Market Analysis

Beyond the Number

Profit Taking Likely as Fiscal Cliff Euphoria Fades
1/3/2013 8:58 AM

The major U.S. index futures are pointing to a lower opening on Thursday, with sentiment nervous following the strong gains posted in the previous session. With the euphoria over the budget deal slowly fading, traders now focus on the fiscal fragility and the fits-and-starts-recovery that is slowly entrenching into a steady recovery. Data released earlier in the day showed that the private sector added more jobs than had been anticipated, while jobless claims rebounded strongly. Chain store sales came in mixed. The FOMC minutes due after the markets open may also impact sentiment.

The budget deal hype created a real splash in the markets on Wednesday, sending stocks notably higher. The major averages opened higher and sustained their gains through the release of the results of the national manufacturing survey and construction spending data. The averages moved roughly sideways for much of the session before closing up by more than 2 percent each.

The Dow Industrials ended up 308.41 points or 2.35 percent at 13,413 and the S&P 500 Index closed 36.23 points or 2.54 percent higher at 1,462, while the Nasdaq Composite Index added 92.75points or 3.07 percent before closing at 3,112.

All thirty of the Dow components closed higher, with Hewlett-Packard (HPQ) and Caterpillar (CAT) leading the gains. Alcoa (AA), Bank of America (BAC), Cisco Systems (CSCO), Intel (INTC), Coca-Cola (KO), Microsoft (MSFT), Pfizer (PFE) and AT&T (T) also posted notable gains.

Resource, financial, housing and semiconductor stocks were among the best performers of the session.

On the economic front, the Institute for Supply Management reported that its manufacturing index rose to 50.7 in December from 49.5 in November. The new orders index remained unchanged at 50.3, the order backlogs index climbed 7.5 points to 48.5, and the production index slipped about 1 point to 52.6. At the same time, the employment index rose 3 points to 55.5.

Meanwhile, the Commerce Department reported that construction spending fell 0.3 percent month-over-month in November. Spending growth for October was downwardly revised to 0.7 percent from 1.4 percent. Residential construction spending was up 0.4 percent, a slowdown from the 1.3 percent growth seen in the previous month. Private non-residential construction spending and public spending declined 0.2 percent and 0.4 percent, respectively.

Currency, Commodity Markets

Crude oil futures are receding $0.22 to $92.90 a barrel after rising $1.30 to $93.12 a barrel on Wednesday. Gold futures, which climbed $13 to $1,688.80 an ounce in the previous session, are currently slipping $12.50 to $1,676.30 an ounce.

On the currency front, the U.S. dollar is currently trading at 86.87 yen compared to the 87.34 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.3101 compared to yesterday’s $1.3186.


The Asian markets closed mostly higher, as the U.S. budget deal euphoria and positive economic data out of the U.S., U.K. and China helped maintain the buying momentum. The Chinese and Japanese markets remained closed for public holidays.

Australia’s All Ordinaries opened higher and rose steadily throughout the session before closing up 38.50 points or 0.82 percent at 4,761, its highest closing level since May 26th, 2011. Energy and material stocks rose solidly for the second straight session, helping the market advance. On the other hand, utility, healthcare and consumer staple stocks came under selling pressure.

Hong Kong’s Hang Seng Index closed at 23,399,up 86.62 points or 0.37 percent. Meanwhile, South Korea’s Kospi closed 11.69 points or 0.58 percent lower at 2,019.

A survey by the China Federation of Logistics and Purchasing and the National Bureau of Statistics showed that Chinese non-manufacturing activity expanded at the fastest pace in four months in December. The non-manufacturing index rose 0.5 points to 56.1 in December.


The U.S. budget deal euphoria is slowly fading in Europe, with the major averages in the region opening lower. But since then, the indexes have turned mixed. The French CAC 40 Index and the German DAX Index are currently lower, while the U.K.’s FTSE 100 Index has recovered and is currently trading in positive territory.

In corporate news, U.K. clothing retailer Next said total sales, excluding VAT, rose 3.9 percent in the period from November 1st to December 24th. The company also raised its profit forecast for the year.

On the economic front, employment data released by the German Federal Statistical Office showed that the seasonally adjusted unemployment rate calculated based on ILO standards remained unchanged at 5.4 percent in November. The number of unemployed people fell slightly to 2.28 million in November from 2.3 million in October.

Meanwhile, estimates by the Federal Labor Agency showed that its seasonally adjusted jobless rate remained unchanged at 6.9 percent in December. The number of unemployed people rose by 3,000 in December compared to a 5,000 climb in November.

A survey by Nationwide Building Society showed that house prices in the U.K. edged down 0.1 percent month-over-month in December after remaining unchanged in November. Annually, prices were 1 percent lower.

U.S. Economic Reports

Private sector employment in the U.S. increased by much more than economists had anticipated in the month of December, according to a report released by payroll processor Automatic Data Processing, Inc. (ADP).

ADP said private sector employment increased by 215,000 jobs in December following an upwardly revised increase of 148,000 jobs in November. Economists had expected employment to rise by about 150,000 jobs compared to the addition of 118,000 jobs originally reported for the previous month.

After reporting an unexpected drop in first-time claims for U.S. unemployment benefits last week, the Labor Department released a report showing that initial jobless claims rebounded by more than expected in the week ended December 29th.

The report showed that jobless claims climbed to 372,000, an increase of 10,000 from the previous week's revised figure of 362,000. Economists had expected jobless claims to rise to 363,000 from the 350,000 originally reported for the previous week.

Additionally, U.S. automakers are scheduled to release their monthly sales results for December. Economists expect auto sales to come in at a seasonally adjusted annual rate of 15.1 million units compared to 15.5 million units in November.

The Federal Open Market Committee will release the minutes of its December 11th-12th monetary policy meeting at 2 pm ET.

The Treasury is scheduled to make announcements concerning auctions of 3-year and 10-year notes and 30-year bonds.

Stocks in Focus

Costco (COST) reported comparable store sales growth of 9 percent for December. Excluding the effect of currency and inflation in gasoline prices, comparable stores were up 8 percent.

Hot Topic (HOTT) reported same store sales growth of 2.2 percent for the combined November/December holiday period compared to a 1.8 percent increase in 2011. The company reiterated its fourth quarter earnings guidance of 23-27 cents per share on a low to mid-single-digit percentage increase in comps. For 2013, the company expects 30-35 percent earnings growth.

Sorvan Self Storage (SSS) announced an increase in its quarterly dividend to 48 cents per share from 45 cents per share.

AMD (AMD) announced the appointment of Devinder Kumar as senior VP and CFO, effective January 2nd, 2013. Kumar has served as interim CFO since September 2012.

Safeway (SWY) announced the retirement of its Chairman and CEO Steve Burd at its annual stockholders meeting on May 14th, 2013.

CIT (CIT) announced that it has agreed to acquire a commercial loan portfolio worth $1.3 billion from Flagstar Bank, a subsidiary of Flagstar Bancorp. (FBC).

Ecolab (ECL) said it has completed the purchase of a subsidiary of Mexico’s FEMSA (FMX). The subsidiary provides cleaning and sanitizing water treatment products and services to beverage and brewery customers in Mexico.

Lexmark (LXK) announced the acquisition of clinical content management software provider Acuo Technologies for $45 million in cash. Curtiss-Wright (CW) completed the purchase of motion control solutions provider Exlar Corp. for $85 million in cash. The target company is expected to contribute $50 million in sales in 2013.

A Wall Street Journal report suggested Gap (GPS) will buy women’s fashion boutique Intermix for $130 million. Another Journal report said Quiksilver’s (ZQK) co-founder Robert McKnight will step down as CEO. McKnight is expected to be succeeded by Disney (DIS) executive Andy Mooney.

A. Schulman (SHLM), AngioDynamics (ANGO), Progress Software (PRGS) and Sonic (SONC) are among the companies due to release their quarterly results after the close of trading.
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