Market Analysis

Beyond the Numbers

Positive Data Weighed Against Lackluster Earnings
2/23/2012 9:24 AM

The major U.S. index futures are pointing to a higher opening on Thursday, with sentiment getting a small boost from a relatively benign jobless claims report, which showed that the number of individuals claiming first time unemployment benefits remained essentially flat. Earlier in the day, the U.S. futures as well the European markets saw a bounce after a report showed that German business confidence strengthened. However, since then the European averages have pared back their gains and are currently trading mixed.

Some lackluster earnings reports and the overbought levels of the markets pose downside risk. Even amid these mixed catalysts, reflecting a healthy risk appetite, commodities are trading higher.

Macroeconomic concerns and mixed earnings led to a cautious mood on Wednesday, sending stocks lower. The major averages opened lower and traded mostly below the unchanged line in the morning despite the release of a positive housing reading. Selling pressure intensified in the afternoon, with the averages hitting intra-day lows by the mid-session before paring back some of their losses. The averages continued to languish in the red for the rest of the session before closing lower.

The Dow Industrials ended down 27.02 points or 0.21 percent at 12,934 and the S&P 500 Index fell 4.55 points or 0.33 percent before closing at 1,358, while the Nasdaq Composite closed at 2,933, down 15.40 points or 0.52 percent.

Twenty of the thirty Dow components closed lower, with Wal-Mart Stores (WMT) declining for the second straight day following its earnings release. Other notable decliners included Bank of America (BAC), Kraft Foods (KFT), JP Morgan Chase (JPM), Intel (INTC), Hewlett-Packard (HPQ) and Cisco Systems (CSCO).

Airline, housing and financial stocks came under selling pressure, while oil service and gold stocks advanced.

On the economic front, the National Association of Realtors reported that existing home sales surged up 4.3 percent month-over-month in January, while economists had expected a much more modest increase. Single-family home sales rose 3.8 percent compared to an 8.3 percent jump in the sales of condominiums. Inventories of existing homes fell 0.4 percent to 2.31 million homes, while inventories measured in terms of months of supply also declined to a 6-year low of 6.1 months. The median price of an existing home fell 4.6 percent month-over-month to $154.7 million.

Commodity, Currency Focus

Crude oil futures are rising $0.37 to $106.55 a barrel after edging up $0.03 to $106.28 a barrel on Wednesday. An ounce of gold is currently valued at $1,784.50, up $13.20 from the previous session’s close of $1,771.30 an ounce. In the previous session, gold advanced $12.80.

Among currencies, the U.S. dollar is trading at 80.25 yen compared to the 80.2935 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.3296 compared to yesterday’s $1.3249.


The major Asian markets went about in a listless manner after Wall Street stocks closed in the red overnight. The averages in the region ended on a mixed note.

Japan’s Nikkei 225 average continued to benefit from a weaker yen, ending up 41.57 points or 0.44 percent at 9,596.

Meanwhile, Australia’s All Ordinaries closed at 4,368, down 4.60 points or 0.11 percent. Material stocks retreated modestly, offsetting optimism in the energy space. Hong Kong’s Hang Seng Index slipped 168.29 points or 0.78 percent before closing at 21,381.


The major European markets are trading on a mixed note following yesterday’s retreat. The French CAC 40 Index is slipping 0.16 percent compared to a 0.30 percent retreat by the German DAX Index, while the U.K.’s FTSE 100 Index is adding 0.34 percent.
In corporate news, Commerzbank reported a 23 percent increase in fourth quarter profits and also said it is buying back hybrid securities to meet capital norms.

Meanwhile, Dexia reported a loss for 2011, weighed down by its holdings of Greek bonds and restructuring charges. Credit Agricole reported a loss of 3.07 billion euros for the fourth quarter due to Greek writedowns.

Hit by impairment losses in the U.S. and Europe, Deutsche Telecom (DT) also reported a loss of 1.34 billion euros for its fourth quarter. The U.K.’s Royal Bank of Scotland (RBS) reported a 2 billion pound loss for 2011, with results marred by weakness in its investment banking unit and Greek debt writedowns.

A report released by the Ifo Institute showed that the German business climate improved for the fourth straight month in February. The business climate index rose 1.3 points to 109.6 points. The index also came in above estimates.

The current conditions index and the expectations index came in at 117.5 and 102.3, with both coming in above estimates.

U.S. Economic Reports

New unemployment claims for the past week came in lower than expected according to figures released by the Labor Department. The report puts the seasonally adjusted level of new claims for unemployment at 351,000 for the week ending February 18, essentially unchanged from the previous week's revised figure of 351,000.

Although the previous week's figure was revised up from the 348,000 initially reported, both weekly claims numbers remain the lowest since early March 2008. Most economists had forecast an uptick in the low level of new jobless claims, predicting a level of 355,000.

The Federal House Finance Agency, or FHFA, is set to release its house price index for November at 10 am ET. The index is a weighted, repeat-sales index that measures average price changes of single-family houses in repeat sales or refinancings on the same properties. Economists expect a 0.2 percent month-over-month increase by the house price index.

The Energy Information Administration is scheduled to release its weekly petroleum inventory report for the week ended February 17th at 10:30 am ET.

Crude oil inventories edged down by 0.2 million barrels to 339.1 million barrels in the week ended February 10th. Inventories remained in the upper limit of the average range for this time of the year.

Distillate inventories fell by 2.9 million barrels and were in the middle of the average range. Meanwhile, Gasoline stockpiles rose by 0.4 million barrels, remaining in the upper limit of the average range. Refinery capacity utilization averaged 82.7 percent over the four-weeks ended February 10th compared to 82.6 percent over the previous four weeks.

The Kansas City Federal Reserve is scheduled to release the results of its manufacturing survey for February at 11 am ET. The manufacturing index based on the survey is expected to increase to 9 in February from 7 in January.

Stocks in Focus

Hewlett-Packard’s fourth quarter earnings and revenues fell from the year-ago period. Although earnings exceeded estimates, revenues were below estimates. The company reiterated its 2012 earnings guidance, which however was below estimates.

Analog Devices (ADI) announced a 20 percent increase in its quarterly dividend to $0.30 per share. The company also reported first quarter earnings from continuing operations of 46 cents per share on revenues of $648 million. For the second quarter, the company expects earnings of 48-53 cents per share on revenues of $655 million to $675 million. The earnings trailed estimates, while revenues were also below expectations.

Express Scripts (ESRX) reported fourth quarter adjusted earnings of 82 cents per share, missing the 85 cents per share consensus estimate.

Williams (WMB) reported fourth quarter adjusted net income from continuing operations of 36 cents per share, higher than 30 cents per share in the year-ago period. The results trailed estimates. William Partners (WPZ) reported better than expected fourth quarter earnings, while revenues were below estimates.

Fluor (FLR) reported fourth quarter earnings that exceeded estimates, while its revenues were slightly shy of estimates. The company reiterated its 2012 earnings guidance that surrounds the consensus estimate.

Synopsys (SNPS) reported first quarter non-GAAP earnings of 56 cents per share on revenues of $425.5 million. The results were better than expected. For the full year, the company expects non-GAAP earnings of $1.97-$2.03 per share on revenues of $1.66 billion to $1.66 billion. The guidance surrounded the consensus estimates.

Limited Brands (LTD) reported fourth quarter adjusted earnings of $1.50 per share on sales of $3.52 billion. The results were better than expected. The company also announced that its board has authorized a new $500 million stock buyback program. For 2012, the company expects earnings of $2.60-$2.80 per share, below the consensus estimate of $2.91 per share.

SM Energy (SM) reported better than expected fourth quarter results.

DryShips (DRYS) reported fourth quarter adjusted earnings in line with estimates, while its revenues also exceeded expectations.

Cimarex (XEC) announced an increase in its dividend to 12 cents per share from 10 cents per share.

Autodesk (ADSK), Century Aluminum (CENX), Crocs (CROX), Deckers Outdoor (DECK), First Solar (FSLR), Gap (GPS), HealthSouth (HLS), Live Nation (LYV), Marvell (MRVL), Nordson (NDSN), Public Storage (PSA), Salesforce.com (CRM) and TiVo (TIVO) are some of the prominent companies due to release their earnings after the markets close.
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