Loading...

After The Close - Another week has come and gone on Wall Street, and like most of the prior five-day stretches thus far in 2013, it was a very productive one for the bulls, save for yesterday’s modest selloff. All told, the Dow Jones Industrial, the NASDAQ, and the broader S&P 500 Index finished 1.6%, 1.8%, and 2.0% higher, respectively, for the week. Along the way, the Dow 30 and the S&P 500 Index established all-time highs, as the bulls continued to have a tight grip on trading.

The major U.S. equity indexes started today’s session in positive territory, despite mostly discouraging earnings news. Autodesk (ADSK), Dell (DELL), J.C. Penney (JCP), and Nordstrom (JWN), for example, all reported disappointing results for the March quarter within the past 24 hours. However, our sense was that there may have been some buy-on-the-dip bargain hunting after yesterday’s selloff in the early stages of the session. Then, as the day progressed, buying intensified with the investment community reacting positively to a few encouraging reports on the economy (more below) and some comments from a few notable economic leaders. With regards to the latter, Treasury Secretary Jack Lew said that the debt ceiling will last until Labor Day and Minneapolis Fed President Kocherlakota noted that he does not think the Federal Open Market Committee has lowered real interest rates sufficiently. Trading picked up considerably after both remarks surfaced.

Meanwhile, an uneven week of economic data releases—most notably retail sales were better-than-expected, while industrial production fell—closed on an upbeat note. Both the University of Michigan consumer sentiment report for May and the leading indicators for April were better than expected. Specifically, the Consumer Sentiment Index rose to 83.7 this month, its highest level since July, 2007, suggesting that Americans consumers are feeling better about the economy. Likewise, the Index of Leading Indicators from The Conference Board, a nonprofit business research group, jumped 0.6% in April, led by a continued improvement in housing.

Given the encouraging economic data and the aforementioned remarks from two prominent U.S. officials, it should not come as a surprise that the bulls put it in another gear during the second half of the trading day. At the final bell, Dow, NASDAQ, and the S&P 500 Index had added 121, 34, and 16 points, respectively. Meantime, all of the 10 major sectors were in positive territory, with some leadership coming from energy, financial, and consumer discretionary stocks. Overall, advancing issues led decliners by a comfortable margin on both the New York Stock Exchange and the NASDAQ.

There also were some notable signs that caution was thrown to the wind today. Demand for safe-haven instruments, like bonds and gold, fell sharply in the latest session. The yield on the 10-year Treasury note, which moves in the opposite direction to the price, jumped eight basis points, to finish the week 1.95%, while the price of gold fell by more than $30 an ounce in the latest session. A pullback in Newmont Mining (NEM) shares underscored the weakness in gold. The S&P 500 Volatility Index (or VIX), which is often referred to as the fear index, also fell today, suggesting renewed confidence among investors after yesterday’s mild setback.   - William G. Ferguson  

At the time of this article’s writing the author did not have positions in any of the companies mentioned.

-

12:15 PM EDT - The stock market opened higher this morning, and has been able to build on these gains, so far. Given that yesterday’s progress was erased by some late day selling, we will cautiously watch the trading in the latter half of the session today. Meanwhile, at just past noon in New York, the Dow Jones Industrial Average is up 56 points (0.4%); the broader S&P 500 Index is ahead by seven points (0.4%); and the tech-heavy NASDAQ is tacking on 15 points (0.4%). Market breadth suggests widespread support for equities, as advancing stocks are ahead of decliners by about 2 to 1 on the NYSE. Most of the market sectors are making progress. There are advances in the consumer cyclical stocks. The financial issues are also showing leadership. In contrast, the healthcare issues are quite weak, and the utilities are also lagging the broader market.

Technically, the S&P 500 Index continues to move higher in small, but steady, increments. Notably, there have been few setbacks over the past few weeks and so far the much feared “May selloff”, which plagued investors for the past few years, has not materialized. Sentiment remains bullish with the VIX down to about 12.5. Ultimately, some traders may be wondering if market conditions are not getting a bit “overbought” here.

Traders received some encouraging economic reports this morning. Specifically, the University of Michigan’s Consumer Sentiment Index ticked up to 83.7 in May, which was better than had been widely expected. Notably, low interest rates, a rebounding housing market, stronger equity prices, and even some sense that the nation’s employment situation has stabilized, if not improved, may be encouraging consumers. Meanwhile, the Conference Board’s Leading Indicators report showed a 0.6% improvement in the month of April, which was ahead of expectations, and also sharply better than the decline posted in March.

Finally, there were a few corporate reports worth mentioning today. In the retail arena, J.C. Penny (JCP) stock is trading lower after the struggling department store operator delivered a wider-than-expected loss for the most-recent quarter. Revenues also came in a bit light. Further in retail, we received a weak report from Nordstrom (JWN) and that stock is lower on the news. In the technology sector, Dell (DELL) shares are slightly higher, even though that company, which will likely be taken private, delivered disappointing results. -Adam Rosner

At the time of this article’s writing the author did not have positions in any of the companies mentioned.

-

Stocks to Watch from The Survey Earnings season has gotten a second wind, as April-quarter reports, many of which are from retailers with fiscal years that end in January, are now rolling in. Today’s news has been largely negative, and shares of struggling department store operator J.C. Penney (JCP), high-end retailer Nordstrom (JWN), off-price retailer Stage Stores (SSI), design software and digital-content provider Autodesk (ADSK), filtration systems manufacturer Donaldson (DCI), data storage products developer Brocade Communications (BRCD), and Applied Materials (AMAT), which produces equipment for semiconductor wafer fabrication, are all trending lower in pre-market trading. 

Computer manufacturer Dell (DELL) also issued disappointing results, as profits fell sharply year over year and came in below investors’ estimates. Revenues, on the other hand, only dipped slightly and were actually a bit better than expected. The stock is little changed in the premarket, however, as it is primarily trading on M&A activity.

Today’s biggest loser appears to be shares of Aruba Networks (ARUN), which are plunging ahead of the bell, after the provider of network access solutions for mobile enterprises reported disappointing April-period results and a lackluster outlook. – Matthew E. Spencer

 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.

-

Before The Bell - The stock market meandered about yesterday with little direction for most of the day before succumbing to a little profit taking late in the session. That selloff, which was not material, and did little to dent the outsized gains posted by the leading averages thus far in 2013, still cost the Dow Jones Industrial Average 42 points, the Standard and Poor's 500 Index eight points, and the tech-heavy NASDAQ six points.

The gains so far this year have been achieved in spite of rather unassuming economic data and just modestly satisfactory earnings. The rationale for the steady market gains, in our view, is the simple fact that there are few investment alternatives now available to investors. The traditional path for investors who did not wish to assume the higher risks of equities has been fixed-income vehicles. But those investments offer very little in terms of income and come with the risk of significant loss of capital should interest rates rise, as they inevitably will at some point.

As to earnings, they were reasonable, but not especially compelling in the opening quarter of this year, with some two-thirds of all companies in the S&P 500 beating generally lowered expectations. That was modestly above the long-term average of 60%-65%. On the other hand, revenues were light and that is a concern. But that has been the pattern throughout much of the bull market, and thus far this less-than-idyllic situation has not dissuaded many investors, who are continuing to pour money into equities, even as valuations climb.

As to the economy, that situation also is not ideal. In the first quarter, a buildup of heretofore drawn-down inventories helped lift GDP growth to 2.5%, from a scant 0.4% in the closing three months of 2012. Now, though, fears are growing that the current quarter, which is being pressured to a degree by the sequesters, or mandated federal government spending cuts, which took effect on March 1st, will see a marked pullback in economic growth. Estimates are that growth will ease back into the 1%-2% range. The market has been firming, in spite of this possibility, on the expectation that growth will step up somewhat after midyear. That is likely, but not certain, at this juncture.

So this is where we stand. The fundamentals are so-so, but the Federal Reserve is still in there pitching. Moreover, momentum is hard to break and there are few viable alternatives around in this historically low interest-rate environment. Thus, the bulls are in the winners' so far in 2013.

Meanwhile, there is now talk emerging from some of the more hawkish members of the Federal Reserve and several regional bank officials that the central bank could be getting fairly close to easing off on asset purchases. One regional banker, in fact, went so far yesterday as to suggest that the Fed could begin easing its monetary stimulus over the summer and close out its bond-buying program late in the year. That is pure speculation at this point, and even if this is the likely path, it will be some time before the lead bank opts to start lifting its short-term interest rate targets, which it controls directly.

What does all of this mean for the markets in the very near term? Apparently not very much, as the European bourses are mixed this morning and our futures are showing nice gains with less than an hour to go before the start of the new trading day. This would tend to suggest that yesterday's mild pullback in the market does not have staying power, and that the bears are not yet ready to assume the high ground.

Finally, after a busy week for economic releases, which have been mixed at best, the market's will have to digest data on consumer sentiment and the leading indicators this morning. Neither metric is often market moving, unless there are big surprises, which we do not now expect. – Harvey S. Katz

At the time of this article's writing, the author did not have positions in any of the companies mentioned.