Market Analysis

Beyond the Numbers

Overbought Levels Increase Economic Apprehension
3/27/2012 9:21 AM

The major U.S. index futures are pointing to a lower opening on Tuesday, with apprehension intensifying following yesterday’s strong advances, which propelled the S&P 500 Index and the Nasdaq Composite Index to fresh multi-year highs. Sentiment in Europe has also turned mixed, as traders pause to digest the gains of the past three sessions. The focus now shifts to the Conference Board’s consumer confidence reading to see if consumers, one of the main engines of growth, are confident enough to fuel economic growth through their spending.

A housing report released earlier in the day showed that house prices fell more than expected in January. Meanwhile, corporate tidings have been mostly positive, with homebuilder Lennar (LEN) reporting forecasting beating results.

After a nervous run for most of last week, U.S. stocks ended Monday’s session on a firmer note, with Federal Reserve Chairman Ben Bernanke’s comments on the job market and his assurance to keep interest rates low increasing risk appetite along with developments surrounding the eurozone debt crisis.

The major averages opened higher and rose further in early trading despite the release of a report showing an unexpected drop in pending home sales. The indices climbed steadily and closed notably higher.

The Dow Industrials added 160.90 points or 1.23 percent before closing at 13,242 and the S&P 500 Index ended up 19.40 points or 1.39 percent at 1,417, while the Nasdaq Composite Index closed at 3,123, up 54.65 points or 1.78 percent. The S&P 500 Index and the Nasdaq Composite Index closed at fresh multi-year highs.

All but one of the thirty Dow components closed higher, with American Express (AXP), J.P. Morgan Chase (JPM) and United Technologies (UTX) leading the gains.

Transportation, biotechnology, basic material, oil, gold, retail, financial and semiconductor stocks were among the biggest gainers of the session.

On the economic front, the National Association of Realtors reported that U.S. pending home sales fell 0.5 percent month-over-month in February, while economists had been expecting a 1 percent increase. Pending home sales were lower in all regions except the Mid-west. Meanwhile, pending home sales were about 9.2 percent higher than a year ago.

Currency, Commodity Markets

Crude oil futures are receding $0.14 to $106.89 a barrel after advancing $0.16 to $107.03 a barrel on Monday. Gold futures, which rose $23.20 to $1,685.60 an ounce in the previous session, are currently rising $1.10 to $1,686.70.

Among currencies, the U.S. dollar is trading at 83.19 yen compared to the 82.83 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.3324 compared to yesterday’s $1.3359.


The major Asian averages advanced, helped by the positive lead from Wall Street overnight, which was achieved on the back of the realization that accommodative policy is here to stay.

Japan’s Nikkei 225 average opened higher and moved sideways in the morning. In the afternoon, the index advanced steadily and closed notably higher for the session, hitting its highest closing level since March 10th, 2011.

A majority of the index components advanced, with Sumitomo Metal Mining, Chiba Bank, Dai-Ichi-Life, Fukuoka Financial, Kawasaki Heavy Industries, Kirin Holdings, Mitsubishi UFJ and Nomura Holdings among the biggest gainers of the session.

Australia’s All Ordinaries ended 36.40 points or 0.84 percent higher at 4,392, representing a 5-month high. Energy and healthcare stocks led the gains. Hong Kong’s Hang Seng Index added 319.56 points or 1.55 percent before closing at 20,988.


The major European markets have turned mixed after seeing some early strength. The French CAC 40 Index and the U.K.’s FTSE 100 Index are receding 0.24 percent and 0.14 percent, respectively. Meanwhile, the Germany’s DAX Index is adding 0.49 percent.

On the economic front, a survey done by GfK showed that the consumer climate in Germany is set to weaken going forward. The GfK said its forward looking consumer sentiment index for Germany is expected to dip to 5.9 in April from 6 in March. The weakness reflected a notable decline in the index of income expectations for March.

INSEE’s monthly consumer sentiment survey showed that French consumer confidence rose 5 points to 87 in March, with consumers’ assessment of the past and future financial situation, the past and future general economic situation and unemployment improving from month-ago levels.

Spain sold 2.579 billion worth of 3-month and 6-month treasury bills, within its 2 billion to 3 billion target, although the yields were higher than in previous auctions.

In Paris, Alcatel-Lucent (ALU) is leading the gains with a rally of over 4 percent. Accor is also up strongly. Among London shares, Royal Bank of Scotland is rising over 6 percent on reports that the U.K. government is looking to offload its 82 percent stake in the bank to Abu Dhabi.

Copper miner Kazakhmys is also advancing after it reported an increase in its full year pre-tax profits and revenues and also raised its final dividend by 27 percent. Meanwhile, caterer Compass warned of a slowdown in organic sales growth in the first half of the year.

Rio Tinto (RIO) said that it has begun a strategic review of its diamond business.

U.S. Economic Reports

Boston Federal Reserve Bank President Eric Rosengren is scheduled to speak to the National Institute for Economic and Social Research in London.

The Conference Board is scheduled to release its consumer confidence report for March at 10 am ET. The report, which is based on a survey of 5,000 U.S. households, is expected to show that the consumer confidence index rose to 70.9 in March.

The consumer confidence index rose to 70.8 in February from 61.5 in January. The present situation index climbed 6.2 points to 45, while the expectations index surged up 11.3 points to 88. The respondents finding "jobs hard to get" declined in February, confirming the labor market revival.

The Richmond Federal Reserve's manufacturing index due to be released at 10 am ET is expected to see a 2-point drop to 18 in March.

Bernanke will deliver the third of four lectures at the George Washington School of Business at 12:45 pm ET, with the final one to follow on March 29.

Stocks in Focus

Apollo Group (APOL) reported second quarter adjusted earnings from continuing operations of 58 cents per share on net revenues of $969.6 million, down from $1.05 billion last year. The results were ahead of estimates. For 2012, the company continues to expect operating income, excluding items, of $625 million to $725 million on net revenues of $4.1 billion to $4.3 billion. Analysts estimate revenues of $4.24 billion.

Lennar (LEN) reported first quarter earnings of 8 cents per share on 30 percent revenue growth to $724.9 million. The results were better than expected.

ISTA Pharma (ISTA) announced an agreement to be acquired by Bausch + Lomb for $9.10 per share in cash or a total of about $500 million. The deal is expected to close in the second quarter of 2012.

Dollar General (DG) announced an underwritten secondary public offering of 25 million shares. The shares are being sold by shareholders and the company will not receive any proceeds from the offering.

Christopher & Banks (CBK), Oxford Industries (OXM), PVH (PVH), Robbins & Myers (RBN) and Sealy (ZZ) are among the companies due to report their quarterly results after the markets close.
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