Market Analysis

The major U.S. index futures are pointing to a lower opening on Friday, as European debt fears have resurfaced amid Greece’s negotiations with its private sector creditors in a bid to avoid a default. Additionally, earnings news flow from the U.S. has been mixed. Market focus now shifts to the existing home sales report due to be released shortly after the markets open, with economists widely expecting a modest increase in sales. Given the overbought levels of the market, an extension of the recent gains is unlikely unless the housing data comes in well ahead of estimates some positive headlines concerning the European sovereign debt crisis emerge.

U.S. stocks extended their gains on Thursday, helped by multiple catalysts, including strong quarterly results from Morgan Stanley (MS) and Bank of America (BAC), positive European bond auctions and a steeper than expected drop in U.S. weekly jobless claims.

The major averages saw some volatility in early trading before moving broadly higher for the rest of the session. The Dow Industrials ended up 46.24 points or 0.37 percent at 12,625 and the S&P 500 Index closed 6.46 points or 0.49 percent higher at 1,315, while the Nasdaq Composite Index was up 18.62 points or 0.67 percent at 2,788 by the close of trading.

Twenty of the thirty Dow components closed higher, with Bank of America, Caterpillar (CAT) and Alcoa (AA) leading the gains.

Financial, oil service, transportation and semiconductor stocks were among the biggest gainers of the session. On the other hand, utility and gold stocks experienced weakness.

On the economic front, initial jobless claims fell 50,000 to 352,000 in the week ended January 14th. The Labor Department reasoned that the volatility stemmed from the Martin Luther King Day holiday. The four-week moving average fell to 379,000 from 383,000 in the previous week. Continuing claims calculated with a week’s lag slipped 215,000 to 3.432 million in the week ended January 7th.

A Commerce Department report showed that housing starts fell by 4.1 percent month-over-month to a seasonally adjusted annual rate of 657,000 units in December following a 9.1 percent surge in the previous month. Multi-family starts slumped 20.4 percent and were primarily responsible for the drop, while single-family starts rose 4.4 percent. Building permits, an indicator of future housing activity, fell merely 0.1 percent to 679,000 units.

The results of the Philadelphia Federal Reserve’s manufacturing survey showed that manufacturing conditions expanded at a faster rate in January. The business conditions index based on the survey rose to 7.3 in January from a revised reading of 6.8 in December. The new orders index fell 3.8 points to 6.9 and the shipments index was down 3.4 points to 5.7, while the unfilled orders index suggested a contraction with a reading of –4.1 compared to December’s 5.1.

Inventories saw some improvement but remained weak. Both the employment indexes improved from the month-ago levels. Meanwhile, the 6-month outlook index improved to 49 from December’s 40.

Commodity, Currency Markets

Crude oil futures are moving down $0.59 to $99.80 a barrel after declining $0.20 to $100.39 a barrel on Thursday. The previous session’s retreat came despite the equity market strength and the release of the Energy Information Administration’s inventory report, which showed that crude oil stockpiles fell by 3.4 million barrels to 331.2 million barrels. Despite the drop, inventories were in the upper limit of the average range for this time of the year.

Meanwhile, gasoline stockpiles rose by 3.7 million barrels, reaming in the upper limit of the average range. Distillate inventories edged up by 0.4 million barrels and remained in the middle of the average range. Refinery capacity utilization averaged 84.6 percent over the four weeks ended January 13th compared to 84.9 percent over the previous four weeks.

Gold futures, which fell $5.40 to $1,654.50 an ounce in the previous session, are currently slipping $6.80 to $1,647.70 an ounce.

Among currencies, the U.S. dollar is trading at 77.17 yen compared to the 77.1083 yen at New York session’s close on Thursday. Against the euro, the dollar is valued at $1.2902 compared to yesterday’s $1.2968.

Asia

The major Asian markets advanced, as the optimism that prevailed on Wall Street latched onto the domestic markets.

Japan’s Nikkei 225 average opened higher and moved sideways for the rest of the session, with the index closing up 126.68 points or 1.47 percent at 8,766, the highest closing level since November 7th, 2011. Along with the positive overseas cues, the market also derived encouragement from the yen’s weakness against the euro, which strengthened in response to yesterday’s French and Spainish debt auctions.

Australia’s All Ordinaries ended 24.40 points or 0.57 percent higher at 4,303. Meanwhile, Hong Kong’s Hang Seng Index closed up 167.42 points or 0.84 percent at 20,110, closing above the 20,000 level for the time since November 9th, 2011.

China’s Shanghai Composite Index added 1 percent before settling at 2,319 ahead of the weeklong Lunar New Year holiday.

Europe

The major European averages are posting modest losses amid apprehension about whether the Greek government will clinch a deal with private sector creditors, a pre-requisite for avoiding a disorderly default.

On the economic front, a report released by the U.K. Office for National Statistics showed that retail sales rose 0.6 percent month-over-month in December following a 0.5 percent drop in November. The increase was in line with expectations. The annual rate of retail sales growth of 2.6 percent exceeded expectations.

U.S. Economic Reports

The National Association of Realtors is scheduled to release its report on existing home sales for December at 10 am ET. Economists estimate existing home sales to increase to an annual rate of 4.65 million for the month.



Existing home sales rose 4 percent month-over-month to a seasonally adjusted annual rate of 4.42 million units in November. Single-family home sales rose 4.5 percent, while condominium sales were almost flat. Inventories measured in absolute terms fell 5.8 percent, while in terms of months of supply, inventories fell to 7 months from 7.7 in October. Distressed sales accounted for 29 percent of total sales compared to 28 percent in October, while first time buyers accounted for 35 percent of the total.

Stocks in Focus

Positive Earnings

Microsoft (MSFT) reported second quarter earnings of 78 cents per share, a penny ahead of the year-ago period and 2 cents better than the consensus estimates. Revenues rose 4.7 percent to $20.89 billion and came about in line with estimates.

IBM (IBM) reported fourth quarter non-GAAP earnings of $4.71 per share on revenues of $25.9 billion. For the full year, the company expects non-GAAP earnings of at least $14.85 per share. The results as well as the guidance exceeded estimates.

Intel (INTC) reported fourth quarter earnings of 64 cents per share on revenues of $13.9 billion. For the first quarter of 2012, Intel expects revenues of $12.8 billion, plus or minus $500 million. The fourth quarter results exceeded estimates, while the first quarter revenue guidance was in line.

Intuitive Surgical (ISRG) reported better than expected fourth quarter results.

American Express (AXP) said its fourth quarter income from continuing operations rose to $1.01 per share from 88 cents per share last year. Revenues, net of interest expense, rose 7 percent to $7.74 billion. The earnings exceeded estimates, while revenues trailed expectations.

Mixed Earnings

Flextronics (FLEX) reported non-GAAP earnings of 18 cents per share, lower than 25 cents per share last year. Net sales fell 4 percent to $7.5 billion. The company’s earnings trailed estimates, while its revenues exceeded expectations. For the fourth quarter, the company expects adjusted earnings of 22-24 cents per share on revenues of $6.3 billion to $6.6 billion. The fourth quarter earnings guidance surrounded the consensus estimate, while the revenue guidance trailed estimates.

General Electric (GE) reported fourth quarter adjusted earnings from continuing operations of 39 cents per share compared to 36 cents per share last year. The earnings beat consensus by a penny. Sales declined 8 percent to $38 billion, missing the consensus estimate.

Negative Earnings

Capital One Financial (COF) reported fourth quarter earnings of 88 cents per share, lower than $1.77 per share last year. Revenues fell 2.5 percent to $4.1 billion. The earnings and revenues were below consensus estimates.

Google (GOOG) reported non-GAAP earnings of $9.50 per share, higher than $8.75 per share in the year-ago quarter. The earnings trailed estimates. Revenues, excluding traffic acquisition costs, were $8.13 billion, also below estimates.

Other Corporate News

Williams (WMB) announced an increase in its first quarter dividend to $0.25875 per share from the $0.125 per share it paid in the same quarter last year. The company also increased its full year dividend forecast to $1.09 per share for 2012, up 41 percent than what it paid in 2011.

Men’s Wearhouse (MW) announced a 50 percent increase in its quarterly cash dividend to 18 cents per share.

Ingram Micro (IM) announced the promotion of president Alain Monie to the post of CEO, effective Friday.