Markets Relatively Flat in Short Trading Week

Markets

For the week of Monday, October 29, 2012 through Friday, November 2, 2012

• Standard & Poor’s 500 Index: 0.16%
• Dow Jones Industrial Average: -0.11%
• NASDAQ Composite: -0.19%

The trading week in the United States was cut short by Hurricane Sandy’s landfall on the Eastern seaboard. The markets were closed Monday and Tuesday, which marks the first time the markets were closed for two consecutive days because of weather since 1888.

The markets were opened on Wednesday, albeit powered by generators and staffed at partial strength. Results were mixed for the day. By Thursday, U.S. stocks rose, as employment data beat forecasts and investors awaited reports on manufacturing and consumer confidence to help assess the strength of the economy before the presidential election. Friday brought the much anticipated jobs report for October. The report showed hiring was strong in October, while the unemployment rate ticked higher. The economy added 171,000 jobs in October, and unemployment inched up a tenth of a percent to 7.9%, according to the Labor Department. The boost in hiring was seen as a positive in the markets.

Economic Data

• Personal Income:
  • Personal income had its fastest growth since March at 0.4% in September.
  • Wage income growth increased to 0.3%, the fastest since June.
    • Durable goods led real spending growth, while nondurable goods led nominal spending growth.
    • Service spending growth lagged by both measures.
  • The saving rate, however, dropped to 3.3%, the lowest since November of last year.
• Jobless Claims:
  • For the second week, initial claims dropped by 9,000 to 363,000.
    • The drop was unexpected, and puts the four-week average at 367,250.
  • This reading should not have been affected by Hurricane Sandy.
    • The next few weeks will be dicey as the impact from the shutdowns will be felt.
  • Continuing claims rose 4,000 to 3.263 million for the week ending October 20.
    • This fairly modest gain reverses the previous week’s drop.
    • Continuing claims have been remarkably stable since the end of the first quarter.
  • New claims data suggest the job market improved a little in late October, but their usefulness in gauging the health of the job market will diminish over the next several weeks because of the distortions from Hurricane Sandy.
• Conference Board Consumer Confidence:
  • The index of consumer confidence improved to 72.2.
  • The 3.8-point gain was less than last month’s gain, but was still in line with analysts’ estimates.
    • A significant rise in the present conditions segment drove the gain.
    • The expectations component improved as well.
• Productivity and Costs:
  • Nonfarm business productivity rose 1.9% in the third quarter of 2012 on a seasonally adjusted annualized basis, as output growth substantially outpaced a healthy increase in hours worked.
    • The reading was comfortably above consensus, but below the forecast.
    • Unit labor costs decreased slightly.
  • The report highlights a productive and attractively cheap U.S. labor force.
• ISM Manufacturing Index:
  • On the surface, the slight edge from 51.5 to 51.7 does not look too encouraging.
    • However, after viewing the moves, it becomes a much more significant report.
  • The encouraging news is a 1.9 point increase in the new orders index to 54.2, with a 0.5 point decline in the inventories index to 50.
  • The combination points to a gradual pickup in manufacturing output growth into year-end.

Earnings

• Archer Daniels Midland Company (NYSE: ADM)
  • Archer Daniels Midland said fiscal first-quarter profit dropped 60%, hurt by charges from the planned sale of Mexican food company Gruma.
    • ADM earned $182 million, or $0.28 per share, compared to $460 million, or $0.68 per share, last year.
    • Excluding charges from the sale of Gruma, the company said its adjusted profit was $0.50 per share for the recent quarter.
    • Revenue was $21.81 billion compared with $21.9 billion last year.
  • Excluding the Gruma charge, profit at Archer Daniels Midland’s agricultural business dropped about 30%, hurt by a smaller U.S. harvest.
• Cummins Inc. (NYSE: CMI)
  • Cummins Inc.’s earnings fell 22% for the quarter.
  • Profits were below analysts’ expectations.
    • Cummins reported a profit of $352 million, or $1.86 a share, compared to $452 million, or $2.35 a share, a year ago.
    • Excluding one-time items, earnings from ongoing operations slipped to $1.78 per share, down from $2.20 per share a year earlier.
      • This was below analysts’ projection of $1.83.
      • Revenue decreased to $4.1 billion, which is in line with analysts’ forecast.
  • Cummins’ overall engine sales for the third quarter fell 14% from a year ago to $2.52 billion.
    • The margin from the business engine shrank to 9.5% from 11.8% a year ago.
    • Revenue from international markets dropped 21% from a year ago, largely as a result of China, where Cummins revenue declined 26%.
• Exxon Mobil Corp. (NYSE: XOM)
  • The world’s largest energy company by market value posted net income that exceeded the highest estimate from analysts, as its U.S. refineries diminished the impact of lower oil output and prices.
    • Third-quarter profit was $9.57 billion, or $2.09 a share, compared to $10.3 billion, or $2.13, one year ago.
    • Analysts’ expected between $1.96 and $2.07, so the result topped even the high estimate.
  • Sales also fell to $115.7 billion, which was a smaller decline than expected.
  • Exxon’s profit from refining oil at U.S. plants soared 78% to $1.4 billion, even as the benchmark margin based on New York futures contracts dropped 5.2%.
  • Oil and natural gas production from Exxon’s wells fell to the lowest in three years, as output slipped everywhere except for Africa and Australia.

Interest Rates

• The potential impact of Hurricane Sandy drove investors to Treasury bonds.
  • The two-year Treasury rate fell three basis points to 0.28%.
  • The five-year Treasury rate dropped eight basis points to 0.73%, back below the 2012 average of 0.77%.
  • The 10-year Treasury rate fell eight basis points to 1.72%, but remains well above the July low of 1.38%
  • The 30-year Treasury yield fell six basis points to 2.89% below the one-year average of 2.95%.

Disclosures

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