Asset Management & Market Research

Week in review ...

The market started in the week in a holding pattern, awaiting Janet Yellen’s Humphrey-Hawkins testimony on Tuesday. The S&P 500 traded in a small seven-point range during the Monday session. Federal Reserve Chairwoman Janet Yellen said Tuesday that markets should expect the central bank to continue to follow the low-interest rate path laid out by her predecessor Ben Bernanke. “Let me emphasize that I expect a great deal of continuity in the Federal Open Market Committee’s approach to monetary policy,” Yellen said in remarks prepared for a hearing of the House Financial Services Committee. “I served on the Federal Open Market Committee as we formulated our current policy strategy and I strongly support that strategy,” Yellen said. Yellen repeated what the FOMC said in December and again in January: Near-zero interest rates will remain “well past the time” that unemployment drops below 6.5%. In response, the SPX rose 1.11% in trading Tuesday. Equities also seemed to respond positively after the House of Representatives brought a “clean” debt limit bill to the floor that would push out the debt ceiling for about 18 months. Additionally, the Affordable Care Act mandate for employers with 51-100 employees to provide health insurance for their workers was delayed until 2016.

On the heels of a weak U.S. retail sales report, and a falling German CPI, equities reversed early weakness Thursday (the Dow was down 100 points at its low) to close up 63. This was remarkable in the eyes of many analysts, as both reports were concerning, especially with deflation threatening to take root in Europe. Although ECB chief Mario Draghi has so far shown few worries that deflation is a problem, MarketWatch reports that Barclays says the risks “are significant,” far greater than markets or policy makers have acknowledged.

Friday marked another day of gains, despite weak economic readings. Equities climbed for an eighth straight session on Friday, with the SPX tacking on another 8.8 points, perhaps in reaction to a gradual improvement in euro zone growth. Here at home,  U.S. factory production fell 0.8 percent in January, the biggest drop in more than 4-1/2 years. This report comes on the heels of Thursday’s unexpectedly weak U.S. retail sales report that investors discounted due to the weather. ”The fact the market has not been adversely affected by the weaker numbers, any of the recent numbers that have fallen short, (means) the smart market money believes it is in fact the weather, and the economy has not fallen off the tracks here,” said Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey (ht Reuters). .

The major indices rose for the second straight week. For the week, the Dow and S&P 500 rose 2.3 percent each and the Nasdaq added 2.9 percent. All five sessions this week saw below-average volume, while the important financial and transport sectors struggled to keep pace (these are 2 sectors our own Kevin Lane is keeping a close eye on).

 

This week’s biggest % gainers/losers – courtesy of Briefing,com (categorized by sectors; over $300 million market cap and 100,000 average daily volume).

This week’s top 20 % gainers

  • Technology: IO (4.13 +38.44%), AMAP (20.35 +32.81%), MRIN (12.21 +31.71%), CALL (17.25 +28.68%)
  • Services: ATHN (189.01 +34.23%), OWW (8.79 +24.82%)
  • Industrial Goods: CSTE (56.12 +28.72%)
  • Healthcare: LGND (76.92 +39.3%), ARWR (18.99 +35.76%), RLYP (37.95 +29.45%), ECYT (14.49 +28.44%), LCI (43.13 +27.97%), SNTA (6.24 +27.96%), VNDA (13.46 +27.62%), CADX (14 +27.06%)
  • Consumer Goods: SKX (35.47 +28.73%)
  • Basic Materials: AZC (3.21 +64.1%), SVM (2.88 +29.41%), SNMX (9.78 +27.48%)

This week’s top 20 % losers

  • Technology: LNKD (186.13 -14.22%), ITRI (36.12 -14.1%), JIVE (7.63 -13.83%), RAX (33.81 -13.71%), EGOV (18.6 -11.68%)
  • Services: BLOX (19.41 -42.23%), NSP (27.41 -15.59%), FURX (95.9 -13.59%), G (15.09 -13.12%), URS (43.37 -10.77%), RJET (9.11 -9.54%)
  • Healthcare: MDCO (29.52 -10.98%), CI (77.71 -10.81%), INSM (16.61 -10.53%)
  • Financial: GTS (15.54 -10.23%)
  • Consumer Goods: BNNY (37 -11.06%), BGS (28.87 -9.87%)
  • Basic Materials: WPX (17.46 -10.82%), IPI (14.42 -9.76%), SZYM (11.07 -9.05%)

 

Here’s a summary of the week’s key economic reports:

Monday

No Notable Data

Tuesday

Small business optimism started the year slightly up from December at 94.1 but well below the pre-recession average of 100, according to the National Federation of Independent Business’ (NFIB’s) latest index. Consensus called for a reading of 93.3. On the positive front, owners did find a reason to be more positive about their own sales (a huge 7 point jump in positive expectations) and plan more hiring, with the strongest job creation plans since 2007. However, owners continue to find inventories “too high” and sales and earnings trends continued to deteriorate for more owners. Overall, the Index is still just treading water.

JOLTs report came in slightly softer for December. The job openings rate slipped to 2.8% in December from 2.9%; the hiring rate slipped to 3.2% from 3.3%; and the separations rate edged up to 3.2% from 3.1%. These were not significant changes but did interrupt the earlier improving trend.

U.S. wholesale inventories rose less than expected in December, suggesting a moderation in the pace of stock accumulation at the end of the year that could see fourth-quarter growth estimates trimmed. The Commerce Department said wholesale inventories increased 0.3 percent after an unrevised 0.5 percent gain in November. Economists polled by Reuters forecast stocks at wholesalers rising 0.5 percent in December. For all of 2013, wholesale inventories increased 3.9 percent.

Wednesday

China’s trade performance zoomed past forecasts in January, as import growth hit a six-month high, confounding earlier analysis suggesting that the economy was mired in a deepening slowdown. The value of China’s total exports climbed 10.6 percent in January from a year earlier, the Customs Administration said, more than five times market forecasts of a 2 percent rise. Analysts who had expected the Lunar New Year holiday to hurt trade flows cautioned, however, that the data might have been inflated by fake transactions, in which traders forge deals to sneak cash into the country past capital controls. The value of imports jumped 10 percent from a year ago, a pace not seen since July, handily beating market predictions of a 3 percent gain. Imports of crude oil, iron ore and copper all hit record highs, according to customs data.

Applications for U.S. home mortgages fell in the latest week as both purchase and refinancing applications slipped. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, fell two percent to 397.2 in the week ended February 7. The index hit its lowest level since December 2000 at the end of last year, soon after the U.S. Federal Reserve announced it would start reducing its $85 billion per month bond-buying program as the economy grows strong enough to stand on its own. The interest rate on fixed 30-year mortgages averaged 4.45 percent last week, down two basis points from the previous week.

Thursday

German CPI fell 0.6% on month in January following an increase of 0.4% in December. The drop in prices comes amid increasing concern that the eurozone faces the threat of deflation, although European Central Bank chief Mario Draghi has so far been sanguine about the prospect. Still, Barclays says the risks “are significant,” far greater than markets or policy makers have acknowledged (ht MarketWatch).

U.S. retail sales fell a seasonally adjusted 0.4% in January. Excluding the large auto sector, sales were flat. Economists polled by MarketWatch had forecast retail sales to fall 0.1% overall but be unchanged excluding autos. In December, sales were revised down to show a 0.1% decrease instead of a 0.2% gain. The 0.7% gain in sales minus autos was trimmed to a 0.3% increase.

Initial claims for state unemployment benefits rose to a seasonally adjusted 339,000 from 331,000 the week before, the Labor Department said. Economists polled by Reuters had forecast first-time applications for jobless benefits slipping to 330,000 in the week ended February 8. The four-week moving average for new claims, considered a better measure of underlying labor market conditions as it irons out week-to-week volatility, rose to 336,750 from 333,250.

U.S. business inventories rose as expected in December, but slowed down significantly excluding automobiles. The Commerce Department said inventories increased 0.5 percent after rising 0.4 percent in November. Economists polled by Reuters had forecast inventories rising 0.5 percent in December. Inventories are a key component of gross domestic product changes. Retail inventories, excluding autos – which go into the calculation of GDP – gained 0.2 percent after advancing 0.6 percent in November.

Friday

The euro-zone economic recovery picked up speed in the final quarter of 2013, as GDP increased 1.1%, at an annualized rate, during the fourth quarter, the European Union’s statistics office said, the third straight quarter of growth. GDP was up 0.3% on the quarter on a non-annualized basis. The expansion was led by Europe’s largest economy, Germany, which benefited from a rise in exports. Economic growth extended to struggling parts of the euro bloc including France, Spain and Italy. France, Germany, the Netherlands and Portugal all generated better-than-expected Q4 GDP figures. Italy returned to positive growth for the first time since mid-2011.

China’s CPI held steady at +2.5% on year in January, while PPI dropped for the 23rd consecutive month with a fall of 1.6%. The benign inflation could give the People’s Bank of China room to loosen monetary policy should the economy slow further, although the PBOC is also concerned about reining in soaring debt. “Inflation is one target for the central bank, but financial stability is a bigger concern,” says JPMorgan economist Haibin Zhu (ht MarketWatch).

Industrial production dropped 0.3% in January, the Federal Reserve reported, with the cold weather knocking manufacturing output by 0.8% and mining output by 0.9%, which more than offset the 4.1% surge in utilities output on heating demand. The drop compared to a MarketWatch-compiled economist consensus for a 0.2% gain. In addition, the Fed knocked down its fourth-quarter estimate of manufacturing production to an annual rate of 4.6% from a previous estimate of 6.2%. Capacity utilization dropped to 78.5% from 78.9%. Also, the Fed made its first estimate of industrial capacity expansion for 2014, as it sees a 2.3% gain after a 1.8% rise in 2013.

The University of Michigan/Thomson Reuters gauge of consumer-sentiment released Friday remained at 81.2 in February, matching January’s final level, topping expectations of a February reading of 80.

Factory production fell 0.8 percent last month, the Federal Reserve said on Friday. It was the first drop since July and the biggest since May 2009, when the economy was still locked in recession. Output had increased 0.3 percent in December. The Fed attributed the first decline in factory output since July to “severe weather that curtailed production in some parts of the country.” Economists polled by Reuters had expected manufacturing output to edge up 0.1 percent.

U.S. export prices rose 0.2 percent in January, the third straight monthly increase in a potentially positive sign for global economic demand and the outlook for American manufacturers.

 



Author: Craig Dougherty

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