Week Closes with Mixed Markets Despite New S&P High on Wednesday

For the week of Monday, January 13, 2014 through Friday, January 17, 2014:

• Standard & Poor’s 500 Index: -0.18%
• Dow Jones Industrial Average: 0.15%
• NASDAQ Composite: 0.55%

The week started with the Dow Jones Industrial Average suffering its biggest drop since Sept. 20, 2013. Last week’s disappointing jobs report continued to reverberate, causing investors to question whether stocks can sustain last year’s rally. Both the S&P 500 and the NASDAQ suffered their biggest declines since Nov. 7. The markets changed course Tuesday when the Dow snapped a four-day losing streak, thanks to better economic news. By mid-week, a two-day rally in stocks carried the S&P 500 to a fresh all-time high.  Thursday saw the S&P 500 pull back slightly from record highs, as investors assessed some mixed corporate news. Stocks closed mixed Friday, ahead of the Martin Luther King, Jr. holiday weekend. A thin economic calendar in the coming week contributed to light trading. The day’s earnings reports were mixed, as were economic reports showing drops in consumer sentiment and housing starts. However, these were offset by gains in industrial production and capacity utilization.

Economic Data

December Jobs Report:

• December’s Jobs Report deflated much of the optimism generated by recent reports.
• Following three months of gains averaging more than 200,000, the 74,000 net gain in December was a big letdown.
• Winter weather explains some of the less-than-stellar report, as 273,000 people did not work because of severe weather conditions.
  • This was the highest number for December in decades.
• The unemployment rate nonetheless declined by 0.3% to 6.7%.

Retail Sales:

• Retail sales growth was 0.2% in December.  
  • Auto sales electronics and appliance store sales were all drags on the report.  
  • Ex auto sales grew 0.7%  
  • Core sales, excluding autos and gasoline stations, rose 0.6%.  
  • Grocery stores, apparel stores, gasoline stations and non-store retailers had strong sales.  
• Year-over-year growth fell to 4.1%.

Chain Store Sales Snapshot:

• Chain store sales fell 1% from a week ago.  
• Year-over-year the index rose 1.3%.

MBA Mortgage Applications Survey:

• Mortgage activity rose the first full week of 2014. 
  • The mortgage applications composite index rose 11.9%.  
• Purchase and refinance applications both increased at a similar pace.

Producer Price Index:

• The producer price index rose 0.4% in December.  
  • The first rise in four months was led by a rebound in energy prices.  
  • Early stages of production saw prices increase as well.

Consumer Price Index:

• The consumer price index also increased for the first time in three months, rising 0.3% in line with the consensus.  
  • Core CPI rose 0.1%.

Jobless Claims:

• Initial claims fell 2,000 to 326,000 for the week ending January 11.
  • This was in line with our expectations of a decrease in new filings.
• Initial claims appear to be settling down with the four-week moving average retreating from 348,500 to 335,000.
• Claims in the previous week were revised lower to 328,000 from the initially reported 330,000.
• Meanwhile, continuing claims increased to 3,030,000, pushing the insured jobless rate up to 2.3%.

Earnings:

JPMorgan Chase & Co. (NYSE: JPM)

• JPMorgan’s profit fell 7%, hampered by more legal woes.  
• JPMorgan’s profit was $5.28 billion, or $1.30 a share, compared to $5.69 billion, or $1.39 a share, last year.  
  • Revenue was down 1% to $24.1 billion.  
  • On an adjusted basis, the bank earned $1.40 a share.  
• Analysts expected $1.35 a share on revenue of $23.67 billion.

Wells Fargo & Company (NYSE: WFC)

• Wells Fargo earnings rose a better-than-expected 10%, as a slowdown in its lucrative mortgage business was offset by strong expense controls and continued improvement in credit quality.  
  • Wells Fargo earned $5.61 billion, or $1 a share, compared to $5.09 billion, or $0.91 a share, last year.
  • Revenue fell 5.8% to $20.67 billion.
• Analysts expected $0.98 a share on revenue of $20.69 billion.

Bank of America Corporation (NYSE: BAC)

• Bank of America reported profit of $3.18 billion, or $0.29 a share, compared to $367 million, or $0.03 a share, year-over-year.
  • The stronger-than-expected profit was driven by a steep fall in mortgage losses and provisions to cover bad loans.
  • Last year had $5 billion of mortgage-related charges.
• Provisions for credit losses fell about 85%. The bank’s consumer mortgage business lost $1.1 billion, versus a loss of $3.7 billion last year.
  • Excluding accounting adjustments, revenue rose 14% to $22.3 billion, while operating costs fell 6% to $17.3 billion.
• Analysts expected $0.26 a share.

CSX Corp. (NYSE: CSX)

• CSX reported earnings of $426 million, or $0.42 a share, compared to $449 million, or $0.44 a share.
• Analysts expected $0.43 a share.
• CSX’s revenue rose 5% to $3.03 billion.
  • Chemical shipments increased 18% including crude oil.
  • Agricultural shipments increased 16%.
  • Carloads of intermodal containers rose 11%.

 M&A News:

Beam Buyout:

• Suntory Holding Ltd, the Family-owned Japanese drink maker agreed to buy Beam, Inc. (NYSE: BEAM) for approximately $13.6 billion in cash.
  • The offer values Beam at $83.50 a share.
  • Including the assumption of debt the deal is worth $16 billion.
• The boards of both companies have approved the deal and are now waiting on approval from Beam stockholder and regulatory approvals.
  • The acquisition should make Suntory the world’s third largest spirits maker.
  • The deal is expected to close in the second quarter 2014.
• Brands will include Jim Beam, Maker’s Mark and Knob Creek bourbons; Courvoisier cognac; Canadian Club whiskey; and Sauza tequila, as well as Suntory’s Japanese whiskeys Yamazaki, Hakushu, Hibiki, and Kakubin; Bowmore Scotch whisky; and Midori liqueur.

Interest Rates

• The two-year Treasury rate rose one basis point to 0.38%.
• The five-year Treasury rate rose two basis points to 1.64%.
• The 10-year Treasury rate fell one basis point to 2.85%.
• The 30-year Treasury yield fell two basis points to 3.79%.

Disclosures

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