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Growth Worries Could Lead To Profit Taking

1/31/2013 9:21 AM ET

The major U.S. index futures are pointing to a lower opening on Thursday, with sentiment still nervous amid the release of mixed economic data. Jobless claims rose by much more than expected, while a separate report showed that personal spending growth was soft. However, personal income rose strongly. The markets now turn their attention to the results of a regional manufacturing survey due to be released shortly after the markets open. Earnings news was mixed. The re-ignition of growth worries could lead traders to take some profits from the overbought markets.

U.S. stocks declined on Wednesday in reaction to the FOMC decision and disappointing GDP data. The major averages opened little changed but saw a short spike in early trading, as traders digested separate reports showing better than forecast private sector payroll gains and an unexpected contraction in fourth quarter GDP. After trading mostly sideways amid some volatility until the FOMC decision, the averages pulled back steadily before closing moderately lower.

The Dow Industrials ended down 44 points or 0.32 percent at 13,910 and the S&P 500 Index closed 5.88 points or 0.39 percent lower at 1,502, while the Nasdaq Composite Index closed at 3,142, down 11.35 points or 0.36 percent.

Twenty-one of the thirty Dow components closed lower, with General Electric (GE), Exxon Mobil (XOM), Cisco Systems (CSCO), 3M Co. (MMM), Bank of America (BAC) and Alcoa (AA) leading the declines. On the other hand, Boeing (BA) added 1.28 percent in reaction to its better than expected quarterly results.

Transportation, biotechnology and housing stocks were among the worst performers of the session.

On the economic front, the Commerce Department said U.S. GDP fell 0.1 percent sequentially in the fourth quarter following the 3.1 percent growth in the third quarter. Inventories deducted 1.3 percentage points from growth, primarily due to Hurricane Sandy-related supply chain and production disruptions. Defense spending slumped 22 percent, taking another 1.3 percentage points off of growth. A 5.7 percent drop in exports also led to a net trade deduction of 0.3 points. But for the first two transient factors, growth would have been fairly decent. Business capital spending and residential construction showed notable gains and consumer spending saw faster growth.

ADP's survey showed that the private sector added 192,000 jobs in January following a downwardly revised reading of 185,000 for December.

The post-meeting policy statement of the January FOMC meeting showed that the Fed's commentary on growth was altered to indicate that economic activity has paused in recent months, with the central bank attributing the predicament to weather-related disruptions and other transitory factors. The unemployment rate was qualified as elevated. There was an upgrade to the Fed's assessment of business fixed investment, which is seen as advancing.

Alleviating concerns about an early withdrawal of QE3, the FOMC reiterated its commitment to buy additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. The central bank also reiterated its itinerary for policy moderation and said it would maintain its extremely accommodative policy stance as long the unemployment rate remains above 6-1/2 percent and the forward 1-2 year inflation expectations is not more than half a percentage point above its 2 percent longer-run goal.

Currency, Commodity Markets

Crude oil futures are receding $0.34 to $97.60 a barrel after climbing $0.37 to $97.94 a barrel on Thursday. Gold futures, which rose $19.10 to $1,671.90 an ounce in the previous session, are currently slipping $9.70 to $1,672.90 an ounce.

Among currencies, the U.S. dollar is trading at 91.04 yen compared to the 91.09 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is trading at $1.3563 compared to yesterday's $1.3568.

Asia

The Asian markets went about in a lackluster manner before closing mixed, as stocks tracked the negative lead from Wall Street overnight. Some soft domestic economic data also added to the worries.

The Australian, Hong Kong, Indian, Malaysian, Singaporean and South Korean markets closed lower, while the rest of the markets posted uneasy gains.

Despite spending the better part of the session below the unchanged line, Japan's Nikkei 225 average recovered in late trading, ending up 24.71 points or 0.22 percent at 11,139.

Financial stocks firmed up on the back of some solid earnings reports, while retail, utility, real estate and resource stocks also found buying interest. On the other hand, export stocks experienced some weakness.

Australia's All Ordinaries languished below the unchanged line for much of the session and closed down 18.10 points or 0.37 percent at 4,901. Consumer staple, healthcare and energy stocks fell sharply, dragging the index lower.

Hong Kong's Hang Seng Index closed at 23,730, down 92.53 points or 0.39 percent.

On the economic front, Japan's Ministry of Economy, Trade and Industry reported that industrial output rose 2.5 percent month-over-month on a seasonally adjusted basis in December. Economists expected a steeper increase of 4.1 percent.

A separate government report showed that Japanese housing starts rose by a smaller than expected 10 percent compared to the year-ago period in December.

A report released by the Australian Bureau of Statistics showed that Australia's export price index fell 2.4 percent sequentially in the fourth quarter compared to the 1.5 percent drop expected by economists. Meanwhile, import prices were up 0.3 percent.

Europe

European stocks are trading lower amid the release of some mixed earnings and a general increase in risk aversion.

In corporate news, Ericsson (ERIC) reported better than expected fourth quarter sales and margins. Deutsche Bank (DB) reported a fourth quarter loss of 2.2 billion euros, hurt by asset writedowns. Denmark's Novo Nordisk reported a 23 percent increase in its fourth quarter net income and also raised its guidance for the full year.

Royal Dutch Shell (RDS) reported current cost of supplies of $7.29 billion for the fourth quarter and adjusted current cost of supplies of $5.6 billion, which was below what some analysts had expected.

German chipmaker Infineon (IFX) reported a decline in its first quarter profit and sales, while it said it expects a small increase in its second quarter operating profit. Diageo reported an increase in its first half sales, although the increase was less than analysts had expected.

Consumer confidence in the U.K. improved in January, although it still remained at depressed levels, according to a survey by the GfK/NOP. The consumer confidence index rose 3 points to -26. Nationwide reported that the U.K.'s house prices rose a bigger than expected 0.5 percent month-over-month in January.

The German Federal Labor Agency reported that the number of unemployed individuals in Germany fell by 16,000 in January, contrasting expectations for an increase of 8,000. The jobless rate eased to 6.8 percent from 6.9 percent in December.

According to the German Federal Statistical Office, the jobless rate remained unchanged at 5.3 percent in December. The number of unemployed persons increased by 20,000 month-over-month to 2.25 million.

A separate report showed that German retail sales fell 1.7 percent month-over-month in December compared to expectations for a mere 0.1 percent drop.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits rebounded by more than anticipated in the week ended January 26th, according to a report released by the Labor Department on Thursday, with jobless claims bouncing off a five-year low.

The report showed that initial jobless claims rose to 368,000, an increase of 38,000 from the previous week's unrevised figure of 330,000. Economists had been expecting jobless claims to climb to 350,000.

Around the same time, the Labor Department will also release its employment cost index for the fourth quarter. The index is expected to have increased by 0.5 percent in the fourth quarter, faster than the 0.4 percent growth in the third quarter.

Personal income in the U.S. showed a substantial increase in the month of December, according to a report released by the Commerce Department, although the report also showed a slightly smaller than expected increase in personal spending.

The Commerce Department said personal income surged up by 2.6 percent in December following an upwardly revised 1.0 percent increase in November. Economists had expected income to climb by 0.7 percent compared to the 0.6 percent growth originally reported for the previous month.

The report also showed that personal spending edged up by 0.2 percent in December after rising by 0.4 percent in November. Spending had been expected to increase by about 0.3 percent.

Additionally, the ISM-Chicago is scheduled to release the results of its manufacturing survey for January at 9:45 am ET. The consensus expectations call for a decline by the business barometer to 50.5 from 51.6 in the previous month.

In December, the Chicago business barometer rose 1.2 points to 51.6. While the new orders index climbed about 9 points to 54, the production index slipped 0.9 points to 53.8 and the order backlogs index declined 2.7 points to 46.9. The employment index fell about 10 points to 55.2.

Stocks in Focus

ConocoPhillips (COP) reported fourth quarter adjusted earnings of $1.43 per share, a penny ahead of estimates.

Qualcomm (QCOM) reported first quarter non-GAAP earnings of $1.26 per share on revenues of $6 billion. For the second quarter, the company expects non-GAAP earnings of $1.10-$1.18 per share on revenues of $5.7 billion to $6.3 billion. The results beat estimates and the guidance was positive.

Facebook (FB) reported fourth quarter adjusted earnings of 17 cents per share on revenues of $1.59 billion. The results were better than expected.

Knight Transportation (KNX) reported fourth quarter earnings of 22 cents per share on revenues of $242.30 million. The earnings were in line, while the revenues were better than expected.

Mastercard (MA) reported higher fourth quarter revenues and profits. Scientific Games Corp. (SGMS) has agreed to acquire WMS Industries (WMS) for $26.0 per share. results.

Colgate-Palmolive (CL) reported better than expected fourth quarter earnings, while its revenue missed estimates.

United Parcel Service (UPS) slipped to a loss in its fourth quarter, while its adjusted earnings per share were below Wall Street view. However, total revenue in the quarter rose 2.9 percent and topped the consensus estimate. The company forecast 2013 earnings per share below analysts' estimate.

JDSU (JDSU) reported second quarter non-GAAP earnings of 18 cents per share on revenues of $429.4 million. The results exceeded estimates and the company's third quarter revenue guidance surrounded the consensus estimate.

STMicroelectronics (STM) reported a fourth quarter GAAP loss of 48 cents per share, wider than the loss of 1 cent per share last year, on revenues of $2.16 billion. The company also expects first quarter sales to drop 7 percent, plus or minus 3.5 percentage points, from the previous quarter.

Callaway Golf's (ELY) fourth quarter loss widened, yet it came in line with estimates. Revenues declined year-over-year and trailed the consensus estimate. The full year guidance was also below estimates.

Ball Corp. (BLL) announced a 30 percent increase in its dividend to 13 cents per share.

Applied Micro Circuits (AMCC) reported a third quarter loss on an adjusted basis, although it was narrower than analysts had expected. Revenues were also above estimates.

Las Vegas Sands (LVS) reported fourth quarter adjusted earnings of 54 cents per share on revenues of $3.08 billion, with revenues exceeding estimates.

Cabot (CBT) reported first quarter adjusted earnings of 66 cents per share on revenues of $820 million. The results trailed expectations.

Ameriprise Financial (AMP) reported fourth quarter operating earnings of $1.80 per share compared to $1.31 per share last year. Net revenues rose slightly to $2.67 billion from $2.58 billion last year. The results were better than expected.

Citrix (CTXS) reported fourth quarter non-GAAP earnings of 90 cents per share on revenues of $268.67 million. For 2013, the company expects non-GAAP earnings of $3.12-$3.15 per share on revenues of $2.95 billion to $2.98 billion. The results were better than expected and the guidance was positive.

bebe Stores (BEBE), Brooks Automation (BRKS), Chubb (CB), Con Edison (ED), Ctrip.com (CTRP), Eastman (EMN), Emulex (ELX), Manitowoc (MTW), NetSuite (N), PMC-Sierra (PMCS), Principal Financial (PFG), Reinsurance Group of America (RGA), Tellabs (TLAB), THQ, Inc. (THQI) and Wynn Resorts (WYNN) are among the companies due to release their quarterly results after the close of trading.

by RTT Staff Writer

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