After the Close - The stock market opened higher today, headed into negative territory by the early afternoon, but managed to pare most of its losses by the close of the session. By days end, the Dow Jones Industrial Average was actually up a scant four points; the S&P 500 Index was down four points (-0.2%); and the tech-heavy NASDAQ lost eight points (-0.3%). Meanwhile, market breadth suggested a negative bias to the session, as declining stocks outnumbered advancers by a good margin on the NYSE. Most of the market sectors lost ground. There was considerable weakness in the basic materials, energy, and financial stocks. However, the consumer non-cyclicals, healthcare, and high-yielding utilities bucked the downtrend, and even closed selectively higher.
Technically, traders are probably looking for direction. No doubt, the market is likely overdue for a rest, especially given the large advances staged in first months of this year. If the S&P 500 Index pulls back from here, it may well find some support at its 50-day moving average located at about 1,510, or go back to test the 1,500 level, as this figure may hold some psychological significance. Investors became a bit more apprehensive during today’s session, as the VIX rose to better than 14 today. However, it should be noted that the bulls are still struggling for control, as the late-day buying suggested.
Meantime, traders in the United States have been carefully watching the situation overseas. Specifically, a deal to bailout banks in Cyprus has been the source of concern lately. Given weakness in the banks in Italy and Spain, many investors may be worried that another round of bad news out of Europe could threaten the financial markets. Notably, the European stock markets ended lower and the euro dipped to $1.29. Elsewhere, gold traded higher.
The economic reports were generally supportive today, and that may have helped prop up the stock market over here. To wit,housing starts and building permits improved in February, further making the case for a sustained real estate sector recovery. The news likely helped push the Homebuilders Trust (XHB) higher in the morning. Tomorrow, the FOMC’s latest meeting concludes, and we will get an interest-rate decision in the early afternoon.
In corporate news, Lululemon (LULU) stock slipped on a reduced outlook. Also, Electronic Arts (EA) shares headed lower after the company announced a change in management and lowered its outlook. - Adam Rosner
At the time of this article’s writing the author did not have positions in any of the companies mentioned.
12:15 PM EST - The major U.S. equity indexes, coming off of two down sessions, started the day in positive territory, helped by some supportive economic data on these shoes from the housing sector (more below). However, after the initial boost from the housing report, the indexes seesawed back and forth around the neutral line, and have since taken a turn for the worse. Our sense is that investors are weighing the decent U.S. economic data against the renewed financial concerns in the euro zone, with worries that the financing troubles of one of its smallest members may spread to some of confederation’s larger economies, specifically those of Italy and Spain. The latter sentiment appears to be winning the battle. As we reach the midday hour on the East Coast, the Dow Jones Industrial Average, the NASDAQ, and the broader S&P 500 Index are now modestly lower.
As noted, the news from the housing and homebuilding sectors was once again very encouraging. The Department of Housing and Urban Development reported that both housing starts and building permits for the month of February were higher on a year-over-year and sequential basis. Specifically, housing starts came in at an annualized rate of 917,000, which was 0.8% above the upwardly revised January total and 27.7% higher than the prior-year figure. Meantime, building permits, which is even a better indicator of future construction activity, totaled 946,000, which was up 4.6% on a sequential basis and 33.8% greater than the February, 2012 tally. All in all, it was a decent report, and yet another indication that the industry is recovering rapidly. Shares of all of the major homebuilders, including industry leaders D.R. Horton (DHI), PulteGroup (PHM), Lennar (LEN), and Toll Brothers (TOL) moved higher on the building data.
Meantime, the major bourses in the euro zone have not fared well again today. With trading drawing to a conclusion on the Continent, Germany’s DAX and France’s CAC-40 are in the red ahead of a key Parliamentary vote in Cyprus on a crucial bailout deal. Prevailing sentiment is that the Cypriot government officials will vote against a levy on bank deposits. The decision would likely create some unease in the markets, while putting the pressure back on the European Commission, the International Monetary Fund, and the European Central Bank to come up with a proposal to keep Cyprus from defaulting on its debt. A default would be a nightmare for the euro zone and could rattle the world financial and equity markets, particularly those in the 17-member confederation. Not surprisingly, the euro is once again weaker versus the U.S. dollar. In the same vein, gold and silver futures are higher and the yield on the benchmark 10-year Treasury note is lower, as investors are worried about the euro zone’s sovereign-debt problems.
Turning back to our shores, there was some noteworthy non-earnings news from Corporate America this morning. Leading the headlines was a report saying that Silver Lake’s offer of $24.4 billion to buy Dell (DELL) could be facing some competition, with private-equity firm Blackstone rumored to contemplating making an offer for the computer company. Competitors have until this Friday to initiate counteroffers. Many critics have said the Silver Lake offer undervalues the company. Dell shares are up on the rumor. Other companies in the news today include retailers lululemon (LULU) and Skullcandy (SKUL). Meantime, uniform maker Cintas (CTAS) will report earnings after today’s market close. The company stands to benefit as the job market shows more signs of recovery.
As we move toward the second half of trading, the bulls will be looking to keep the bears at bay. However, they will have their work cut out for them, as the latter is looking to capitalize once again on the renewed concerns about the euro zone. We would also not be shocked if there was some hesitation on the part of traders ahead of tomorrow’s announcement from the Federal Reserve, which commenced its two-day FOMC monetary policy meeting today. Stay tuned. -William G. Ferguson
Stocks to Watch from The Survey – Global financial markets are still absorbing news that Cyprus’ government is planning to tap into depositors’ accounts to pay for part of a euro-zone bailout of the country’s troubled financial system. Meantime, financial services giant Citigroup (C) has agreed to pay $730 million to settle allegations that it misled investors in several bond and preferred stock offerings. Also, video game publisher Electronic Arts (EA) announced that CEO John Riccitiello is stepping down after his efforts had not been able to boost the company’s earnings or its stock. – Sharif Abdou
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The bears, after a long losing streak, in which the Dow Jones Industrial Average had gained ground for 12 sessions in a row, have now been on the winning side of things for the past two trading days.
To be sure, the stock market's losses have been modest, with yesterday's retreat in the Dow Jones Industrial Average coming to just 62 points. Similarly small aggregate declines were suffered by the other principal equity indexes, in a generally uninspiring session that started out with somewhat larger losses, then saw those early declines slowly fade, and finally witnessed those losses reappear near the close.
Behind this uneven performance were growing fears about the suddenly back-in-the-news euro zone. Specifically, Cyprus, that struggling region's second smallest economy, is facing increasingly difficult times. This was not the chief problem, however, as that nation is too inconsequential from an economic standpoint to place the European Union in jeopardy. Rather, it was uneasiness about the remedy for the problems. To wit, the EU came up with the idea that Cyprus would tax all of its bank depositors in order to help fund its bailout. That obviously did not sit well with such depositors.
Now, this morning word has come that Cyprus will exempt small savers from this decree. That has helped to partially alleviate yesterday's concerns. However, it seems likely that this hastily drawn up and controversial fix will be denied in a vote. Still, there are concerns about what other remedies will be sought if some other and larger nations, such as Italy or Spain, might face the need for financial assistance.
This latest development broke the uneasy calm that had descended over the European markets in recent months. Such a calm has been a contributing factor in the U.S. market's stealth run since the start of the new year.
The market's recovery from the Dow's initial slide of some 110 points was due, we sense, to the realization that Cyprus is a very small player in the region and also to the fact that this plan was unlikely to survive a vote by the EU members. Still, Europe's bourses were all hard hit yesterday, while our stocks, as noted, suffered more modest declines. Some normal profit taking also was a factor in the early and late selling, we believe.
Now, however, such declines seem to be in the rearview mirror, as the equity futures are pointing to a higher opening when trading gets under way in less than an hour from now, with the S&P 500 Index futures better by almost four points and the NASDAQ futures in the plus column to the tune of some 11 points.
Meanwhile, after a dull news day yesterday, the economic pundits will be out today, as the Commerce Department has just issued data showing that housing starts had ticked up nominally in February, while building permits, a more forward-looking metric, had jumped by almost five percent last month. These numbers come on top of some rather strong postings over the past year in this once-troubled sector. Also today, the Federal Reserve begins its two-day FOMC meeting. No rate change or significant language adjustments are expected when the central bank reviews and announces its monetary policies tomorrow afternoon.
Overall, we sense that the bulls will try very hard to end the bearish winning streak at a modest two sessions, as trading gets ready to begin shortly from now. - Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.