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Beyond the Numbers

Softer than Expected Growth Could Test Market Resilience
4/26/2013 9:10 AM

The major U.S. index futures are pointing to a lower opening on Friday, with sentiment pointing to a slight loss of momentum. The cautious sentiment metamorphosed into weakness following the release of a report showing weaker than expected first quarter growth. Although first quarter GDP growth trailed expectations, it was notably stronger than the anemic pace witnessed in the fourth quarter. Earnings continue to roll in and are largely mixed. The homebuilding space could see some strength on positive earnings reported by D.R. Horton. Sentiment going into the session may also depend on the results of a consumer sentiment survey due after the markets open.

U.S. stocks resiliently held on to their upward momentum on Thursday, thanks to another batch of mostly positive earnings and encouraging data. The major averages opened higher and advanced steadily in the morning before beginning to move sideways from early afternoon trading. Consolidating until late trading, the indexes legged down slightly yet closed the session higher.

The Dow Industrials added 24.50 points or 0.17 percent before closing at 14,701, while the S&P 500 Index ended up 6.37 points or 0.40 percent at 1,585 and the Nasdaq Composite Index closed at 3,290, up 20.34 points or 0.62 percent.

Nineteen of the thirty Dow components closed higher, with Verizon (VZ), DuPont (DD), Cisco Systems (CSCO), Bank of America (BAC) and American Express (AXP) rising notably. On the other hand, 3M Co. (MMM) fell 2.77 percent and Exxon Mobil (XOM) slipped 1.52 percent. Pfizer (PFE), Merck (MRK), Intel (INTC) and Hewlett-Packard (HPQ) also fell notably.

Retail, housing, semiconductor, biotechnology and basic material stocks were among the biggest gainers of the session.

On the economic front, the U.S. jobless claims fell 16,000 to 339,000 in the week ended April, the lowest level since early March. The four-week average also dropped to a 1-month low of 357,500. Meanwhile, continuing claims declined by 93,000 to a near 5-year low of 3 million.

Currency, Commodity Markets

Crude oil futures are slipping $0.12 to $93.52 a barrel after rising $2.21 to $93.64 a barrel on Thursday. Gold futures are currently rising $8.40 to $1,470.40 an ounce. In the previous session, the precious metal added $38.30 to $1,462 an ounce.

Among currencies, the U.S. dollar is trading at 98.26 yen after ending the previous session at 99.26 yen. The dollar is currently valued at $1.3023 compared to yesterday’s $1.3011.

Asia

The Asian markets ended on a mixed note, as traders remained cautious amid mixed earnings and ahead of the U.S. GDP data. The Japanese, Australian, Chinese, Indian, Indonesian and South Korean markets ended in negative territory, while the rest of the markets closed higher.

Japan’s Nikkei 225 average moved back and forth across the unchanged line throughout the session before closing down 41.95 points or 0.30 percent at 13,884. The yen firmed up, weighing on export stocks. Shiseido, Advantest, NEC, Fuji Electric and Mitsubishi Motors were among the worst performers of the session.

Australia’s All Ordinaries opened higher and rallied in early trading. Thereafter, the average gradually gave back its gains over the course of the remainder of the session. The index closed down 1.50 points or 0.03 percent at 5,083. Energy, consumer staple, financial and healthcare stocks came under selling pressure, while material stocks came under selling pressure.

Hong Kong’s Hang Seng Index closed at 22,548, up 146.47 points or 0.65 percent.

On the economic front, the Bank of Japan decided to keep its monetary policy unchanged after announcing unprecedented stimulus measures on April 4 with an aim to reverse 15 years of deflation in the country. In a brief statement today, the central bank reiterated that the Bank of Japan will conduct money market operations so that the monetary base will increase at an annual pace of about JPY 60-70 trillion." The decision was unanimous.

A report released by the Ministry of Internal Affairs and Communication showed that Japan’s core consumer prices fell 0.5 percent year-over-year in March, marking the steepest drop in 2 years and the fifth straight month of decline in prices. Economists had expected a 0.4 percent drop.

Europe

European stocks are trading lower following five consecutive sessions of gains, as profit taking set in, as traders digested mixed earnings and remained wary ahead of next week’s monetary policy meeting of the European Central Bank.

In corporate news, BASF reported better than expected first quarter results and confirmed its forecast for 2013. PPR reported a small growth in revenues. Meanwhile, Total reported a steep decline in profits. Alcatel-Lucent (ALU) reversed to a loss in its first quarter.

On the economic front, the French statistical office INSEE reported that its consumer confidence index for France remained unchanged at 84 in April. Economists expected a modest drop to 83.

Meanwhile, German Federal Statistical Office reported that Germany’s import prices fell 2.3 percent year-over-year in March compared to expectations for a 1.6 percent drop. On a monthly basis, prices dipped 0.1 percent. At the same time, export prices stagnated in March compared to the previous year.

U.S. Economic Reports

The Commerce Department released its advance estimate of first quarter GDP showing a 2.5 percent quarter-over-quarter expansion. The growth was slower than the 3.1 percent expansion expected by economists. The fourth quarter saw 0.4 percent growth.



Personal consumption expenditure accelerated to 3.2 percent from 1.8 percent, with services spending rising strongly. Gross fixed investment slowed to 4.1 percent from 14 percent, while changes in inventories contributed to growth. Net trade deducted 0.5 percentage points from growth. Government consumption expenditure continued to fall.

At 9:55 am ET, Reuters and the University of Michigan will release their revised report on consumer sentiment for April. The consensus expectations call for an upward revision to the mid-month reading to 73 from the initially estimated 72.3.

Stocks in Focus

Starbucks (SBUX) reported better than expected second quarter earnings, while its revenues were slightly shy of estimates. The company raised its 2013 earnings per share guidance, which surrounded the consensus estimate.

Amazon (AMZN) reported first quarter earnings that beat estimates, while its revenues were below estimates. The company forecast second quarter net sales that surrounded the consensus estimate.

Wynn Resorts (WYNN) reported better than expected first quarter results. Meanwhile, Expedia (EXPE) reported better than expected first quarter earnings, while its revenues missed estimates.

DR Horton’s (DHI) second quarter profit more than doubled from the prior year period and topped Wall Street view. Homebuilding revenue for the quarter rose 49 percent from the year-ago quarter.

J. C. Penney (JCP) is rising over 7 percent after the disclosure that billionaire investor George Soros has acquired a 7.9 percent stake in the department store chain. Soros disclosed that he owns 17.4 million shares of J. C. Penney.

Goodyear (GT) swung to a profit in its first quarter. Sales for the quarter declined and also missed the consensus estimate. Meanwhile, the company said it remains confident in its full-year outlook.

PMC-Sierra (PMCS) reported better than expected first quarter results. Ingram Micro (IM) reported first quarter net income that trailed estimates, while its revenues were above estimates. For the second quarter, the company currently expects a 1 to 4 percent sequential increase in revenue, with consolidated gross margin flat to slightly up. Verisign’s (VRSN) first quarter results were better than expected.

Tellabs (TLAB) reported a loss on an adjusted basis for its first quarter, in line with estimates. However, revenues were shy of estimates. The second quarter revenue guidance was also below estimate.

Reinsurance Group of America (RGA) reported better than expected operating earnings for the first quarter.

Baidu.com (BIDU) reported first quarter adjusted earnings per ADS of $1 per share, missed the consensus estimate. Revenues rose year-over-year but missed the consensus estimate. The company’s second quarter revenue guidance surrounded the consensus estimate.

Skyworks Solutions (SWKS) reported second quarter non-GAAP earnings that exceeded estimates. Net revenues also exceeded estimates. The company issued above consensus earnings guidance for the third quarter, while the revenue guidance trailed expectations.

Altera (ALTR) reported first quarter earnings that beat estimates, while its revenues missed expectations. The revenue guidance for the second quarter was weak.

KLA-Tencor (KLAC) reported better than expected third quarter results.



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