Roller-Coaster Week Leaves Markets Slightly Down

Markets

For the week of Monday, March 18, 2013 through Friday, March 22, 2013:

• Standard & Poor’s 500 Index: -0.24%
• Dow Jones Industrial Average: -0.1%
• NASDAQ Composite: -0.11%

The week began with U.S. investors joining a global sell-off, as the markets fretted over the European Union’s proposed terms for a $13 billion bailout for the island nation of Cyprus. The three major indices hit session lows within minutes of the opening bell. Despite the losses having been mostly recovered 90 minutes into the trading day, the markets still closed down. Tuesday ended mixed after news that Cyprus’ Parliament voted against a proposed bank-deposit levy as part of a bill meant to secure a bailout of the country’s financial system.

Stocks rose Wednesday, as the Federal Reserve promised a continued easy-monetary policy and would continue purchasing $85 billion in bonds each month to support the economic recovery. Federal Reserve Chairman, Ben Bernanke, said he didn’t see the recent stock-market gains as out of line with historical patterns. The news appeared to offset the concern over Europe’s debt crisis. Stocks opened lower on Thursday, as jobless claims met expectations, and investors awaited data on housing and regional manufacturing. Stocks closed higher on Friday, bolstered by better-than-expected earnings and hopes that Cyprus would soon receive a bailout for its ailing financial system.

Economic Data

• Chain Store Sales Snapshot:
  • Marking its fifth consecutive weekly gain, the chain store sales index rose 1.4%.
  • This gain pushed year-over-year growth up to 2.3%, a three-week high.
• Housing Starts:
  • Housing starts gained 0.8% from January to 917,000 units in February.
  • Starts are running 28% faster than they did in February 2012.
  • The data indicates a positive direction for housing.
    • Both single-family and multifamily housing starts increased.
    • Permits advanced month to month.
    • Completions slipped slightly.
  • The Census Bureau upwardly revised the January reading.
• MBA Mortgage Applications Survey:
  • The Mortgage Applications Composite Index fell 7.1% in the week ending March 15.
  • Both purchase and refinance activity fell for the fifth time in six weeks.
    • An 8% decline in the refinance index led the dip.
    • Mortgage interest rates rose modestly.
• FOMC Meeting:
  • Though the Federal Reserve acknowledged the economy has improved, the central bank did not change monetary policy.
    • The FOMC kept its targets, policy rates, and monthly asset purchases in place.The Fed’s statement mentioned that fiscal policy has become “somewhat” more restrictive.
      • The Fed released its latest economic projections:
      • There were some minor changes to GDP this year, and
  • The outlook for the unemployment rate improved.
• Jobless Claims:
  • Initial claims for unemployment insurance rose to 336,000 for the week ending March 16.
    • This is only the third increase this year.
    • New filings remain below their fourth quarter average, providing further evidence the economy has reaccelerated over the past couple of months.
  • Initial claims fell 34,000 between the February and March payroll survey periods.
  • Continuing claims rose 5,000 to 3.05 million for the week ending March 9.
• Existing Home Sales
  • Sales of existing homes slowly increased in February.
    • The upwardly revised January figure nudges sales up to a 4.98 million annualized units pace.
    • This is the fastest pace since the homebuyer tax credits in 2009.
  • Inventories increased month over month for the first time since last spring, but remain 19% below this time last year.
  • The existing home market has 4.7 months of supply.
  • The median existing home price is up by 11.6% year over year.
    • It is likely that low inventories and the decline of distressed home sales have driven the strong price growth.

Earnings

• Walgreen Co. (NYSE: WAG)
  • The drugstore chain’s fiscal second-quarter earnings climbed 11%.
    • The gain was from earnings of European health and beauty retailer Alliance Boots and a business sale gain.
  • The company earned $756 million, or $0.79 per share.
    • That compares to earnings of $683 million, or $0.78 per share, in last year’s quarter.
  • Revenue came in flat at $18.65 billion, missing analysts’ forecast earnings of $0.93 per share on $18.74 billion in revenue.
  • The company also reported it is expanding a supply agreement with AmerisourceBergen Corp., with a deal that gives the nation’s largest drugstore chain an ownership stake in the pharmaceutical wholesaler.
• FedEx Corp. (NYSE: FDX)
  • Missing expectations, FedEx reported a quarterly profit that signals customers are seeking cheaper transportation.
  • As a result, the package delivery company will increase its cost-cutting program and reduce its express business in Asia.
  • Net Income was $391.1 million, or $1.23 a share, which was down from $427.5 million, or $1.55 a share, a year earlier.
    • Excluding one-time items, FedEx earned $1.13 a share.
    • Analysts predicted $1.38 a share in earnings.
  • Revenue increased 3.7% to roughly $11 billion.
• General Mills Inc. (NYSE: GIS)
  • General Mills’ fiscal-third-quarter earnings rose 1.8%.
    The cereal maker reported a profit of $398.4 million, or $0.60 a share, up from $391.5 million, or $0.58 a share, a year earlier.
  • Revenue jumped 7.5% to $4.43 billion.
  • Gross margin fell to 34.4% from 36.6%, as input costs increased 11%.
• Lennar Corp. (NYSE: LEN)
  • Lennar’s quarterly net profit handily beat the Street’s estimates.
  • The homebuilder reported a profit of $57.5 million, or $0.26 cents a share, versus $15 million, or $0.08 a share, a year earlier.
  • Revenue jumped 37% to $989.9 million.
  • Lennar reported gross margin on home sales for the quarter widened to 22.1% from 20.9%.
    • New home deliveries increased 28% to 3,186 homes;
    • The cancellation rate was 15%, and
    • The average sales price of homes delivered increased 9.3% to $269,000.
• Oracle Corp. (NASDAQ: ORCL)
  • The world’s No. 3 software maker had a 2% slip in the February quarter that missed Wall Street’s targets.
  • The company reported third-quarter earnings of $0.65 per share on $8.97 billion in revenue.
    • Analysts were looking for earnings of $0.66 per share on $9.38 billion in revenue.
    • The revenue miss was the company’s worst since November 2011.
  • Total software revenue was up 4% to $6.67 billion.
  • Hardware-systems revenue declined 16% to $1.24 billion.
  • Services revenue fell 8% to $1.045 billion.

European Crisis

• ECB Threatens to Cut Off Cypriot Banks:
  • The European Central Bank ramped up pressure on Cyprus to seal a bailout agreement with the European Union and the International Monetary Fund by Monday.
    • Further funding for the island’s ailing banks would be contingent on a deal.
  • ECB emergency funding kept at the island’s banks would remain only until Monday.
    • This marked the first time the ECB has publicly said it would consider removing a member state’s banks from the euro system’s emergency lending support.
  • The island’s politicians rejected a deal that included a controversial levy on individual depositors.
    • The ECB helped orchestrate the deal; however, the island’s banks have remained closed.

Interest Rates

• Treasury prices increased on worries over the Cyprus flare-up in the euro zone.
  • The two-year Treasury rate lost about two basis points in the latest week, falling to a yield of 0.25%.
  • The five-year Treasury rate fell by eight basis points to 0.80%, and is now 11 basis points off its 2012 high.
  • The 10-year Treasury rate shed nine basis points to 1.93%, falling in line with its 2013 average.
  • The 30-year Treasury yield slid seven basis points to 3.17%, still holding well above the key 3% level.

Disclosures

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