Market Analysis

Beyond the Numbers

Markets Cautious Despite Positive Earnings News Flow
10/22/2014 9:01 AM

The major U.S. index futures are pointing to a narrowly mixed opening on Wednesday, with sentiment suggesting nervousness despite most companies reporting forecasting beating results and issuing positive guidance. Consumer price inflation report released earlier in the day showed an unexpected modest increase in headline inflation, while the core reading was in line with expectations. With no other economic catalysts to impact trading of the day, the markets could strive to sustain the momentum with the help of earnings catalysts.

Helped by some positive catalysts, including upbeat U.S. existing home sales data and reports on the buying of corporate bonds by the European Central Bank from the secondary market, U.S. stocks advanced solidly on Tuesday. The major averages opened higher and advanced steadily throughout the remainder of the session before closing sharply higher.

The Dow Industrials ended up 215.14 points or 1.31 percent at 16,615, while the S&P 500 Index closed 37.27 points or 1.96 percent higher at 1,941 and the Nasdaq Composite Index closed at 4,420, up 103.40 points or 2.40 percent.

Twenty-seven of the thirty Dow components closed higher, with Chevron (CVX), Intel (INTC), Visa (V), UnitedHealth (UNH), Home Depot (HD) and Cisco Systems (CSCO) leading the gains. On the other hand, IBM (IBM) and Coca-Cola (KO) declined 3.47 percent and 6.03 percent, respectively.

Transportation, biotechnology, basic material, energy, retail, semiconductor, computer hardware and financial stocks were among the best performers of the session.

On the economic front, the National Association of Realtors reported that existing home sales came in at a seasonally adjusted annual rate of 5.17 million units in September, up 2.4 percent from 5.05 million units in August. The sales represented the highest level since September of 2013. Single family as well as condominium/co-operatives sales increased month-over-month.

Inventories as measured by the months of supply were at 5.3 months, the lowest level since March of 2014. The share of investors in total sales rose to 14 percent from 12 percent in August. First time buyers accounted for 29 percent for the third straight month. The median price of an existing home rose 5.6 percent year-over-year to $209,700.

Currency, Commodity Markets

Crude oil futures are rising $0.34 to $82.83 a barrel after advancing $0.58 to $82.49 a barrel on Tuesday. Meanwhile, an ounce of gold is currently trading at $1,244.70, down $7 from the previous session’s close of $1,251.70. On Tuesday, gold rose $7.

On the currency front, the U.S. dollar is trading at 107.14 yen compared to the 107 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is valued at $1.2670 compared to yesterday’s $1.2716.


The Asian markets closed mostly higher, tracking the positive close on Wall Street overnight. However, the Chinese market closed moderately lower, and the Malaysian market was closed for a public holiday.

The Japanese market advanced strongly, as the yen retreated in reaction to the return of risk appetite. The Nikkei 225 average opened higher and moved roughly sideways until late afternoon trading. The index legged up thereafter and ended 391.49 points or 2.64 percent higher at 15,196.

All but four of the index components advanced in the session, with SCREEN Holdings, Fujikura and Obayashi leading the gains.

Australia’s All Ordinaries hovered in positive territory throughout the session before closing up 60.80 points or 1.14 percent at 5,373.

The market witnessed a broad based rally, with material, consumer discretionary, energy, financial and industrial stocks posting notable gains.

Hong Kong’s Hang Seng Index ended at 23,404, up 315.39 points or 1.37 percent, while China’s Shanghai Composite closed 13.10 points or 0.56 percent lower at 2,327.

On the economic front, the Japanese Ministry of Finance reported that the nation’s trade deficit came in at 958.3 billion yen in September compared to the 949.7 billion yen deficit in August. Economists had expected a deficit of 780 billion yen for the month. Exports rose 6.9 percent year-over-year, while imports climbed 6.2 percent.

The Australian Bureau of Statistics reported that consumer prices in Australia rose 2.3 percent year-over-year in the third quarter, in line with estimates. In the second quarter, the annual inflation rate was at 3 percent.

Meanwhile, the Reserve Bank of Australia’s trimmed mean annual inflation rate was at 2.5 percent, softer than the 2.7 percent rate expected by economists.

A separate report showed that the leading economic indicators index for Australia compiled by the Conference Board eased 0.2 percent month-over-month in August, reversing the 0.6 percent increase in July.

Westpac’s survey showed that its leading indicators index for Australia slipped 0.1 percent in September on top of the 0.1 percent drop in August.


European stocks opened higher after yesterday’s noteworthy gains but lost momentum in early trading. By mid-session, the averages staged a recovery and are currently modestly higher. Traders are reacting to corporate announcements from the region even as they choose to remain cautious.

In corporate news, Swiss engineering company ABB reported a decline in its third quarter earnings and revenues, although the decline was less than expected. Norwegian aluminum maker Norsk Hydro reported a higher profit for its third quarter, helped by higher aluminum prices. Helped by strong sales in China, Peugeot reported higher third quarter revenues.

Meanwhile, Spanish utility Iberdrola reported a decline in its profit for the nine-month period. Brewer Heineken reported lower third quarter beer sales, although it maintained its outlook for the full year. British American Tobacco reported lower revenues for the nine-month period, dragged lower by forex effects.

The minutes of the Bank of England’s October meeting showed that policymakers decided to maintain its key rate at a record low 0.50 percent in a split vote for the third straight time. As in the previous two meetings, Ian McCafferty and Martin Weale sought a quarter point hike in the bank rate to 0.75 percent, while all other seven members of the Monetary Policy Committee voted to keep the rate unchanged at 0.50 percent. At the same time, the Monetary Policy Committee unanimously voted to leave the bond purchase program unchanged at 375 billion pounds.

In the judgment of McCafferty and Weale, monetary policy would remain extremely supportive even after a 25 basis point rise in the bank rate, and an early rise would facilitate the Committee's aspiration that any subsequent rises in the Bank Rate should be only gradual.

U.S. Economic Reports

Consumer prices in the U.S. unexpectedly showed a modest increase in the month of September, according to a report released by the Labor Department on Wednesday, with higher prices for food and shelter offsetting a continued decline in energy prices.

The Labor Department said its consumer price index edged up by 0.1 percent in September following a 0.2 percent drop in August. The modest uptick came as a surprise to economists, who had expected prices to come in unchanged. Excluding food and energy prices, the core consumer price index also inched up by 0.1 percent in September after coming in unchanged in the previous month. The increase matched economist estimates.

The consumer price index for the U.S. eased 0.2 percent month-over-month in August, while it was expected to have remained unchanged. This marked the first drop since April 2013. The annual rate of growth in consumer prices was 1.7 percent. Energy prices tumbled 2.6 percent.

The Energy Information of Administration is due to release its petroleum status report for the week ended October 17th at 10:30 am ET.

Crude oil stockpiles rose by 8.9 million barrels to 370.6 million barrels in the week ended October 10th, remaining in the upper half of the average range.

However, gasoline inventories declined by 4 million barrels and were in the middle of the average range. Distillate inventories fell by 1.5 million barrels and were in the lower half of the average range.

Refinery capacity utilization averaged 90.1 percent over the four weeks ended October 10th compared to 91.4 percent over the four weeks ended October 3rd.

Stocks in Focus

Boeing’s (BA) third quarter core earnings per share and revenues beat estimates and it raised its 2014 profit guidance.

Abbott (ABT) reported third quarter earnings that exceeded estimates. While its revenues missed expectations. The company raised the mid-point of its 2014 adjusted earnings per share guidance. Biogen Idec (BIIB) reported better than expected third quarter results and raised its 2014 earnings per share guidance. Boston Scientific (BSX) reversed to a profit in its third quarter and raised its 2014 guidance.

Yahoo! (YHOO) reported third quarter adjusted earnings and revenues, excluding traffic acquisition costs that were ahead of estimates.

Broadcom (BRCM) reported better than expected third quarter adjusted earnings and revenues. The company’s fourth quarter revenue guidance was in line.

Cree’s (CREE) first quarter results missed estimates, and the company issued below-consensus earnings and revenue guidance for the second quarter.

Celestica (CLS) reported third quarter-adjusted earnings that were ahead of estimates, while its revenues were below the consensus estimate. The company’s fourth quarter guidance was lackluster.

Separately, Celestica said that its president and chief executive officer Craig Muhlhauser has informed the board of directors of his intention to retire as an officer and director of the company by the end of 2015.

Unisys (UIS) and VMWare (VMW) announced third quarter adjusted earnings and revenues that were ahead of estimates. E*Trade Financial’s (ETFC) third quarter results also exceeded estimates.

Discover Financial Services (DFS) reported third quarter earnings that exceeded estimates, while its revenues trailed expectations.

Waste Connections (WCN) reported third quarter results that exceeded estimates. The company also said its board approved a 13 percent increase in its quarterly dividend.

Insurance company ACE (ACE) reported better than expected third quarter operating income and net premiums earned.

Sonic (SONC) reported fourth quarter adjusted earning that came in line with estimates and its revenues were ahead of estimates.

A. Schulman (SHLM), CA Technologies (CA), Cheesecake Factory (CAKE), Citrix Systems (CTXS), Everest Re (RE), Lam Research (LRCX), Logitech (LOGI), O’Reilly (ORLY) and Sallie Mae (SLM) are among the companies due to release their quarterly results after the close of trading.

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