Survey:
  • Consumer Confidence inched up in November to 73.7, roughly in line with expectations.
    • The 0.6-point uptick extended the index’s streak of consecutive gains to three months.
    • This is its highest level in four years.
  • However, the increase was noticeably smaller than the previous two, suggesting a slowdown in the upward trend.
  • Further improvement in consumers’ expectations was the driver of the gain, while the present conditions component weakened slightly.
• Gross Domestic Product:
  • Growth in real GDP for the third quarter improved, coming in at 2.7% (SAAR).
    • This is up from 1.3% in the second quarter.
    • This was also an upward revision from the 2% reported last month.
  • The improvement from the second quarter was led by government spending and strong nonfarm inventory investment.
  • Weakness continued in farm inventories, which were lowered by the drought.
  • Top-line measures of inflation accelerated, but core measures did not.

Earnings:

• The Kroger Co. (NYSE: KR)
  • The Kroger Co. reported earnings of $316.5 million, or $0.60 per share for the quarter.
    • This includes a $0.14 per diluted share benefit from a settlement with Visa and MasterCard and from a reduction in the company’s obligation to fund the UFCW consolidated pension fund.
    • Excluding the benefit of these two items, Kroger’s adjusted earnings per diluted share was a record $0.46 for the quarter.
  • Identical supermarket sales growth, without fuel, was 3.2% in the third quarter.
  • Total sales, including fuel, increased 5.9% to $21.8 billion in the third quarter compared with $20.6 billion for the same period last year.
  • Total sales, excluding fuel, increased 3.7% in the third quarter over the same period last year.
• Tiffany & Co. (NYSE: TIF)
  • Tiffany & Co.’s third-quarter earnings fell 30%, as a result of high precious-metal and diamond costs.
  • For the quarter, Tiffany & Co. reported a profit of $63.2 million, or $0.49 per share, versus $89.7 million, or $0.70 a share, a year earlier.
    • Sales rose 3.8% to $852.7 million.
  • Analyst expected earnings of $0.63 per share and revenue of $859 million.

Interest Rates

• U.S. Treasuries fell over the past week on continued worries over the fiscal cliff.
  • The two-year Treasury rate fell one basis point to 0.26%.
  • The five-year Treasury rate fell five basis points to 0.64%, staying well above the July low.
  • The 10-year Treasury rate fell six basis points to 1.63%, back below the six-month average.
  • The 30-year Treasury yield fell two basis points to 2.81%, remaining below the 2012 average.

Disclosures

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