Market Analysis

Beyond the Numbers

Consolidation Likely Ahead of Long Weekend
5/22/2015 9:00 AM

The major U.S. index futures are pointing to a slightly lower opening on Friday, with sentiment reflecting nervousness of traders in the final trading session of the week ahead of Monday’s Memorial Day holiday. The dollar is back on its way higher following the release of the consumer price inflation report, which showed a bigger than expected rise in core consumer prices. Commodities are trading lower. The mood across the Atlantic is mixed, as traders digest the German GDP and business sentiment data. The domestic markets, which trade in overbought zone, may go about a consolidation move ahead of the long weekend.

U.S. stocks advanced solidly on Thursday amid the release of mixed economic data and a retreat in bond yields. The major averages opened lower and saw lackluster sentiment in early trading. Subsequently, the averages advanced, with the S&P 500 Index and the Nasdaq Composite Index hovering above the unchanged line for the remainder of the session. The Dow Industrials, which saw some volatility throughout the session, ended nearly flat at 18,286, up merely 0.34 points. The S&P 500 Index ended up 4.97 points or 0.23 percent at a fresh closing high of 2,131 and the Nasdaq Composite closed 19.05 points or 0.38 percent higher at 5,091.

The breadth among the Dow components was even, with 15 of the thirty Dow components advancing, while the remaining 15 stocks declined. Apple (AAPL) and Caterpillar (CAT) rose notably.

Among the sectors, oil service stocks gained ground in the session.

On the economic front, the Labor Department reported that jobless claims rose to 274,000 in the week ended May 16th from an unrevised 264,000 rate in the previous week. The four-week average slipped to 266,250 from 271,750. Continuing claims calculated with a week’s lag fell 12,000 to 2.211 million in the week ended May 9th.

The results of Markit’s preliminary survey of U.S. manufacturing activity showed that that manufacturing PMI slipped to 53.8 in May from 54.2 in April, while economists expected a small increase to 54.6.

Meanwhile, the results of the Philadelphia Federal Reserve’s regional business outlook survey showed that manufacturing activity slowed in May. The diffusion index of business activity fell to 6.7 from 7.5 in April, while economists expected a reading of 8. The new orders index rose 0.7 points to 4, the shipments index improved to 1 from –1.8 and the employment index was at 6.7.

The National Association of Realtors reported that existing home sales declined 3.3 percent to a seasonally adjusted annual rate of 5.04 million units, the first drop since January. The previous month’s sales were upwardly revised to 5.21 million units from 5.19 million units, the highest level since August 2013. First time buyers accounted for 30 percent of the sales, repeat home buyers accounted for 56 percent and investors, the remaining 14 percent.

Single-family home sales fell 3.7 percent, while condominium sales were unchanged. The median sales price of an existing home was up 4.3 percent year-over-year at $221,200. Inventories measured in terms of months of supply rose to 5.3 months from 4.6 months, the highest level since September 2014.

A leading economic indicators index for the U.S. compiled by the Conference Board showed that economic activity would likely strengthen in the months ahead. The index rose 0.7 percent month-over-month in April following a 0.4 percent increase in March. The coincident economic indicators and the lagging economic indicators indexes were up 0.2 percent and 0.1 percent, respectively.

Currency, Commodity Markets

Crude oil futures are slipping $0.61 to $60.11 a barrel after rallying $1.74 to $60.72 a barrel on Thursday. An ounce of gold is currently trading at $1,205.80, up $1.70 from the previous session’s close of $1,204.10. On Thursday, gold fell $4.60.

On the currency front, the U.S. dollar is trading at 121.45 yen compared to the 119.18 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1098 compared to yesterday’s $1.1112.


The major Asian markets advanced, encouraged by the positive close on Wall Street overnight. The Chinese market continued its strong move to the upside and the Hong Kong and South Korean markets also rose notably. Meanwhile, the Malaysian market bucked the uptrend with a moderate loss.

Australia’s All Ordinaries opened higher and rose sharply in early trading. However, the index gave back its gains over the course of the morning session. Thereafter, the average nervously moved in and out of the positive territory and ended up merely 4.60 points or 0.08 percent at 5,668. Energy stocks rallied strongly, as crude oil rose in overnight trading, and utility, industrial, telecom and real estate stocks also found buying interest.

After trading below the unchanged line till late afternoon trading, Japan’s Nikkei 225 average recovered in reaction to the monetary policy announcement. Subsequently, the index hovered above the unchanged line before ending up 61.54 points or 0.30 percent at 20,264. Resource, food, export and retail stocks were among the gainers of the session, while financial, pharma, real estate and insurance stocks lost ground in the session.

China’s Shanghai Composite Index jumped 128.17 points or 2.83 percent before closing at 4,658 and China’s Shanghai Composite added 469.11 points or 1.70 percent before closing at 27,993.

On the economic front, the Bank of Japan refrained from easing monetary stimulus further as policymakers assessed that faster economic growth in the first quarter warrants no more immediate actions. The policy board of the central bank governed by Haruhiko Kuroda decided by an 8-1 majority vote to maintain its target of raising the monetary base at an annual pace of about 80 trillion yen. The bank said the economy had continued to recover moderately and it lifted its assessment of private consumption as well as housing investment.


European stocks opened higher but experienced volatility in early trading. The averages have turned mixed since then, with the German and French markets seeing modest weakness, while the U.K. market is moderately higher.

In corporate news, Richemont reported a decline in its full year profits, hurt by sagging sales and currency effect. Whitbread said Alison Brittain has been appointed as its next CEO to succeed Andy Harrison, who has decided to retire from full time executive life at the end of February 2016.

On the economic front, revised report released by the German Federal Statistics Office showed that German GDP rose 0.3 percent sequentially in the first quarter, in line with the preliminary estimate. This represented a slowdown from the 0.7 percent growth in the fourth quarter of 2014. Annually, the GDP growth slowed to 1.1 percent from 1.6 percent. Private and government spending supported growth even as gross fixed capital formation showed no growth.

The results of a survey by the IfO Institute showed that German business confidence receded less than estimated in May. The business confidence index eased 0.1 point to 108.5 in May, while economists expected a reading of 108.3.

U.S. Economic Reports

A Labor Department report released short while ago showed that consumer prices edged up 0.1 percent month-over-month in April, in line with expectations. Annually, consumer prices were down 0.2 percent.

Core consumer prices were up 0.3 percent month-over-month, bigger than the 0.1 percent expected by economists and the 0.2 percent increase in March. The annual core inflation rate was 1.8 percent.

Federal Reserve Chair Janet Yellen is due to speak on the economic outlook in Providence, Rhode Island at 1 pm ET.

Stocks in Focus

Hewlett-Packard (HPQ) reported better than expected second quarter adjusted earnings, while its revenues were shy of estimates. The company’s fiscal year 2015 earnings per share guidance was in line, while its third quarter guidance was lackluster.

Intuit (INTU) reported better than expected third quarter results and raised its full year earnings and per share and revenue guidance.

Marvell Technology’s (MRVL) first quarter adjusted earnings were ahead of expectations, although revenues trailed expectations. The company’s second quarter guidance was weak. Separately, the company said its CFO Mike Rashkin intends to retire, effective May 22 and the appointment of Sukhi Nagesh, VP of Finance and investor relations, to serve as interim CFO.

Brocade Communications (BRCD) reported better than expected second quarter earnings, while its revenues missed expectations. The company issued in line third quarter adjusted earnings per share guidance but its revenues guidance trailed expectations.

Mentor Graphics’ (MENT) first quarter results exceeded estimates and it raised its full year earnings per share guidance.

Campbell Soup (CPB) reported above-consensus earnings for its third quarter, while its revenues were shy of estimates.

Deere (DE) reported better than expected second quarter results and a drop in its revenues. The company raised its full year earnings per share guidance.

Among retailers, Gap (GPS) reported a decline in its first quarter earnings and its revenues missed expectations. However, the company’s full year guidance was in line. Aeropostale (ARO) reported below-consensus results for its first quarter and it said it expects a loss for the second quarter, which was wider than estimates. Ross Stores’ (ROST) first quarter results were ahead of expectations, while its second quarter guidance was weak. At the same time, the company raised its full year guidance. ANN (ANN) reported better than expected first quarter earnings but its revenues missed estimates. The company’s full year 2015 guidance was lackluster.

Expedia (EXPE) said it has sold its 62.4 percent majority stake in Chinese online travel company eLong (LONG) to several purchasers based in China, including Ctrip.com (CTRP), for a total purchase price of about $671 million.

Pall Corp. (PLL) reported third quarter adjusted earnings and revenues that exceeded estimates. The company has recently agreed to be acquired by Danaher (DHR) for $127.20 per share.

Fairchild (FCS) said its board has authorized the buyback of up to $150 million of common stocks over the next 12 months.
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