Late Week Rally Following Government Deal

Markets

For the week of Monday, October 14, 2013 through Friday, October 18, 2013:

• Standard & Poor’s 500 Index: 2.44%
• Dow Jones Industrial Average: 1.12%
• NASDAQ Composite: 3.23%

The week began with stocks increasing after lawmakers said they were near a deal to raise the federal debt ceiling and end the government shutdown. However, by Tuesday, stocks fell sharply because there was a possible derailment of negotiations. The Dow Jones Industrial Average, the S&P 500 Index and the NASDAQ all lost ground, as reports trickled out from the U.S. Senate that talks had halted. By midweek, stocks rallied and Treasury yields fell when a deal was reached to reopen the government and put the U.S. on course to avoid debt a default. While the government was open for business, investors turned their attention toward lackluster economic reports and earnings results from several big name companies. Stocks closed higher on Friday, sending the S&P 500 index into record territory for a second straight day. The rally was likely a result of the positive reports from Morgan Stanley and Google. Most sectors rose, but the Healthcare sector fell.

Economic Data

• Chain Store Sales Snapshot:
  • The chain store sales index fell 0.7%.
  • Year-over-year growth slowed to 1%.
• MBA Mortgage Applications Survey:
  • The mortgage applications composite index increased 0.3%.
    • The purchase index fell 4.8%.
    • The refinance Index grew 3.3%.
• Beige Book:
  • The Federal Reserve’s Beige Book report looked similar to recent releases.
  • The report shows economic activity continues expanding at a moderate to modest pace across the Federal Reserve districts.
  • The outlook is cautiously optimistic for the future, given the uncertainty associated with the federal government shutdown.
• Jobless Claims:
  • Initial claims for unemployment insurance fell 15,000 to 358,000. 
  • The four-week moving average rose 11,750 to 336,500. 
  • Continuing claims fell 43,000 to 2.9 million.
• Reports delayed as a result of the government shutdown:
  • Housing Starts
  • Industrial Production
  • Consumer Price Index

Earnings:

• The Coca-Cola Company (NYSE: KO)
  • Coke reported earnings of $2.45 billion, or $0.54 a share, compared to $2.31 billion, or $0.50 a share, last year. 
  • Revenue dropped 3% to $12.03 billion.
    • This was just shy of the $12.05 billion expected by analysts.
• Johnson & Johnson (NYSE: JNJ)
  • Johnson & Johnson earned $2.98 billion, or $1.04 a share, compared to $2.97 billion, or $1.05 a share, a year ago.
    • Excluding one-time charges, earnings were $1.36 a share, beating estimates by $0.04
  • Revenue rose 3% to $17.58 billion, beating analysts’ expectations of $17.43 billion in revenue.
• Intel Corporation (NASDAQ: INTC) 
  • Intel earned $2.95 billion, or $0.58 a share, compared to $2.97 billion, or $0.58 a share, a year ago.
  • Revenue remained at $13.5 billion. Analysts expected $0.53 a share on revenue of $13.5 billion.
• PepsiCo, Inc. (NYSE: PEP)
  • Pepsi reported that stronger sales from the Frito-Lay snack division helped offset weak results from the North American beverages unit.
  • Pepsi earned $1.91 billion, or $1.23 a share, compared to $1.9 billion, or $1.21 a share, last year.
    • Excluding one-time items, earnings were $1.24 a share, beating analysts’ expectation of $1.17 a share.
  • Revenue increased 2% to $16.91 billion, but was less than analyst expectation of $17.02 billion.
• International Business Machines Corporation (NYSE: IBM)
  • IBM’s earnings increased; however, revenue fell missing expectations by more than $1 billion.
  • IBM reported $4.04 billion, or $3.68 a share, compared to $3.82 billion, or $3.33 a share last year.
    • Excluding one-time charges, IBM beat expectations of $3.96 a share, reporting $3.99.
  • Revenue fell 4% to $23.7 billion lower than last years $24.7 billion.
    • This was shy of analysts’ estimates of $24.8 billion.

Interest Rates

• The government budget deal triggered a fall in rates. 
  • The two-year Treasury rates dropped four basis points to 0.32%.
  • The five-year Treasury rate fell seven basis points to 1.35%.
  • The 10-year Treasury rate fell six basis points to 2.63%.
  • The 30-year Treasury yield slid six basis points to 3.69%.

Disclosures

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