Markets End Mixed After Strong Start

Markets

For the week of Monday, October 15, 2012, through Friday, October 19, 2012:

• Standard & Poor’s 500 Index: 0.32%
• Dow Jones Industrial Average: 0.11%
• NASDAQ Composite: -1.26%

Stocks rose Monday, fueling the biggest daily gain in a month for the Dow Jones Industrial Average, after retail sales data and Citigroup’s earnings topped expectations. By Tuesday, the Dow rebounded from its beating last week. It was quite a turnaround from the mood that prevailed last week amid concerns about the state of corporate earnings and skepticism that European leaders had the willingness to help Spain avoid further turmoil. Since then, sentiment has turned more positive. Earnings haven’t been too ugly, and U.S. economic data have suggested more indications of recovery. In Europe, Spain and Greece have shown signs of finding common ground with other European Union members. Adding to the positive story, Moody’s Investors Service affirmed Spain’s credit rating after the close of U.S. markets, keeping the country at investment grade. This surprised investors who had anticipated that Moody’s would cut the country to “junk” status. Stocks continued to edge higher on Wednesday, before slipping on Thursday. Stocks closed sharply lower on Friday after a broad-based market sell-off on the 25th anniversary of the Oct. 19 market crash.

Economic Data

• Retail Sales:
  • For the third straight month, retail sales rose, up 1.1% in September after being upwardly revised 1.2% for August.
    • Electronics, appliance stores and non-store retailers led the surge, with huge sales of the iPhone 5.
    • Gasoline stations and auto dealers also contributed to the rise.
    • Sales at grocery stores jumped as a result of food prices rising.
    • Department stores were the sole major segment to post a sales decline.
  • Year-over-year growth rose to 5.4%.
• Chain Store Sales Snapshot:
  • The ICSC Chain Store Sales Index was unchanged in the latest week, with the fifth week of less than 3% growth year-over-year.
  • The report showed customer traffic was the same as the prior week.
  • However, the segment shifted to benefit grocery, department and apparel stores, and wholesale clubs.
• Consumer Price Index:
  • The Consumer Price Index increased 0.6% in September, which matched gains in August.
    • This was slightly ahead of consensus expectations.
  • A surge in energy prices powered the headline index for a second straight month.
  • Core CPI inflation remained modest, rising 0.1%, similar to the two previous months.
• Industrial Production:
  • Industrial production beat expectations for September, rising 0.4%.
  • Manufacturing details were decent, but the bar had been set pretty low.
    • Manufacturing output rose 0.2%.
    • It was held back by weakness in motor vehicle output.
    • Non-auto manufacturing production increased 0.4%.
  • Mining production increased 0.9%.
  • Utilities output rose 1.5%.
• MBA Mortgage Applications Survey:
  • The mortgage application index fell 4.2%, led by the second consecutive decline in refinancing applications.
  • However, purchase activity rose by about 1%.
• Housing Starts:
  • Housing starts rose 15% in September from August, with a surge in residential construction.
    • At 872,000 annualized units, starts are running at their fastest pace since mid-2008.
    • Permits and completions increased month-over-month, gaining 11.6% and 0.4%, respectively.
  • The housing recovery may be well on its way, although monthly volatility in the Census Bureau numbers may be exaggerating the strength.
• Jobless Claims:
  • Initial claims are often volatile early each quarter.
    • With the Columbus Day holiday, the latest increase should be taken with a grain of salt.
  • New claims rose 46,000 to 388,000 for the week.
  • The increase more than reverses the previous week’s bogus 27,000 decline.
  • Initial claims are above their second-quarter average of 371,000.
  • Continuing claims fell 29,000 to 3.252 million.
  • The insured unemployment rate fell from 2.6% to 2.5%.

Earnings

• Citigroup Inc. (NYSE: C)
  • Citigroup Inc. posted an 88% decline in third-quarter net income.
    • Gains in the company’s securities and banking unit were inundated by one-time charges.
  • Positives for the quarter included a strong performance in fixed-income trading and debt underwriting.
  • Citigroup’s North American consumer-banking unit benefited from a surge in mortgage refinancings.
  • Citigroup reported net income declined to $468 million, or $0.15 a share, compared with $3.77 billion, or $1.23 a share, a year earlier.
  • Analysts expected Citigroup to earn $0.96 cents a share.
  • Revenue fell 33% to $13.95 billion.
  • The following day, CEO Vikram Pandit, who steered Citigroup through the 2008 financial crisis, abruptly left the bank.
• International Business Machines Corp. (NYSE: IBM)
  • IBM’s revenue came in below Wall Street’s expectations for the third quarter.
    • The technology giant dealt with jittery customers and a weakening euro that undercut its results.
  • IBM earned $3.8 billion, or $3.33 per share.
    • The company delivered the same net income a year ago, but its per-share earnings were $0.14 lower in the 2011 quarter, because the company had more outstanding stock then.
  • Revenue fell 5% year-over-year to $24.7 billion.
    • That figure was about $700 million below average analysts’ estimates.
• Intel Corporation (NASDAQ: INTC)
  • Intel Corp.’s  profit dropped 14% in the third quarter, underscoring tough times for the personal computer sector amid competition from tablet-style devices and other headwinds.
  • The big chip maker said it is significantly scaling back production in the fourth quarter in response to weaker than expected demand.
  • Intel reported net income of $2.97 billion, or $0.58 a share; $3.47 billion, or $0.65 one year ago.
  • Revenue fell 5.5% to $13.5 billion
• PNC Financial Services Group Inc. (NYSE: PNC)
  • PNC Financial’s third-quarter earnings rose 13%, as the regional lender notched a double-digit rise in revenue and benefitting from better credit quality.
  • For the third quarter, PNC reported its credit-loss provisions totaled $228 million, versus $261 million a year ago, versus $256 million in the second quarter.
  • PNC reported a profit of $939 million, compared with a profit of $830 million last year.
    • Earning $1.64 per share versus $1.55 per share a year ago.
    • Total revenue was up 15% to $4.09 billion.
    • Analysts expected earnings of $1.59 a share and $4.02 billion in revenue.
    • Net interest income rose 10% from a year earlier, while noninterest income jumped 23%.
    • Net interest margin narrowed slightly to 3.82% from 3.89%.
• Abbott Laboratories (NYSE: ABT)
  • Abbott Laboratories reported a surge in third-quarter profit from a year-earlier period.
  • Abbott reported earnings of $1.94 billion, or $1.21 per share, compared to $303 million, or $0.19 a share, one year ago.
  • Sales missed the estimate of $9.9 billion, declining 0.4% to $9.77 billion.
    • Abbott said unfavorable foreign-exchange rates reduced sales by 4.5%.
• PepsiCo, Inc. (NYSE: PEP)
  • PepsiCo on Wednesday reported a 4.9% decline in third-quarter earnings because of higher costs, more spending on advertising and unfavorable currency translation.
    • Foreign-exchange rates and refranchising of territories in China and Mexico also held back overall sales.
    • Excluding those items, PepsiCo’s organic sales rose a solid 5%, led by 10% growth in Asia, the Middl East and Africa and 13% growth in its Latin America Foods group.
  • PepsiCo reported a profit of $1.9 billion, or $1.21 a share, down from $2 billion, or $1.25 a share, a year earlier.
  • Revenue dropped 5.3% to $16.7 billion
• The Travelers Companies Inc. (NYSE: TRV)
  • Operating profit, which excludes some investment results, was $2.22 a share.
    • This beat the $1.60 analysts’ estimate.
  • Travelers net income was $864 million, or $2.21 per share, from $333 million, or $0.79, a year earlier.

Company News:

• Nike Dumps Lance Armstrong:
  • Nike Inc. severed ties with former cycling champ Lance Armstrong on “insurmountable evidence” showing that Armstrong participated in doping and misled Nike for more than a decade.
  • The clothing and footwear company will continue to support Armstrong’s “Livestrong” cancer charity, despite the break with the cyclist

Interest Rates

• Treasury prices saw slight increases during the last week.
  • The two-year Treasury rate increased three basis points to 0.29%.
  • The five-year Treasury rate bumped up almost 10 basis points to 0.76%, just under the 2012 average of 0.77%.
  • The 10-year Treasury rate jumped 11 basis points to 1.79%, close to 1.81% the six month average.
  • The 30-year Treasury yield rose 10 basis points to 2.96%.

Disclosures

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