Markets Traded Flat This Week as Earnings Season Continues

For the week of Tuesday, January 23, 2012 through Friday, January 27, 2012:

• Standard & Poor’s 500 Index: 0.07%
• Dow Jones Industrial Average: -0.47%
• NASDAQ Composite: 1.07%

The Federal Open Market Committee policy statement concerning interest rates lead the headlines this week. The Fed has extended their previous timeline for keeping rates low until the middle of 2014. Their reasons are that inflation has leveled off, unemployment remains high, housing has not recovered, and Europe still has a debt crisis to solve. This was not much of a surprise though. Jobless claims rose, but this was expected as businesses trim payrolls after the holiday hiring surge.

Earnings season continues with companies having reported roughly a 4% gain. Even though the market was flat this week, the market is up 4.7% year to date. Materials and financials are still leading the charge despite missing their earnings. The major news was from Apple. In the first quarter after the passing of founder Steve Jobs, Apple reported tremendous earnings as a result of strong iPhone and iPad sales. The company sold 37 million iPhones and more than 15 million iPads. Verizon posted a loss for the quarter, but overall should be in good shape. They added customers, and finally, finished multi-billion dollar spending on network upgrades. The company’s dividend should be stable. 

Economic News

• Federal Open Market Committee (FOMC)
  • The FOMC statement on interest rate policy was released this week following the January 24-25 meeting.
    • The Fed’s data indicates growth could be slowing, necessitating a low interest rate policy into 2014.
    • This is an extension of previous policy that kept rates low into 2013.
  • There will be no major changes in strategy, as maturing short-term securities will continue to be rolled into long-term securities to keep interest rates low.
  • According to the Fed, inflation has eased, but the housing market, unemployment, and Europe remain concerns.
  • We feel that given the current interest rate environment, price levels and earnings growth, stocks are very attractive investments.
• Jobless Claims
  • Initial claims jumped by 21,000 to 377,000 from 356,000
  • This was expected as a result of seasonal factors and the unusual drop last week.
  • Claims from two weeks ago were revised higher to 356,000 from 352,000.
  • Continuing Claims also rose.

Earnings News

• Apple Inc.  (NASDAQ: AAPL)
  • Apple had a blowout 2011 fourth quarter.
  • Sales of the iPhone skyrocketed to 37 million units, and accounted for more than half the company’s quarterly revenue at 53%.
  • Apple also sold 15.4 million iPad tablets for the quarter.
  • Net Income increased 118% to $13.06 billion, or $13.87 per share, beating last year’s $6 billion, or $6.43 per share, and expectations of $10.04 per share.
  • Revenue increased 73% to $46.33 billion and beat estimates of $38.9 billion by more than $7 billion.
  • The tech giant has $97.6 billion in cash on its balance sheet.
  • Shares rose 6.4%, following the news.
• Verizon Communications Inc. (NYSE: VZ)
  • Verizon posted a loss for the quarter of $212 million against $4.65 billion, or $0.93 per share, last year.
  • Excluding one time items, the company earned $0.52 per share, while revenue rose to $28.44 billion from $26.39 billion.
  • Verizon also added more customers than rival AT&T for the quarter, which was aided by the new iPhone.
  • Worth noting: The company has completed its long-term capital investments, and took a $3.4 billion pretax charge for pension plan reevaluation.
  • Shares slipped 1.5% on the news

Interest Rates

• Rates remained flat this week.
• The two-year Treasury dipped two basis points to 0.21% down just above record lows.
• The five-year Treasury slid eight basis points to 0.78%, dropping below 0.8% again.
• The 10-year Treasury held at 1.968%.
• The 30-year Treasury yield leapt nine basis points to 3.13%.

Disclosures

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