Investors Brace for Fed to Trim Stimulus

Markets

For the week of Monday, December 9, 2013 through Friday, December 13, 2013:

• Standard & Poor’s 500 Index: -1.61%
• Dow Jones Industrial Average: -1.59%
• NASDAQ Composite: -1.50%

The markets closed the week down after Monday saw strong gains, as the S&P 500 Index closed with its 39th record high for the year. On Tuesday, investors cashed in on those gains, causing the market to lose steam. Financial stocks appeared to shrug off the expected approval of the “Volcker Rule” that restricts banks from proprietary trading that does not benefit their customers. Wednesday saw more losses, as the bipartisan Congressional budget deal increased the idea that the Federal Reserve could begin to pare back its asset purchases. Thursday saw more losses on the jobless claims and retail sales reports. The Dow Jones Industrial Average added points on Friday, while the S&P and NASDAQ finished in the red. The potential impact of the Federal Reserve’s reduced stimulus has caused the markets to sway all week.

Economic Data

• Chain Store Sales Snapshot:
  • Chain store sales fell 1.6%, as expected, for the week after Thanksgiving.
  • Year-over-year sales rose 1.5%.
• Wholesale Trade:
  • Wholesale Trade rose 1.4% in October versus September.
  • Year-over-year, October increased 3.3%.
  • Automobile inventories rose 2.7% from September, and were the main contributor.
• MBA Mortgage Applications Survey:
  • Mortgage applications increased for the first time in six weeks.
    • The composite index increased 1%.
    • Purchase activity rose 0.9%
    • Refinance applications increased 2.1%.
• Jobless Claims:
  • Jobless claims rose 68,000 to 368,000 for the week.
    • The reading includes the Thanksgiving holiday, and is the largest jump since the post-Hurricane Sandy jump last fall.
    • However, the rise will likely be reversed in the coming weeks, due to adjustments for the Thanksgiving holiday.
  • The four-week moving average increased 6,000 to 328,750.
  • Continuing clams rose 40,000 to 2.8 million.
• Retail Sales:
  • Retail sales rose 0.7% in November, and were revised upward 0.6% for October.
    • Ex-autos, sales rose 0.4%
    • Core sales, excluding gasoline stations, increased 0.6%.
    • Non-store retailers, building supply stores, restaurants, furniture, and electronics and appliance stores all saw strong sales.
  • Food stamp benefits reductions hurt the food report.

Earnings: 

• AutoZone, Inc. (NYSE: AZO)
  •  
    • AutoZone reported a 7% rise in profits.
    • Income increased to $218.1 million, or $6.29 a share, compared to $203.5 million, or $5.41 a share, last year.
    • Revenue increased 5% to $2.09 billion.
    • Same-store sales rose 0.9%.
  • Analysts expected $6.28 a share on $2.10 billion in revenue.
• Smith & Wesson Holding Corporation (NASDAQ: SWHC)
  • Smith & Wesson reported net sales of $139.3 million, up 2% from last year. 
    • Handgun sales rose 27.4%. 
  • Income was $17.1 million, or $0.28 a share, compared to $16.4 million, or $0.24 a share, one year ago.
• Costco Wholesale Corporation (NASDAQ: COST)
  • Costco’s profits increased to $425 million, or $0.96 a share, compared to $416 million, or $0.95 a share, a year ago.
  • Analysts expected $1.02 a share. 
    • The effect of fuel sales and foreign exchange caused same-store sales to rise 3%.

Interest Rates

• The two-year Treasury rate rose one basis point to 0.32%.
• The five-year Treasury rate increased two basis points to 1.51%.
• The 10-year Treasury rate remained at 2.86%.
• The 30-year Treasury yield fell one basis point to 3.88%.

Disclosures

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