For the week of Monday, March 12, 2012, through Friday, March 16, 2012
- Standard & Poor’s 500 Index: 2.43 %
- Dow Jones Industrial Average: 2.40%
- NASDAQ Composite: 2.24%
The markets experienced multiyear highs this week, as a result of three positive signs for the U.S. economy. On Tuesday, the Dow surged 1.68% to its highest level since the beginning of 2008, while the S&P 500 gained 1.81%. The catalysts for the market surge began with strong retail sales, followed shortly by an optimistic view of the economy from the Federal Reserve.
Of the 19 big banks that underwent stress tests only four—Citigroup, Ally Financial, SunTrust and MetLife—did not pass. The stress tests were to determine under the direst economic conditions, including a 13% unemployment rate and a 50% drop in the market, if the banks would have enough of the regulatory mandated reserves. Most banks did, and financial stocks responded in kind.
Economic Data
- Retail Sales
- Retail sales rose 1.1%, the fastest growth since September, as warm weather has allowed consumers to continue spending.
- Sales were led by gasoline stations, auto dealers, apparel stores department stores and building supply stores.
- Sales were revised up for January by 0.6%.
- The only declines were furniture stores and other general merchandise stores.
- Sales rose 0.9% excluding autos and 0.6% excluding gasoline stations as well.
- Year-over-year growth accelerated modestly to 6.5%.
- Retail sales rose 1.1%, the fastest growth since September, as warm weather has allowed consumers to continue spending.
- Federal Market Open Committee Meeting
- As expected, the FOMC did not make changes to its balance sheet, interest rates, or communication strategy at its latest meeting.
- The Fed acknowledged the stronger job market, but cautioned the unemployment rate will “gradually” decline toward a level consistent with the Fed’s target.
- Not to risk appearing out of touch with the public, the Fed adjusted its assessment of inflation to include rising energy prices.
- Energy prices could determine whether a third round of quantitative easing will be needed.
- Stress Tests
- The stress tests, which were designed to see whether banks would have enough capital on hand to continue lending even if another deep economic slump or financial crisis were to take place, were passed by most of the nation’s largest banks.
- This will clear the way for investors to receive tens of billions in increased bank dividends and share buybacks.
- The Fed said 18 of 19 financial firms retained a large enough capital buffer to keep lending in a downturn.
- However 4 of the 19—Citigroup Inc. (NYSE: C), Ally Financial, SunTrust Banks, Inc. (NYSE: STI), and MetLife Inc. (NYSE: MET)—would have to resubmit their capital plans to the Fed, effectively rejecting their dividend or stock buyback plans.
- Ally Financial was the only institution to fall short of the test’s capital requirements, even without any proposed dividend payments or other capital distributions.
- Citigroup, SunTrust, and MetLife could get approval to return some capital to shareholders only after revising their plans with the Fed.
- MetLife’s CEO blamed the Fed’s “bank centric” methodology for his company’s shortfall, saying it wasn’t appropriate for insurers.
- MetLife was the only insurance company to be stress-tested.
- PPI
- Producer prices rose 0.4% in February, accelerating from the tepid 0.1% pace in the previous month.
- The rate came in as forecast, but a notch below consensus.
- The year-ago change slowed to 3.3%, the lowest reading in almost two years.
- Price gains are expected to continue at a modest rate in the coming months barring a supply shock or substantial uptick in global growth expectations.
Earnings
- Ross Stores, Inc. (NASDAQ: ROST)
- Ross’ earnings increased to $192 million, or $0.85 a share, from $161.8 million, or $0.69 a share last year.
- The retailer’s total sales rose from just under $2.2 billion to $2.4 billion.
Analysts expected the company to earn $0.85 a share on just under $2.4 billion. - Ross expects “respectable increases in both revenues and earnings per share in 2012 and beyond.”
- Urban Outfitters, Inc. (NASDAQ: URBN)
- Urban Outfitters reported a much larger than expected drop of 48% in quarterly earnings. while gross margins narrowed by 9.6%.
- These were also worse than analyst expected.
- Slow sales of women apparel and both Urban and Anthropologie chains led to increased discounts to clear inventory.
- The lifestyle specialty retail company has been trying to turn it around by shuffling its management, trying to clean its inventory glut and revamping styles.
- The retailer said fourth-quarter profit fell to $39.3 million, or $0.27 a share, from $75.2 million, or $0.45 a share, last year.
- Revenue for the latest quarter rose 9% to $730.6 million from $668.4 million, with Internet sales up 14%.
- Urban Outfitters reported a much larger than expected drop of 48% in quarterly earnings. while gross margins narrowed by 9.6%.
- Jobless Claims
- Jobless claims dropped by 14,000 for the week a slightly larger margin than was expected.
- Jobs dropped from 365,000 to 351,000.
- Prior week data was revised from 362,000 to 365,000.
- Continuing claims also declined in the prior week.
- Jobless claims dropped by 14,000 for the week a slightly larger margin than was expected.
Interest Rates
- Rates soared this week as investors exited bonds.
- The two-year Treasury rose seven basis point to 0.39%, its highest level since last Augusts debt ceiling crisis/debate.
- The five-year Treasury rose 25 basis points to 1.15%, exceeding 1% for the first time since around Halloween.
- The 10-year Treasury rose 29 basis points to 2.32%, putting it among the top of its range since August.
- The 30-year Treasury rose 27 basis points to 3.45%. This rise put it just below 3.50%, a level not seen since last summer.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
