Positive Week on Solid Earnings and Housing News

Markets

For the week of Monday, January 14, 2013 through Friday, January 18, 2013:

• Standard & Poor’s 500 Index: 0.95%
• Dow Jones Industrial Average: 1.20%
• NASDAQ Composite: 0.29%

The week started with blue-chip tech companies notching the biggest gains in the Dow industrials, but Apple, Inc. (NASDAQ: AAPL) weighed on other indices. Blue-chip stocks continued their rise for a fifth-straight session on Tuesday after a reading on December retail sales rose more than expected. On Wednesday, a rebound in Apple shares helped buoy stocks, though weakness in The Boeing Company (NYSE: BA) handed the Dow Jones Industrial Average its first decline in six days. Boeing fell 3.4%, after a Japanese airline grounded its fleet of 787 Dreamliners following an emergency landing, underscoring recent concerns about the aerospace company’s new generation of aircraft. U.S. stocks began higher on Thursday after reports brightened views of the economy, with housing starts rising more than anticipated and jobless claims dropping to a five-year low. Stocks closed mixed on Friday with financials and blue chips rising on stronger-than-expected earnings reports from Morgan Stanley (NYSE: MS) and General Electric (NYSE: GE). Media headlines indicated Republicans are considering a temporary extension of the U.S. debt ceiling, which also influenced trading, as did the drop in U.S. consumer confidence in January vs. December.

Economic Data

• Chain Store Sales Snapshot:
  • The ICSC Chain Store Sales Index fell again this week.
  • The 0.6% slide follows last week’s 4.2% decline.
  • This decline put year-over-year growth to its current range, dropping to 3.3% from 4%.
• Producer Price Index:
  • December’s 0.2% decline in the Producer Price Index marks the third straight month of decline.
  • Continued decline in energy prices and a drop in finished food prices contributed to the negative reading.
• Retail Sales:
  • A 0.5% increase for December’s retail sales and an upward revision to November’s number made 2012 holiday sales look better than expected.
  • Excluding autos, sales were up 0.3% led by furniture stores, drugstores and restaurants.
  • Despite a decline at gasoline stations and electronics and appliance stores, year-over-year growth showed its best growth since September, rising to 4.7%.
• MBA Mortgage Applications Survey:
  • The mortgage applications composite index rose by 15.2%.
  • This marked the second consecutive advance.
  • Both purchase and refinance activity increased.
    • The purchase index grew almost 13%.
    • The refinance index was up 15.3%.
• Consumer Price Index:
  • As expected, the Consumer Price Index (CPI) was unchanged in December.
  • Higher food prices outweighed the continued weakness in the energy index.
  • Core CPI maintained the 0.1% pace from the previous month.
• Industrial Production:
  • Industrial production rose 0.3% in December, with manufacturing output increasing 0.8%.
    • Motor vehicles and parts production was up 2.6%;
    • Output beyond autos rose 0.7%;
    • Mining output rose 0.6%, however
    • Utilities output plunged 4.8% due to the warm weather.
• Beige Book:
  • The Federal Reserve’s Beige Book report showed economic activity has improved since the last Beige Book.
  • The report, covering the middle of November to the beginning of January, shows all 12 districts with either modest or moderate growth.
    • The areas hit hardest by Hurricane Sandy reported significantly increased economic growth since the previous report.
• Jobless Claims:
  • Initial claims for unemployment insurance fell 37,000 to 335,000, a larger fall than anticipated.
  • Continuing claims rose 87,000 to 3.2 million.
• Housing Starts:
  • December’s residential construction was up 12.1% over November, well ahead of expectations.
  • Housing starts rose to an annualized 954,000 units.
  • This marks the strongest reading since the first half of 2008.
  • With permits and completions also up in December, all three aspects of homebuilding are up year over year.

Earnings:

• Lennar Corporation (NYSE: LEN)
  • Lennar Corporation reported a rise in quarterly profit as a result of increased home sales and delivery—continued evidence that the housing recovery is on track.
    • Lennar reported the average selling price of the homes delivered rose 7% to $261,000.
    • Orders increased 32%, to 3,983 homes.
  • Lennar Corporation reported net income of $124.3 million, or $0.56 a share, from $30.3 million, or $0.16 a share, a year earlier.
  • Revenue was reported at $1.3 billion, up 42%.
  • Analysts expected earnings of $0.44 cents a share on revenue of $1.31 billion.
• eBay Inc (NASDAQ: EBAY)
  • EBay reported earnings topped analysts’ expectations as holiday shoppers harnessed the Internet shopping mall and digital payment service.
  • EBay earned $757 million, or $0.57 cents per share compared to $2 billion, or $1.51 per share, last year.
    • The 2011 numbers were inflated by the company’s sale of online communications service Skype.
    • On an adjusted basis, earnings were up to 17% from 2011.
  • PayPal generated the greatest growth.
    • Fourth-quarter revenue from the payment service totaled $1.54 billion, a 24% increase from the previous years.
  • The marketplace division, where most of the shopping occurs on eBay, produced fourth-quarter revenue of $2.05 billion, up 16% from the previous year.
• Goldman Sachs Group, Inc. (NYSE: GS)
  • Goldman Sachs Group Inc. reported net income nearly tripled on 53% higher revenue.
  • Earnings reached $2.89 billion, or $5.60 a share, compared to $1.01 million, or $1.84, in the year-earlier quarter.
  • Net revenue was $9.24 billion compared to $6.05 billion.
  • Analysts’ anticipated a profit of $3.71 a share on revenue of $7.98 billion.
• JPMorgan Chase & Co. (NYSE: JPM)
  • JPMorgan Chase & Co. reported profit rose 53% beating analysts’ estimates.
  • Net income rose to $5.69 billion, or $1.39 a share, compared to $3.73 billion, or $0.90, a year earlier.
  • JPMorgan reported earnings of $1.35 a share, excluding one-time items such as accounting adjustments and costs from a mortgage settlement.
    • This beat analysts’ expectations of $1.22 a share.
• Bank of America Corp (NYSE: BAC)
  • Bank of America Corp. reported a 63% drop in profit.
  • Revenue shrank and costs from foreclosures and flawed home loans were the main culprits of the drop.
  • Net income fell to $732 million, or $0.03 a share, from $1.99 billion, or $0.15 cents, one year ago.
• BB&T Corporation (NYSE: BBT)
  • BB&T Corporation reported mortgage banking revenue rose 71% to $231 million.
  • Net income rose to $506 million or $0.71 per share, compared to $391 million, or $0.55 per share, a year earlier.
  • Analysts expected earnings per share of $0.70.

M&A Activity and More:

• Dell Considering Going Private:
  • Dell shares spiked 13% on the prospect of Dell going private.
  • Public investors are excited that Dell is in talks with at least two private equity firms about a potential buyout.
  • While the buyout would not solve the computer maker’s issues, it would allow the company to make drastic changes without the criticism of shareholders.
  • The buyout could be worth more than $20 billion, and would be the biggest technology buyout since the aquistion of Freescale Semiconductor, which was lead by the Blackstone Group to the sum of $17.6 million in 2006.

Interest Rates

• The two-year Treasury rate rose almost two basis points to 0.26%.
• The five-year Treasury rate was flat at 0.78%.
• The 10-year Treasury rate was also flat at 1.87%.
• The 30-year Treasury yield slid two basis points to 3.06%, still above the important 3% level.

Disclosures:

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