Market Analysis

Beyond the Numbers

Markets Expected to Consolidate as Concerns Remain
2/26/2013 9:08 AM

The major U.S. index futures are pointing to a higher opening on Tuesday, with sentiment reflecting modest optimism among traders even as political developments in Italy and fiscal concerns back at home linger. Positive earnings from home improvement retailer Home Depot (HD) should give an early lift to the markets. The markets may also stay tuned to the existing home sales and consumer confidence readings due to be released shortly after the markets open. Additionally, Federal Reserve Chairman Ben Bernanke’s two-day testimony before Congress could provide direction to the markets.

After a positive start, U.S. stocks succumbed to the negative sentiment generated by concerns about the Italian election results on Monday. The major U.S. averages opened higher and held above the unchanged line until late morning trading. However, the averages declined steadily through the remainder of the session before closing notably lower.

The Dow Industrials ended down 216.40 points or 1.55 percent at 13,784 and the Nasdaq Composite Index closed 45.57 points or 1.44 percent lower at 3,116, while the S&P 500 Index closed at 1,488, down 27.75 points or 1.83 percent.

Twenty-seven of the thirty Dow components closed lower, with Bank of America (BAC), Alcoa (AA), Boeing (BA), Caterpillar (CAT), Chevron (CVX), General Electric (GE), Home Depot (HD), Coca-Cola (KO), JP Morgan Chase (JPM), Travelers Companies (TRV), UnitedHealth (UNH) and United Technologies (UTX) all declining sharply in the session. On the other hand, McDonald’s (MCD) rose close to 1 percent.

The Dow Industrials closed below a long-term support around 13,831 and in the eventuality of a rebound in the wake of some positive catalysts, the index may break above this level. The next resistance lies around its 21-day MA at 13,945 and the 14,022 level. On the downside, the index has support around the 13,704 and 13,589 levels.

Most sectors, barring gold stocks, came under selling pressure on Monday, with housing, oil service and banking stocks seeing significant weakness.

Currency, Commodity Markets

Crude oil futures are receding $0.71 to $92.40 a barrel after slipping $0.02 to $93.11 a barrel on Monday. Gold futures are currently adding $8.70 to $1,595.30 an ounce. In the previous session, gold added $13.80 to $1,586.60 an ounce.

Among currencies, the U.S. dollar is trading at 91.89 yen compared to the 91.82 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1,3055 compared to yesterday’s $1.3059.


The major Asian averages followed Wall Street lower, as eurozone concerns were exacerbated and the March 1st deadline for the automatic spending cuts in the U.S. draws close.

Japan’s Nikkei 225 average opened notably lower and moved roughly sideways for the rest of the session, as the yen strengthened due to its safe haven appeal. The index closed down 263.71 points or 2.26 percent at 11,399.

Australia’s All Ordinaries opened lower and fell sharply in early trading. Although the average trimmed some of its losses by the mid-session, it went about a consolidation move thereafter. The index closed down 50.90 points or 1 percent at 5,022.

Hong Kong’s Hang Seng closed at 22,520, down 300.39 points or 1.32 percent.


European stocks are receding sharply in reaction to the Italian election results, which intensified concerns about the debt crisis in the region.

In corporate news, Vivendi reported a decline in its full year earnings, hurt by one-time items, while sales rose slightly. The company’s fourth quarter earnings were below estimates, while revenues exceeded expectations. German chemical company BASF reported fourth quarter adjusted EBIT of 1.8 billion euros, in line with estimates. Sales were ahead of estimates. The company also sees improved results for 2013.

Fresenius SE said it expects profits to exceed its 1 billion euro target a year earlier than forecast. The company’s fourth quarter EBIT rose 9.3 percent and sales grew 18 percent. Meanwhile, the company’s Fresenius Medical unit reported a 4.7 percent increase in its fourth quarter EBIT despite 13 percent sales growth.

U.S. Economic Reports

The Federal House Finance Agency is due to release the results of its survey on house prices at 9 am ET. The house price index is expected to have increased by 0.7 percent month-over-month in December compared to the 0.6 percent increase in November.

Around the same time, the S&P Case-Shiller house price index for December is also due. The 20-city composite house price index is expected to have risen a seasonally adjusted 0.8 percent month-over-month compared to the 0.6 percent increase in the previous month. The annual rate is expected to be 6.8 percent on a seasonally unadjusted basis compared to 5.5 percent in November.

The Commerce Department is due to release its new home sales report for January at 10 am ET. The consensus expectations call for an increase in new home sales to a seasonally adjusted annual rate of 381,000 from 369,000 in December.

New home sales came in at a seasonally adjusted annual rate of 369,000 in December, down 7.3 percent from the 398,000 rate for November. Annually, sales were 24.8 percent higher. The median sales price of a new house was $248,900, up 1.34 percent month-over-month and 13.86 percent higher than a year-ago. Inventories measured in terms of months of supply came in at 4.5 months compared to 4.9 months for November.

Around the same time, the Conference Board will release the results of its consumer confidence survey. Economists expect the consumer confidence index to have risen to 61 in February from 58.6 in January.

The 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.

Bernanke is due to deliver his semi-annual testimony before the Senate Banking Committee in Washington, with the testimony set to begin at 10 am ET.

The Richmond Federal Reserve Bank’s manufacturing index based on a survey is also due at 10 am. The index is expected to have improved to –3 in February from –12 in January.

Stocks in Focus

Home Depot (HD) reported fourth quarter earnings of 68 per share, ahead of the 50 cents per share consensus estimate. The company’s 2013 guidance was lukewarm. Meanwhile, the company announced a $17 billion share repurchase program and a 34 percent increase in its quarterly dividend.

Macy’s (M) reported above consensus revenues for its fourth quarter and also issued above-consensus guidance for 2013.

AutoZone (AZO) reported better than expected second quarter earnings, while it revenues trailed estimates.

RadioShack (RSH) reported a loss for its fourth quarter and its sales missed expectations.

Autodesk (ADSK) reported fourth quarter non-GAAP earnings of 53 cents per share compared to 46 cents per share last year, as revenues rose 2 percent to $607 million. The results exceeded estimates. The company expects 2014 revenues to increase by 6 percent. Additionally, the company estimates first quarter non-GAAP earnings of 41-46 per share on revenues of $570 million to $590 million. The full year revenues guidance was positive, while the first quarter guidance trailed estimates.

AmSurg (AMSG) reported fourth quarter adjusted earnings from continuing operations of 49 cents per share, while revenues rose 10 percent to $244.2 million. The earnings trailed estimates, while the revenues exceeded estimates. The company expects full year earnings from continuing operations of $2.18 to $2.23 per share and revenues of $1.06 billion to $1.09 billion. The earnings guidance was lukewarm, while the revenues guidance was in line.

URS Corp. (URS) reported fourth quarter earnings of 95 cents per share on revenues of $2.97 billion, ahead of the consensus estimate. The company’s board approved a 5 percent increase in its quarterly dividend. For 2013, the company estimates earnings of $4.25-$4.75 per share on revenues of $11.8 billion to $12.2 billion. The guidance was in line.

ONEOK (OKE) reported fourth quarter earnings of 53 cents per share compared to 55 cents per share in the year-ago period. Revenues fell to $3.65 billion from the year-ago quarter’s $4.07 billion. The results exceeded estimates. The company lowered its 2013 net income guidance to $350 million to $400 million, attributing the negative revision to lower than expected earnings in the ONEOK Partners (OKS) segment.

Greatbatch (GB) reported fourth quarter adjusted earnings of 53 cents per share on sales of $159.2 million. For 2013, the company estimates adjusted earnings per share of $1.90-$2 on revenues of $660 million to $680 million.

Big 5 Sports (BGFV), Dreamworks Animation (DWA), Edison (EIX), First Solar (FSLR), Live Nation (LYV), Papa John’s (PZZA), Priceline.com (PCLN), Scientific Games (SGMS), TiVo (TIVO), Vornado Realty (VNO) and W&T Offshore (WTI) are among the companies due to release their quarterly results after the close of trading.
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