Weekly Analysis
Week 38
Technical Updates
Briefing's Commentaries
Weekly Wrap
Dow +35.17 at 14089.66, Nasdaq +9.55 at 3169.74, S&P +3.52 at 1518.2
Stocks finished the first session of the month on a positive note despite showing early weakness. The downbeat start took place as the markets digested disappointing PMI readings from China and the United Kingdom. In China, the country's manufacturing PMI slipped to 50.1 from the 50.2 reported in the flash reading. The report was notable as PMI fell back to 50, a level which draws a line between contraction and expansion.
Meanwhile, the United Kingdom saw its PMI slide to 47.9 while the general consensus had expected a reading of 51.0. The disappointing report weighed on European markets as well. Also note the British pound slid to a fresh multi-year low following the data.
Combined with euro softness, the weakness in the sterling pushed the dollar index higher. The greenback held the bulk of its gains throughout the day and settled higher by 0.4% at 82.27.
The cautious overseas trade carried over into the start of the U.S. session. However, bargain hunters were quick to scoop up shares at a perceived discount even as all indications suggested the sequester will hit tonight at midnight.
Interestingly, the financial sector was the biggest laggard at the start, but ended among the day's top performers. Bank of America (BAC 11.34, +0.11) was the top performer among the majors while the SPDR
Financial Select Sector ETF (XLF 17.64, +0.05) added 0.3%.
The financial space was not the only cyclical sector which outperformed. Consumer discretionary shares saw strength among retailers after both Gap (GPS 33.87, +0.95) andDeckers Outdoor (DECK 46.62, +6.21) beat on earnings. Additionally, Gap topped off its earnings report with a 20% dividend hike to $0.60 per share.
Best Buy (BBY 17.16, +0.17) was another sector component which outperformed on better-than-expected earnings. However, the company warned it expects to face significant first quarter pressure and said founder Richard Schulze has ended his attempt to purchase the retailer.
Consumer discretionary and financials were the only cyclical sectors which outperformed. Growth-sensitive technology stocks lagged behind the broader market and the largest sector component, Apple (AAPL 430.47, -10.93), lost 2.5%. Meanwhile, chipmakers also saw relative weakness with the PHLX
Semiconductor Index settling lower by 0.4%.
Salesforce.com (CRM 182.00, +12.78) was a notable sector outperformer after the business software company beat on its bottom line.
Energy stocks also lagged, and spent the duration of the day in negative territory as weakness in the price of crude contributed to the underperformance. The energy component lost 1.2% and settled just under $91.00.
Looking back at the S&P 500 sector performance, health care (+0.8%), consumer discretionary (+0.6%), telecom (+0.4%), and consumer staple (+0.3%) finished ahead of the broader market. Meanwhile, industrial (-0.3%), energy (-0.2%), and technology (+0.1%) underperformed.
Volume was right in line with average as 734 million shares changed hands on the floor of the New York Stock Exchange.
Economic data released today was plentiful.
Personal income fell 3.6% in January after increasing 2.6% in December. The Briefing.com consensus expected income to fall 2.4%. The expiration of the payroll tax cut and the giveback following the December boost to asset receipts were expected to lower income levels in January. Those two components accounted for 3.5 percentage points of the January pullback. More concerning was that the remainder of the decline in income was the result of a 0.4% drop in employee compensation.
The final reading of the February University of Michigan Consumer Sentiment Index improved to 77.6 from a preliminary reading of 76.3.
Construction spending took a sizable hit in January as spending fell 2.1% after increasing an upwardly revised 1.1% (from 0.9%) in December. The Briefing.com consensus expected construction spending to increase 0.5%. Both private (-2.6%) and public (-1.0%) spending contracted in February.
Manufacturing activity strengthened in February as the ISM Manufacturing Index increased from 53.1 in January to 54.2. That is the strongest reading since June 2011.
There is no economic data scheduled to be released on Monday.
On Tuesday, the February ISM Services Index will be reported at 10:00 ET.
Week in Review: Stocks Endure a Week of Indecision
On Monday, equities endured a broad sell off which saw the S&P 500 drop 1.8%. Bearish sentiment built into the afternoon as the likely deadlock in the Italian general election weighed on markets. Stocks got off to a broadly higher start as early "instant polls" suggested Pier Luigi Bersani, who is a supporter of reforms started by Mario Monti, was destined for full control of the government. However, once the initial reports were followed by exit polls indicating a much closer race, European markets surrendered the bulk of their gains. Being one of the first lines of defense in the face of economic or political uncertainty, financials lagged. Morgan Stanley (MS 22.43, -0.12) lost 6.6% and the SPDR Financial Select Sector ETF fell 2.7%.
Tuesday saw the S&P 500 end with a gain of 0.6% despite enduring some early weakness. The benchmark average started the day on a positive note with upbeat economic data proving insufficient in staving off the early selling pressure. However, markets staged a rebound in afternoon trade with the key indices climbing to fresh highs. Strong housing data coupled with a healthy rise in December home prices provided support for homebuilders as the SPDR S&P Homebuilders ETF (XHB 28.39, +0.09) advanced 3.0%.
Wednesday's session was an extension of Tuesday's buying as the S&P 500 managed to erase the remainder of its losses from Monday. The broad rally occurred with six of 10 sectors adding in excess of 1.0%. Cyclical stocks led the way with industrials and materials exhibiting relative strength from the start of the session. Joy Global (JOY 62.06, -1.28) jumped 5.8% after its quarterly report beat on earnings and revenue.
On Thursday, equities ended February on a negative note as the S&P 500 settled with a slim loss of 0.1%. The key averages saw some morning indecision but late afternoon buying pushed the benchmark index to session highs before the index surrendered its gains. J.C. Penney's (JCP 17.69, +0.12) quarterly earnings caught the attention of investors in early trade. Shares of the retailer plunged 17.0% after the company reported a loss of $1.95 on below-consensus revenue. In response, S&P cut the company's debt rating to ‘CCC+' from ‘B-‘ and assigned a negative outlook.
Next Week In View
Jason's Commentaries
The market has been starting to look funky, and unpredictable. Remember I mentioned that we're going to go through a volatile period? Here it goes. Friday started with a 0.5% loss on the Index Futures. Being dragged down by the futures, a number of equity started with a loss. However, the market decided to fight back and the day ended with a gain of 0.2-0.3%. That is some bullish strength in there. Amongst the sectors, the industrials were the only laggard, being dragged down by companies like Emerson Electric, Northrop Grumman, Caterpillar, Fluor.
While we're on the 1 Mar 2013, the tax cuts has been inserted into the economy, though the effects will be felt gradually. I was expecting some knee jerk reaction, but sadly it hasn't happened yet. The Congress is still in a deadlock with the Republicans and the Democrats unable to come to a common consensus on the Sequester. However, the market has been cautious on the Bond Market, citing Telegraph.co, Bank of America issues 'bond crash' alert on Fed's tightening fears. While the Fed Minutes did hint that the Central Bank may start having their exit plans for the QE, we might be facing something bigger. If the Fed starts to exit the QE, borrowing cost will inevitably rise, which means US has to borrow at a higher rate to cover its deficit, which also means US will NEVER get to cover their debts. Having said so, the Government will definitely not let that happen, therefore... the fear of Fed exiting QE is not exactly well supported.
Coming back to the market, since we're in the month of Mar, we might finding some upside leading up to April. March and April has been traditionally up, if we're able to break above the resistance of 14100, we might be going into a uptrend till April. Nonetheless, I will be sidelined to see what the market is going to do.
Before the market open for 4 Mar, the futures were already down 0.6% at 2.30am ET. However I believe it's oversold and we're likely to have a bounce right before the market open.
