Mixed Week as Markets hit Post Thanksgiving Lull

Markets

For the week of Monday, December 3, 2012 through Friday, December 7, 2012:

• Standard & Poor’s 500 Index: 0.13%
• Dow Jones Industrial Average: 0.99%
• NASDAQ Composite: -1.07%

The S&P 500 snapped a three-session winning streak on Monday, weighed by Materials and Industrials shares. A downbeat reading on factory activity caught investors on their heels. The Dow Jones Industrial Average reversed early gains after the Institute of Supply Management reported its Purchasing Managers’ Index fell to 49.5 in November from 51.7 in October. Readings below 50 indicate contracting factory activity.

Stocks were quiet on Tuesday, only to rise on Wednesday, marking a one-month high for the Dow Industrials, as investors watched budget negotiations and a measure of service-sector activity topped expectations. U.S. shares edged higher on Thursday, buffeted by the roller coaster reaction of investors to U.S. budget talks. The euro fell after the European Central Bank said growth is likely to shrink next year, boosting expectations of a rate cut. Stocks closed mixed on Friday, as Congress made no visible progress on averting the tax hikes and spending cuts expected in January. News of a drop in a U.S. consumer sentiment reading offset a more encouraging U.S. November non-farm payrolls report.

Economic Data

• ISM Manufacturing Index:
  • The ISM manufacturing index fell to 49.5 from 51.7.
  • The fall was unexpected, although the index has not changed much since June.
  • Superstorm Sandy is still influencing the index, although manufacturing overall has fallen seven of the past 10 Novembers.
  • The details showed that new orders fell, and the employment index dropped below its neutral threshold of 50 for the first time since 2009.
• Chain Store Sales Snapshot:
  • The ICSC Chain Store Sales Index fell 3.1%, a usual decline for the week after Thanksgiving.
  • The drop offset last week’s gain; however, year-over-year, the index is still slightly above the 3% year-to-date average.
  • The ICSC noted both weaker customer traffic and a drop in holiday shopping behind last year’s levels.
• MBA Mortgage Applications Survey:
  • As a result of strong refinance activity, the mortgage applications composite index climbed 4.5% in the week ending November 30.
    • However, the volume of purchase applications remained unchanged, and
    • Mortgage interest rates rose only slightly.
• ISM Services Index:
  • The ISM nonmanufacturing index rose from 54.2 to 54.7.
    • New orders were at their highest since March, and
    • Business activity was above 60 for the second time this year.
  • Reversing some of last month’s decline, the index rose in four of the past five months.
    • The inventory details suggest the correction may not be as severe as feared, while backlog orders edged higher in November.
  • The employment index fell, which was likely a result of Superstorm Sandy.
• Jobless Claims:
  • Claims fell for the third consecutive week after the Hurricane Sandy surge in unemployment claims.
  • Claims fell 25,000 to 370,000 this week.
  • Continuing claims fell 100,000 to 3.2 million.

Earnings:

• AutoZone, Inc. (NYSE: AZO)
  • Even though AutoZone reported a 7% increase in profit, the auto retailer missed revenue estimates for the quarter.
    • AutoZone posted net income of $203.5 million, or $5.41 per share, for the quarter, compared with $191.1 million, or $4.68 per share, last year.
  • Because of stock buybacks, the recent quarter’s per-share results received a $0.43 increase.
  • AutoZone reported a 3% increase in revenue, $1.99 billion from $1.92 billion last year.
  • Analysts expected revenue of $2.02 billion.
• Big Lots, Inc. (NYSE: BIG)
  • Big Lots reported a loss of $6 million, or $0.10 per share.
    • Analysts expected a loss of $0.24 per share.
  • Revenue was $1.13 billion, just below the average estimate of $1.14 billion in revenue.
  • The company said that Chairman, CEO and President Steven Fishman plans to retire, but remain in his roles until a replacement is named.
• Brown-Forman Corporation (NYSE: BF.B)
  • Brown-Forman reported net sales were flat at $1.01 billion.
  • Earnings per share were $0.80 compared to $0.73 per share one year ago.
  • Income increased to $262 million, up 9% from last year.
  • For the quarter, net sales growth was negatively affected from:
    • The giveback associated with first quarter trade buy-ins in advance of price increases;
    • Foreign exchange rates, and
    • The absence of Hopland-based wines.

M&A Activity:

• Qualcomm Takes Stake in Sharp:
  • Qualcomm will invest $120 million in Japanese electronics giant Sharp.
    • Last month, Sharp warned about its ability to keep operating.
    • The maker of Aquos televisions said it would issue 4.9 billion yen ($59.7 million) worth of new shares to Qualcomm at 164 yen a share.
    • The company said it had secured a second investment of up to 5 billion yen from Qualcomm.
  • The initial investment is likely to make Qualcomm Sharp’s largest shareholder, with a 2.65% stake.
  • The two manufacturers will develop liquid crystal displays based on a new technology, which Sharp says is more energy efficient, offers crisper resolution and allows for more sensitive touch screens.

Interest Rates

• With no deal in sight to clear the air over the U.S. “fiscal cliff,” investors bid up Treasuries as a safe haven.
  • The two-year Treasury rate remained flat yielding 0.24%;
  • The five-year Treasury rate lost two basis points to 0.59%;
  • The 10-year Treasury rate fell five basis points to 1.56%, and
  • The 30-year Treasury yield fell six basis points to 2.75%, now below the six-month average of 2.78%.

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