Rocky Week That Saw a Temporary NASDAQ Halt Results in Mixed Markets

Markets

For the week of Monday, August 19, 2013, through Friday, August 23 2013:

• Standard & Poor’s 500 Index: 0.49%
• Dow Jones Industrial Average: -0.40%
• NASDAQ Composite: 1.54%

The markets began the week with stocks tumbling for a fourth consecutive session—their longest losing streak this year. Stocks have been taking their cues from the bond market, where Treasury yields posted their biggest weekly gain since June. Upbeat jobs data fueled speculation that the Fed would begin to withdraw stimulus measures as early as September. The S&P 500 rose Tuesday, snapping a four-day streak of declines.

Stocks experienced a volatile session midweek, after the minutes to the Fed’s latest policy meeting provided little clarity on the paring back on stimulus measures. All 10 S&P 500 sectors declined. By Thursday, stock prices rose on upbeat economic news from Europe and China. The NASDAQ halted trading for three hours on Thursday, as a result of a “connectivity issue” with a system that propagates stock prices. The index gained, 1.1% for the day, despite the disruption. Stocks closed higher on Friday, as investors weighed weak home sales data against the likelihood of the Federal Reserve tapering stimulus and who will replace Fed Chair Ben Bernanke.

Economic Data:

• Chain Store Sales:
  • The ICSC chain store sales index fell 1.9%.
  • Year-over-year growth was 2.2%.
    • This was 0.1% below the year-to-date average.
• Semiconductor Book-To-Bill Ratio:
  • The book-to-bill ratio for North American semiconductor equipment manufacturers fell from 1.10 in June to 1 in July.
    • This is lowest level since last December.
    • This means that for every $100 worth of orders received by semiconductor equipment manufacturers, $100 of product was billed for the month.
  • In July, semiconductor equipment bookings were 3.1% higher than a year earlier.
    • However, this was 4.6% below the level recorded in June.
• MBA Mortgage Applications Survey:
  • As a result of the continuing plunge in refinance applications, overall mortgage activity withdrew by 4.6% in the week ending August 16.
  • Purchase applications rose by 1.2%, while the refinance index declined by 7.7% to its lowest level since April 2011.
  • Mortgage interest rates noticeably increased, as investors are starting to demand a higher rate of return for longer-term assets in anticipation of the Federal Reserve slowing its asset purchases.
• Existing Home Sales:
  • Sales of existing homes rose 6.5% in July to 5.39 million annualized units, bouncing back from June’s dip.
    • This outperformed expectations for a smaller increase.
  • Sales of existing single-family homes increased 6.3%.
    • Existing single-family homes hit their highest level, since the homebuyer tax credit expired.
  • Inventories increased 5.6% in July to 2.28 million total homes available for sale, but remain historically tight.
  • The median existing-home price is up by 13.7% year-over year.
• Federal Open Market Committee (FOMC) Minutes:
  • The minutes of the July meeting showed broad support for:
    • Scaling back the Fed’s asset purchases this year, and
    • Ending the open-ended quantitative easing program by mid-2014.
  • The Fed didn’t commit to a specific date to begin tapering.
    • That said, if QE is going to end by mid-2014, and the Fed wants to reduce its asset purchases gradually, it needs to start soon.
• Jobless Claims:
  • Initial claims for unemployment insurance rose 13,000 to 336,000.
    • The four-week moving average fell 2,250 to 330,500, the lowest level of claims since the recession began in late 2007.
  • Continuing claims rose 29,000 to 3 million in the week ending August 10.

Earnings:

• Best Buy Co., Inc. (NYSE: BBY) 
  • Best Buy’s earnings rose sharply, helped by cost-cutting and legal settlements.
  • Best Buy earned $266 million, or $0.77 a share, versus $12 million, or $0.04 a share, last year.
    • Earnings per share was $0.32, excluding one-time items, which exceeded analysts’ expectations of $0.12.
    • Revenue fell slightly to $9.3 billion, from $9.34 billion last year, but still beat expectations.
    • Same store sales slipped 0.6%, much better than the 3.3% decline last year.
  • Under CEO Hubert Joly, Best Buy has instituted a price-matching policy; opened more store-in-store areas for companies like Apple and Samsung, and invested more to train employees.
    • Through these measures, Best Buy is trying to prevent “showrooming,” when people browse its stores, then shop online for lower prices
• The Home Depot, Inc. (NYSE: HD)
  • Home Depot’s earnings jumped 18%, as surging home sales drove same-store sales up by double digits.
  • Home Depot earned $1.8 billion, or $1.24 a share, versus $1.53 billion, or $1.01 last year.
  • Revenue climbed more than 9% to $22.52 billion, from $20.57 billion.
    • The home-improvement retailer beat analysts’ expectations of earnings per share of $1.21 on revenue of $21.79 billion
  • Same store sales increased 10.7%, while in the United States, the same store sales figure rose 11.4%.
• J.C. Penney Company, Inc. (NYSE: JCP):
  • J.C. Penney posted another big loss on a nearly 12% drop in revenue.
    • The results mark the sixth straight quarter of big losses and steep revenue drops for the retailer.
  • The company lost $586 million, or $2.66 a share, versus a loss of $147 million, or $0.67 a share, last year.
    • Revenue reached $2.66 billion, down from $3.02 billion.
  • Analysts expected a $1.07-per-share loss on revenue of $2.77 billion.
  • Same store sales dropped 11.9%, worse than the 8.3% analyst expected.
    • This loss was in addition to a 21.7% drop last year.
• Target Corporation (NYSE: TGT)
  • Target earned $611 million, or $0.95 a share, versus $704 million, or $1.06 a share, last year.
    • Excluding certain items, Target earned $1.19 a share.
  • Total revenue reached $17.12 billion, missing expectations of $17.28 billion.
  • Same store sales rose 1.2%, below the 1.9% analysts expected.  
• Lowe’s Companies, Inc. (NYSE: LOW)
  • Lowe’s earnings rose 26%, beating expectations.
  • The home-improvement retailer earned $941 million, or $0.88 a share, up from $747 million, or $0.64 a share, last year.
    • Revenue increased 10% to $15.71 billion from $14.25 billion.
  • Analysts expected earnings per share of $0.79 on revenue of $15.07 billion.
  • Same store sales climbed 9.6%, the biggest increase since 2004.
• Staples Inc. (NASDAQ: SPLS)
  • The office supply company earned $102.5 million, or $0.16 a share, down from $120.4 million, or $0.18 a share, last year.
    • Analysts expected higher earnings per share of $0.18.
  • Sales fell 2% to $5.31 billion from $5.43 billion, weighed down by store closures.
    • Analysts expected $5.37 billion in revenue.
  • Same store sales slipped 3% on lower traffic and a decline in the average order size.
    • One bright spot was online sales, which climbed 3%.

Interest Rates

• The two-year Treasury rate edged three basis points higher to 0.37%, just shy of its 2013 high of 0.40%.
• The five-year Treasury rate jumped eight basis points to 1.65%.
• The 10-year Treasury rate increased six basis points to 2.89%, about 1.3% higher than levels seen just a few months ago.
• The 30-year Treasury yield climbed five basis points to 3.90%, more than 1% higher than we saw in the spring.

Disclosures

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