Markets Finish Week Down on Concerns Economic Growth Will Stall

Markets

For the week of Monday, August 5, 2013, through Friday, August 9, 2013:

• Standard & Poor’s 500 Index: -0.98%
• Dow Jones Industrial Average: -1.35%
• NASDAQ Composite: -0.70%

U.S. stocks retreated from recent record levels Monday, as investors sat back after last week’s all-time highs. Trading was light, and stocks drifted with moderate losses for most of the session. Investors seemed to take time to evaluate the latest economic data reports and corporate earnings. Stocks fell Tuesday after two Fed officials indicated the central bank could begin reducing its easy-money program as soon as next month. Echoing Dennis Lockhart, Atlanta’s Fed Reserve Bank President, Chicago Fed President, Charles Evans, said he wouldn’t rule out the Fed curtailing its $85 billion-a-month bond-buying program at its September policy meeting.

Stocks continued to tumble midweek after a global selloff on central-bank worries. By Thursday, U.S. stock futures pointed higher, after a firm reading on weekly jobless claims and a signal for strong demand for China’s exports. Stocks closed the week lower, but above session lows. It appears that many investors remain concerned that economic growth will stall without the Fed’s help.

Economic Data

• ISM Services Index:
  • The ISM nonmanufacturing index increased from 52.2 to 56 for July.
    • The strong details included a seven-point rise in new orders.
  • The business activity index increased from 51.7 to 60.4.
  • New export orders rose to 49.5.
  • The employment sub-index retreated to 53.2, but remains in expansionary territory.
• Chain Store Sales:
  • The ICSC chain store sales index increased 0.3% in the latest week.
  • Year-over-year growth was 2.5%.
• International Trade:
  • The U.S. trade deficit fell to $34.2 billion in June, suggesting international demand for U.S. goods is growing.
    • The value of nominal exports rose to $191.2 billion from $187.1 billion in May.
    • Nominal imports were 2.5%, lower than the prior month at $225.4 billion.
  • The non-petroleum deficit narrowed to $53.2 billion.
  • The petroleum deficit also narrowed to $17.4 billion.
• MBA Mortgage Applications Survey:
  • Mortgage application activity rose by 0.2% for the week.
    • Refinance activity decreased 0.1%
    • Purchase applications increased 0.7%.
• Jobless Claims:
  • Initial jobless claims increased 5,000 to 333,000 for the week.
    • The prior week’s claims were revised down 17,000.
    • The four-week moving average fell to 335,500.
  • Continuing claims rose 67,000 to 3.018 million.

Earnings:

• The Walt Disney Company (NYSE: DIS)
  • Disney earned $1.85 billion, or $1.01 a share, compared to $1.83 billion, or $1.01 a share, year-over-year.
    • Excluding one-time items, earnings were $1.03 a share, beating analysts’ estimates of $1.01.
  • Revenue was $11.6 billion, compared to $11.1 billion.
    • Analysts expected revenue of $11.7 billion.
    • Falling 2% to $1.6 billion, movie studio revenue suffered from marketing costs for “The Lone Ranger.”
      • Disney expects to take a loss of $160 to $190 million from “The Lone Ranger” for the quarter.
• CVS Caremark Corporation (NYSE: CVS)
  • CVS’ earnings increased 16%, thanks to gains from generic drugs.
  • CVS earned $1.12 billion, or $0.91 a share, over $966 million, or $0.75 a share, one year ago.
    • The pharmacy provider beat analysts’ estimates of $0.96 a share, with adjusted earnings per share of $0.97.
  • Sales increased 2% to $31.25 billion, beating analysts’ estimates of $31.14 billion.
• IntercontinentalExchange, Inc. (NYSE: ICE)
  • ICE reported a 7% rise in profit.
  • The exchange operator reported income of $153.3 million, or $2.09 a share, compared to $143.2 million, or $1.95 a share, last year.
    • Excluding costs earnings were $2.19 a share, beating analysts’ estimates of $2.15 per share.
  • Revenue rose 6% to $371.6 million.
    • Transaction and clearing fee revenue rose to $319 million, marking a 4% increase.
• Ralph Lauren Corporation (NYSE: RL)
  • Ralph Lauren reported income of $181 million, or $1.94 a share, down from $193 million, or $2.03 a share, a year ago.
  • Sales increased from $1.59 billion to $1.65 billion.
  • Analysts expected earnings per share of $1.93 and sales of $1.65 billion.
• Time Warner Inc. (NYSE: TWX)
  • The media and entertainment company posted a higher quarterly profit:
    • Movies like “The Great Gatsby” and “Man of Steel” boosted revenue in the film unit, and
    • Basketball games drove up cable TV advertising revenue by 11%.
  • Time Warner posted income of $771 million, or $0.81 a share, compared to $412 million, or $0.42 a share last year.
    • Excluding onetime charges related to debt, Time Warner’s earnings per share of $0.83 beat analysts’ estimates of $0.76.
  • Revenue rose to $7.44 billion, a 10% increase that easily beat analysts’ estimates of $7.11 billion.
• Tesla Motors, Inc. (NASDAQ:TSLA)
  • Electric-car maker Tesla Motors surprised Wall Street with better-than-expected earnings.
  • Tesla reported non-generally accepted accounting principle (GAAP) earnings per share of $0.20 versus an expected non-GAAP loss of $0.17.
  • Revenue was $405 million, down from $562 million in the first quarter.
    • This reflected an accounting requirement that defers some revenue on vehicles financed through Tesla and its financial partners.
    • On a non-GAAP basis, revenues rose to $551 million.
  • Tesla has ramped up production of its Model S sedan, which is the best-selling U.S. electric car.
    • Despite a starting price of more than $70,000, the company’s stock price has more than quadrupled in the past year.
    • Tesla sold 10,500 Model S sedans in the first six months and expects nearly quadruple that by late 2014, as it expands sales to Europe and Asia.

Interest Rates

• Rates were relatively flat compared to last week.
  • The two-year Treasury rate was flat at 0.30%.
  • The five-year Treasury rate also held steady at 1.36%
  • The 10-year Treasury rate slid one basis point to 2.59%.
  • The 30-year Treasury yield fell two basis points to 3.67%.

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