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Markets Awaits FOMC Decision After Economy Contracts

1/30/2013 9:20 AM ET

The major U.S. index futures are pointing to a lower opening on Wednesday, with sentiment souring slightly amid the release of mixed economic readings. The U.S. economy unexpectedly contracted in the fourth quarter, according to a government report, with inventory draw downs and government spending cutting into growth. At the same, a private survey showed that the private sector continued to add jobs at a robust pace. These mixed data points could lead to some sell-off in early trading despite the release of benign earnings news. However, the overwhelming influence on the market is likely to the FOMC policy statement, due in the afternoon. Any indication of an early withdrawal of QE3 could accentuate the weakness.

U.S. stocks extended their buying momentum on Tuesday, although tech stocks pulled back a bit. The gains came on the back of some positive earnings reports. The major average began the session on a nervous note and showed lackluster sentiment amid the release of worse than expected consumer confidence data. However, the Dow Industrials and the S&P 500 Index recovered in late morning trading and advanced steadily throughout the remainder of the session before closing moderately higher.

Although the Nasdaq Composite pared some of its losses, it continued to trade with nervousness, flirting with the unchanged line for much of the session before closing slightly lower.

The Dow Industrials added 72.49 points or 0.52 percent before closing at 13,954 and the S&P 500 Index closed 7.66 points or 0.51 percent higher at 1,508, while the Nasdaq Composite ended at 3,154, down 0.64 points or 0.02 percent.

Twenty of the thirty Dow components closed higher and one stock ended unchanged, while the remaining nine stocks retreated. Pfizer (PFE) led the gains with a 3.20 percent rally after it reported a strong increase in its fourth quarter earnings.

Caterpillar (CAT), Chevron (CVX), Intel (INTC), Johnson & Johnson (JNJ), JP Morgan Chase (JPM), Coca-Cola (KO), Merck (MRK), Procter & Gamble (PG), AT&T (T) and Verizon (VZ) were also among the biggest gainers of the session, while Hewlett-Packard (HPQ) fell over 3 percent and Cisco Systems (CSCO) declined over 1 percent.

Oil, housing, brokerage and gold stocks advanced notably, while computer hardware and airline stocks came under selling pressure.

On the economic front, the results of the S&P/Case-Shiller house price survey showed that house prices rose 0.63 percent month-over-month in November. Annually, prices were up an unadjusted 5.55 percent. The increases were roughly in line with estimates.

The Conference Board reported that its consumer confidence index for January fell 8.1 points to a 14-month low of 58.6, marking the third straight month of declines. The present situation index declined 7.3 points to 57.3 and the expectations index plunged 8.6 points to a 15-month low of 59.5.

Currency, Commodity Markets

Crude oil futures are rising $0.07 to $97.64 a barrel after rising $1.13 to $97.57 a barrel on Tuesday. An ounce of gold is trading at $1,675.90, up $15.10 from the previous session's close of $1,660.80. In the previous session, gold added $7.90.

Among currencies, the U.S. dollar is trading at 91.16 yen compared to the 90.73 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.3542 compared to yesterday's $1.3492.

Asia

The Asian markets closed broadly higher, although the Malaysian markets saw some degree of weakness. Commodity price strength, the yen's weakness and U.S. earnings buoyancy engendered optimism among traders.

Japan's Nikkei 225 average opened higher and moved steadily higher for the rest of the session, ending up 247.23 points or 2.28 percent at 11,114, its highest closing level since October 2nd 2008.

The market witnessed broad based buying. Yahoo Japan rallied 17.14 percent, leading the Nikkei's climb. Central Railway, Mitsubishi Logistics, Obayashi and Nippon Light Metal also rose sharply.

Australia's All Ordinaries hovered in positive territory for the better part of the session before closing up 8.30 points or 0.17 percent at 4,919, marking the tenth straight session of gains and a 21-month closing high. Energy stocks rose solidly, while healthcare and material stocks also lent support.

Hong Kong's Hang Seng Index closed at 23,822, up 166.89 points or 0.71 percent.

A report released by Japan's Ministry of Economy, Trade and Industry showed that Japanese retail sales rose a seasonally adjusted 0.1 percent month-over-month compared to expectations for 0.4 percent growth. Annually, sales were up a better than expected 0.4 percent. Meanwhile, a government report showed that South Korea's industrial output rose 1 percent compared to the previous month in December.

Europe

European stocks are seeing some volatility and are currently trading lower, as most markets in the region are trading at multi-year highs and the U.S data came in mixed. Earnings news along with economic data is giving a thrust to the markets despite the overbought levels.

In corporate news, Hennes & Mauritz reported a decline in its fourth quarter profits but expects to continue its expansion spree. Swiss drug giant Roche reported a 2.4 increase in its full year profits and forecast higher sales and profits for the next year. Meanwhile, Imperial Tobacco warned of a decline in its first-half profits due to the softness in Europe. At the same time, the company reported higher first quarter revenues, which however, were below what most analysts were expecting.

On the economic front, Spain reported a worse than expected 0.7 percent contraction for the fourth quarter.

U.S. Economic Reports

Private sector employment in the U.S. increased by more than anticipated in the month of January, according to a report released by payroll processor ADP.

The report showed that private sector employment increased by 192,000 jobs in January compared to economist estimates for an increase of about 172,000 jobs. However, ADP also said that the job growth in December was downwardly revised to show an increase of 185,000 jobs compared to the addition of 215,000 jobs that was originally reported.

Economic activity in the U.S. unexpectedly contracted in the final three months of 2012, according to a report released by the Commerce Department on Wednesday, with GDP falling for the first time in over three years.

The report showed that GDP edged down by 0.1 percent in the fourth quarter after surging up by 3.1 percent in the third quarter. The modest drop came as a surprise to economists, who had expected GDP to increase by about 1.0 percent.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 am ET.

At 2:15 pm ET, the FOMC is set to release its post-meeting policy statement following the conclusion of its 2-day monetary policy meeting.

The Fed is widely expected to leave interest rates unchanged after announcing a new open-ended Treasury purchase program at the end of last year. The post-meeting policy statement isn't likely to show any radical change despite the December FOMC meeting's minutes revealing that some members favor an early wind down of the QE 3 program.

Stocks in Focus

Amazon .com (AMZN) reported fourth quarter net income of 21 cents per share on revenues of $21.27 billion. For the first quarter, the company expects net sales of $15 billion to $16.6 billion. The results trailed estimates and the guidance was also weak.

Boeing (BA) reported fourth quarter adjusted earnings that exceeded estimates, while its revenues were shy of estimates. The company's 2013 core earnings guidance was above estimates, while its revenue guidance trailed estimate.

Boston Properties (BXP) reported fourth quarter funds from operations of $1.27 per share compared to $1.21 per share last year, while revenues rose to $485.41 million from the year-ago quarter's $450.53 million. The results exceeded estimates. For the full year, the company expects funds from operations of $5.06 to $5.18 per share, while analysts estimate funds from operations of $5.17 per share.

Arthur J. Gallagher (AJG) reported fourth quarter earnings of 27 cents per share, lower than 35 cents per share last year, while revenues climbed to $673.2 million from $578.4 million last year. The revenues exceeded estimates.

Broadcom (BRCM) announced a 10 percent increase in its quarterly cash dividend to 11 cents per share. The company reported fourth quarter non-GAAP earnings of 76 cents per share on revenues of $2.08 billion, down 2.3 percent. The results exceeded estimates, while the guidance for the quarter was soft.

Websense (WBSN) reported fourth quarter non-GAAP earnings of 28 cents per share, sharply lower than 44 cents per share in the year-ago period. Revenues fell to $91.7 million from the year-ago quarter's $92.7 million. The earnings trailed expectations, while the revenues were ahead of estimates. The company also issued below consensus guidance for the first quarter.

Dolby (DLB) reported better than expected first quarter results and its second quarter earnings guidance and full year revenue guidance was fairly upbeat.

Insurer ACE (ACE) reported fourth quarter income, excluding net realized gains, of $1.43 per share compared to $1.90 per share last year. The earnings exceeded estimates, while the company's earnings guidance for the full year was below the consensus estimates.

ConAgra (CAG) said it has completed its acquisition of Ralcorp. Holding (RAH) for $90 per share in cash.

Hutchinson Technology (HTCH) reported a first quarter non-GAAP loss of 19 cents per share compared to a loss of 49 cents per share last year. Net sales rose to $63.70 million from $58.48 million last year.

Unisys (UIS) reported fourth quarter non-GAAP earnings of $2.27 per share on revenues of $979 million, down 1 percent. The results were better than expected.

Ryland (RYL) reported fourth quarter net income from continuing operations of 56 cents per share on revenues of $427.52 million. The results came in above estimates.

Buckeye Technologies (BKI) reported second quarter earnings that trailed expectations, while its revenues exceeded estimates.

Piedmont (PNY) said it has priced its public offering of 4 million shares at $32 per share.

Chesapeake Energy (CHK) said its co-founder and CEO Aubrey McClendon has agreed to retire on April 1, 2013. The company also said it expects to release a review of its financial dealings of McClendon along with its earnings announcement due on February 21st, although it said that the review to date has not revealed any improper conduct.

Amdocs (DOX), AvalonBay (AVB), Callaway Golf (ELY), Cohu (COHU), Duke Realty (DRE), Electronic Arts (ERTS), Extreme Networks (EXTR), Facebook (FB), Intersil (ISIL), JDS Uniphase (JDSU), Kilroy Realty (KRC), Knight Transportation (KNX), Las Vegas Sands (LVS), Murphy Oil (MUR), Qualcomm (QCOM), Regency Centers (REG), Skyworks (SKWS) and STMicroelectronics (STM) are among the companies due to release their results after the close of trading.

by RTT Staff Writer

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