Earnings did not get off to a good start

S&P 500Summary Week: January 9 – 16, 2015

BY Howard Silverblatt | FROM CRI | 2015-01-19 10:46

   THE MARKET

  Be careful what you wish for; traders and investors wanted earnings and they got them. The problem was that earnings, which have been supporting the market for almost two years (via record levels, along with record cash flow), did not get off to a good start. But if that was all that bothered the market this week, the mood would be a bit better—especially since earnings are expected to be better next week (optimism is eternal, but quarterly results and forecasts currently rule).Commodities continued down, as the word “contagion” was resurrected. Oil, which had increased to over USD 50 during the week, fell back to close the week down, at USD 48.50. Copper prices continued down (breaking under USD 6,000 per metric ton), as it triggered selling (trading for as low as USD 5,350); metals in general declined as concern over slower growth increased, with related plants reducing production.On the economic front, the all-important holiday December Retail Sales report came in much lower than expected, even once the autos and gasoline were excluded - the market did not like that (actually, the market didn’t like most things this week). The Swiss National Bank unexpectedly removed its currency cap of 1.2 Swiss francs to the euro, as currency leaving the euro zone pushed the Swiss franc to a record level. Unexpected was an understatement for currency traders, with some scrabbling for additional capital to shore up capital losses (some expect a few weekend marriages and investments as a result of the situation). Next week’s ECB meeting (January 22) is now a major issue, as pressure has mounted for action—regardless of what happens, stocks will react.While many investors, and most active stock pickers, may want to blame it on energy, the truth of the matter, or at least the statistics, is that the S&P 500’s 1.92% year-to-date decline would still have been a decline of 1.67% absent energy’s 4.64% fall. From the end of June, however, which was before oil did a two-for-one stock split (absent the stock of course), the impact is greater, as the 3.02% index gain would have been over twice as large, at 6.20%.Volatility increased greatly, as intraday swings grew to levels not seen since the October 2014 declines. What was not discussed, and may be of little interest to most, but I mention it anyway (since this is where I live), was the reaction of traders (and some investors) to the higher volatility and uncertainty, and the ability of experienced traders to differentiate themselves and not get sucked into the trade of the moment. For them, the task appeared to be to focus on the stock, not the trend, don’t try to be a timer; and judge the depth of selling and potential selling– sounds good to me (we’ll have to wait to see if it was profitable).Friday posted the only gain of the week (up 1.34%), with the last half-hour of trading seeing heavy buying, which was seen as vote of confidence over the extended weekend, and seen by some as meaning ‘enough was enough’. The overall question, however, is not oil, commodities, or the ECB, because those are all issues that lead to the main question of: what is the state of the U.S. economy and its growth? The answer will be a little easier to tell after this earning season, as we see how companies and consumers manage in a challenging quarter.For the week, the market posted a 1.24% decline (limited by Friday’s 1.34% gain), its third week of declines, amounting to a 3.32% fall. The last such run was for four weeks in October 2014, with a 6.15% decline and the market made the loss back over the next month. Year-to-date, the market is off 1.92%, with many noting last January’s 3.56% decline, with the year ending up 11.39% (more optimism). Breadth was negative, as 179 issues moved up (down from 200 issues that gained last week) and 321 issues declined (up from last week’s 300 issues). Six of the ten sectors posted losses, compared to last week’s eight and the prior week’s ten-for-ten decline. Utilities posted a strong week, up 2.62%, as energy fell another 1.51%, even as it gained 1.95% on Friday; year-to-date the sector is off 4.64% and off 23.13% from the end of June. Healthcare managed a 0.19% gain. Financials did the worst, off 2.68%, as major banks disappointed in their earnings, with most citing lower trading revenue. The VIX fear gauge closed at 20.95, up from last week’s 17.55, as uncertainty became the only constant in the market this week; the 2014 average was 14.17 (virtually no fear), with the 25-year average being 19.95.The U.S. 10-year Treasury bond, which broke under 1.9% last week to close at 1.95%, and broke under 1.8% this week, as it closed at 1.83%, as new currency concerns in regard to the Swiss franc and euro joined the continuing story of oil, low growth, and recession to cause another flight to safety. Oil was erratic, as it managed to trade back over USD 50 briefly, but closed a tick higher at USD 48.50 from last week’s USD 48.20 and the prior week’s USD 52.60. Volume increased 5% from last week and was 21% higher than the one-year average, as higher level positions were being shifted due to events and issues reacted to their news or that of competitors (mostly earnings related). Next Monday is a U.S. holiday, with both banks and equity markets closed, which could make for a volatile opening on Tuesday if events occur. U.S. President Obama will make the annual State of the Union Address Tuesday night, with most of the topics and positions already public. The result is expected to be a few areas of agreement (debt, highway spending, potentially some taxes and energy reform), but more issues are expected to remain apart (immigration, minimum wages, expenditures, and healthcare). Thursday will bring the ECB meeting, which has now grown in importance and will affect trading. Earnings will continue to pick up in importance and trading impact, as 58 issues, representing 14.8% of the market weight, are expected to report. The following week (week ending January 30) is expected to be the height of reporting with 140 new earnings releases, consisting of 35.0% of the market value, resulting in over 70% of the issues being reported by month’s end.Volatility was expected to increase again due to events and releases.

  S&P DOW JONES INDICES RESEARCH: PERSONAL COMMENTARY

  S&P 500 cash dividends for the fourth quarter of 2014 posted an increase of 12.7% over 2013, setting a new record and posting a fourth consecutive year of double-digit actual cash payment increases.In the overall U.S. domestic common equity market (not just the S&P 500), a whopping 971 dividend increases (increases, extras, initiations, or resumptions) were made in fourth-quarter 2014, up 9.7% from fourth-quarter 2013. There were 3,308 dividend increases in 2014, up 14.3% from 2013.By contrast, 67 issues decreased dividends (decreases or suspensions) in the fourth quarter versus 51 one year earlier.Overall, the percentage of dividend-paying issues (from the U.S. domestic common market, ASE, NYSE, and NASD) increased to 48.5% in the fourth quarter of 2014, up from 47.2% in third-quarter 2014 and 47.7% in fourth-quarter 2013. For the S&P 500, 84.3% of the issues pay a cash dividend; all 30 constituents of the Dow Jones Industrial Average pay a dividend.Sixty-eight percent of S&P MidCap 400 issues paid, up from 67.5% in the third quarter, 66.8% in the second quarter, and 66.3% in the first quarter.For the S&P SmallCap 600, 52.7% paid, up from 51.2% in the third quarter, 50.2% in the second quarter, and 49.5% in the first quarter.Continued strong dividend payments for 2015 are expected, as the shareholder return trend continues.At the current declared rate for S&P 500 issues, 2015 is already set to beat 2014 by 4.4%, and that is before any dividend rate changes; in 2014, the index had 383 increases and 8 decreases.However, there is one caution: although the U.S. dollar aggregate of dividend cuts were flat for the fourth quarter, more than half of the cuts came from energy issues. Lower oil prices and oil price uncertainty, both of which hurt energy stocks during the past six months and have devastated many small-cap energy issues (S&P 500 energy fell 9.99% in 2014, and S&P SmallCap600 energy declined 36.20% in the same period), have spilled over to the dividend world. This is not the financial services dividend meltdown of 2008 and 2009, but energy does account for more than 11% of dividends in the general market (12% in the S&P 500). If lower oil prices cut into earnings and cash flow, dividends could eventually be hurt. Typically, dividends are the last to be cut, especially in companies that have a long and rich history of dividend increases. Investors should look at expected earnings and cash flow, as well as cash resources. 2015 guidance should be plentiful for these issues in the upcoming earnings season, but company guidance does not always pan out.

  ACTIONS, SECTORS AND INDIVIDUAL ISSUES

  In premarket news on Monday, a report said the ECB was planning a sovereign debt repurchase program; the ECB meets on January 22, 2015.Another report stated that European banks were stress-testing themselves against Greek exposure (ahead of that country’s January 25 election).Japan was expected to release a record budget for its April 2015 fiscal year, in the area of USD 814 billion, to support (and stimulate) its economy.Chinese auto sales were expected to stay mostly flat in 2015, posting a 7% gain, compared with a 6.9% gain in 2014 and half of the 14% rate of 2013.Healthcare issue Shire (SHPG) said it would buy NPS Pharmaceuticals (NPSP) for USD 5.2 billion (in cash), paying a large premium, after it failed in its attempt to buy AbbVie (for USD 54 billion; ABBV) three months ago.Roche Holdings (RHHBY) said it would buy up to 56.3% of diagnostics issue Foundation Medicine (FMI) for USD 1 billion. The U.S. dollar continued to strengthen, as oil continued to weaken. Copper fell below USD 6,000 per metric ton for the first time is five years.Oil traded under USD 47, at USD 46.80, gold was at USD 1,222.40, and the U.S. 10-year yielded 1.96%; theeuro traded at 1.1817, the pound at 1.5158,and the yen at 118.95. European markets were mostly up, as the CAX and DAX were up 1.0%, as the STOXX was up 0.6%. Asian markets were also mostly up, but not as much, with the Hang Seng up 0.4%, the Nikkei up 0.2%; the Shanghai was off 1.7%. U.S. futures were up 0.4%. In the U.S., Goldman Sachs (GS) reduced its oil price outlook to USD 41, USD 39, and USD 65 (oil was at USD 46.80), for the next three-, six-, and 12-month periods, respectively, continuing the pressure on energy related issues.Exxon Mobil (XOM) opened off 0.9% (closing off 1.9%), as Chevron (CVX) opened off 0.7% (closing off 2.2%) and Transocean (RIG) opened 1.7% lower (closing 3.7% lower). Pharmaceutical issue Bristol-Myers Squibb (BMY) said its lung cancer drug (Opdivo) showed better overall survival rates; Bristol opened up 5.8% and closed up 3.1%.Flash memory and electronic storage product maker SanDisk (SNDK) lowered its guidance, opening 11.7% lower and closing 13.9% lower. High-end jewelry and gift issue Tiffany (TIF) opened off 10.6% and closed off 14.0%, the worst issue in the index for the day, as it lowered its holiday and forecast for 2015, citing the stronger dollar.Merger issues opened higher, with NPS Pharmaceuticals (NPSP)starting 8.4% higher and closing 8.2% higher, and Foundation Medicine (FMI)opening 126.2% higher and closing up 95.3%(yes, almost doubling—Roche shouldn’t find many resistance holders to that offer).The market’s opening tick was up 0.2%, at 2,049 (it closed Friday at 2,045), but just the opening tick—prices fell fast after that, with the market in the red within a few minutes. Prices fell steadily, as energy issues led the way down, but the trend was down. The exception was healthcare, which opened higher and declined much slower, but it showed support as the morning went on. Prices fell quickly and steadily, as they appeared (starting not to like that word) to bottomout at 10 a.m., off 1.1%, at 2,023. Prices then started to move in short up and down movements, with the trend being higher; volume was higher than normal, but not by much. Prices stayed in a range until 10:30 a.m., when they slanted up, still in a step-like motion, as the 11 a.m. posting was off 0.6%, at 2,033. Prices continued to trade in the new range (the off-0.6% area), with a dip near the noon posting (to 2,030) and then back up until 12:40 p.m. Prices were soft and went with the trade, as there was little incentive to fight (or support) the market. Prices fell to the 2,029 level, off 0.75%, at 1 p.m., as they dipped lower but were back to 2,029 for the 2 p.m. posting. Prices remained volatile, as they trended down and then back up, repeating the cycle for the rest of the afternoon. In the end, prices stayed in a wide range, after the initial opening drop. The session ended the day off 0.91%, to close at 2028.26. Volatility was starting to pick up in the market. The VIX fear gauge closed at 19.60, as the market posted its seventh day where the intraday high and low variance was over 1%. After the close, aluminum product maker Alcoa (AA; up 0.4% for the day) reported higher earnings, helped by higher aluminum prices, as the company increased its forecast; the issue traded up 1.4% in the aftermarket.In premarket news on Tuesday, the United Arab Emirates said it would continue its plan to expand output capacity. Oil continued down, trading at a five-year low of under USD 45.U.K. inflation for December came in at an annual rate 0.5% (0.07% was expected), as lower oil prices were cited for the decline (November was 1.0%).Germany reported a balanced federal budget, its first since 1969, as higher tax revenue and lower interest costs turned the budget from an expected negative position to a balanced one.The ECB increased its pressure on Greece over austerity programs, citing the connection of its funding to the programs’ implementation; anti-austerity groups were ahead in political polls for the upcoming election. Concern increased, although mostly off the front page news, over Russian debt, as the ruble traded at 67 to the U.S. dollar. Later in the day, the World Bank reduced its global growth rate projection for 2015 to 3.0%, from the previous 3.4%; the 2014 estimate is 2.6%. The bank said oil’s decline would have uneven benefits. The forecast reduced China’s expected rate to 7.1% from 7.5%, and Japan’s to 1.2% from 1.3%; the Eurozone was cut to 1.1% from 1.8%, and it increased the U.S to 3.2% from 3.0%. More extreme cuts were made to Russia, from 0.5% growth to a 2.9% contraction, and Brazil, from 2.7% down to 1.0%. Oil traded at USD 44.60, gold was at USD 1,237.90, and the U.S. 10-year yielded 1.88%; the euro traded at 1.1792, the pound at 1.5171, and the yen at 118.37. European markets were up strongly, as the CAC, DAX, and IBEX were all up 1.2%. Asian markets were mixed, as the Hang Seng led the way up, 0.8% higher, as the Nikkei and SENSEX were both off 0.6%. U.S. futures were up 0.5%.In the U.S., oil remained a major story, but earnings were right up there with it and expected to be “the” story by the next day, when the major banks start to announce (JPMorgan and Wells Fargo on Wednesday, and Bank of America, Citigroup, and Morgan Stanleyon Thursday; all five issues opened higher). Alcoa opened up 1.9% but closed off 2.3%, even as it beat estimates the previous day (aftertheclose). iPhone maker Apple (AAPL) opened 2.0% higher and closed 0.9% higher, as the company was granted a new patent to read gestures and hand motions. The issue was also raised by Credit Suisse [CS] to ‘outperform’ from ‘neutral’. Internet retailer Amazon.com (AMZN) opened 2.2% higher and closed 1.1% higher, as the company signed celebrity Woody Allen to create a new television series.Tire and rubber products maker Goodyear Tire & Rubber (GT) opened off 2.0% and closed off 7.1%, as the company said income will grow more slowly, citing the stronger dollar. Insurer MetLife (MET) said it would challenge the government’s “systemically important” label of it, along with the restrictions required for such labeled issues. The issue opened 0.8% higher and closed 1.2% lower.The market opened up 0.8%, at 2,045, and started to inch up. The 10 a.m. reading was at 2,056, up 1.3%, and close to the year-end 2,059. The November JOLTS Job Openings report, one of Fed Chair Yellen’s favorites, was released and showed 4.973 million jobs were available, the highest level since 2001; up from October’s 4.834 million, and higher than the 4.875 million that was expected. Prices stayed in a range, as they reached 2,056.93, up 1.4%, near 11 a.m. but were unable to hold the gain. Prices slowly tilted down, as buying was not able to support the level. The noon posting was at 2,048, up 0.9%, as the slant on the decline deepened. Prices fell quickly to the 2,039 level, up 0.5%, at 12:40 p.m., with the market trying to turn the momentum back up; prices slightly increased over the next half hour, but then started to fall. Prices fell with little resistance, as few wanted to buy in a declining run. The market passed into the red at 1:35 p.m. and fell to 2,008, off 0.7%, at 2:15 p.m. The U.S. Treasury budget for December was expected to show a USD 23 billion surplus, up from November’s 56.8 billion deficit. Prices again tried to recover, moving up for 45 minutes, but they then fell back down to the 2,010 area for the 3 p.m. read. Some buying came in, as prices started to increase, and the market made a run for positive territory. Prices reached the 2,027 level, off less than 0.1%, at 3:40 p.m. but were unable to hold their level, as they turned and headed back down (with trading picking up). The session ended the day off 0.26%, at 2,026.03, 0.7% above its intraday low point and 1.6% off its intraday high—volatility had returned. After the close, railroad transportation issue CSX (CSX; off 1.1% for the day) met expectations, as the issue traded up 0.6% in the aftermarket.Integrated circuits maker Linear Technology (LLTC; off 0.6% for the day) reported an 18% gain in earnings, as it traded up 4.3% in the aftermarket. The next day would be about bank earnings, which should shape the opening. In premarket news on Wednesday, the decline in commodity prices was the major story. Copper prices continued to decline, falling to USD 5,353 in Asia and markinga five-and-half year low; the recent decline below USD 6,000 brought in significant selling. Oil’s fall was also seen as depressing metal prices (via lower demand). Russia said it plans to cut its budget by 10% across the board, with the exception of military spending.Oil traded at USD 45.80, gold was at USD 1,230.30, and the U.S. 10-year yielded 1.87%; the euro traded at 1.1756, the pound at 1.5176, and the yen at 116.91. Global markets were in the red, with most in the off0.5% area. In Europe, the FTSE was off 1.9%, as the STOXX was down 0.9%, with most other markets off 0.40%to0.6%. In Asia, the Nikkei was down 1.7%, as most other markets were off slightly less than 0.05%. U.S. futures were down 0.5%.In the U.S., the weekly mortgage application report jumped 49.1%, as purchases were up 24% and refinancing applications were up 66%. A ‘catch-up’ from the recent declines in applications was said to explain the unusual increase.The all-important holiday December Retail Sales report came in much lower than expected, posting a 0.9% decline when a 0.1% decline was expected. Lower oil prices were a major contributor to the lower rate, as expected, but the declines were broader, as the sales ex-autos and gas fell 0.3%, when a 0.6% gain was expected. U.S. futures, which were already down 0.5%, declined on the news to be off 0.7%, and they kept declining to over a 1% fall, reaching off 1.4%—this was a major reaction. U.S. treasury rates declined, as the U.S. 30-year fell to 2.43%, a record low—it was 3.82% one year ago.The U.S. 10-year was at 1.81%, compared to 2.89% one year ago. It was going to be a rocky opening (at the least).The December Export Price Index posted a 1.2% decline, when a 0.5% decline was expected (it was down 1.0% in November); the year-over-year rate was down 3.2%. The Import Price Index declined 2.5%, when a 2.7% decline was expected, as the year-over-year rate was down 5.5%.Commercial banker JPMorgan Chase (JPM) missed estimates, as it reported a 6.6% decline in earnings; the company cited higher legal expenses (USD 1.1 billion pre-tax, compared to USD 0.8 billion in 2013), and higher credit-loss provisions were also noted. Sales declined 2.8%, as trading sales declined 23%.The shares opened off 3.3% and closed off 3.5%. Wells Fargo posted a 2% gain in earnings, its 18thyear-over-year gain in quarterly profits, marking its “comeback” from the post-recessionliquidity period. The shares, however, opened off 1.6% and closed off 1.2% (it was not a good opening for the market).Issues affectedbythe previous day’s after-the-close releases included CSX, opening down 1.3% (and closing up 0.3%), and Linear Technology (LLTC), which opened up 3.9% (closing 1.0% higher).The VIX opened up 11.1% at 22.87 and closed at 21.48; it had closed at 20.56, and closed as low as 11.89 in December (theone-year average is 14.36, with a high of 25.27, and the five-year average is 18.59, with a high of 48.00). Auto market General Motors (GM) said it would increase its capital expenditures in 2015 by 20% (to USD 9 billion); the issue opened off 2.5% and closed off 2.7%.Aluminum issue Alcoa (AA) opened off 2.2% and declined quickly to close off 5.4%, as concern over commodity prices increased. It was an ugly opening for the market, as lower retail sales, potential oil cotangent (into metals) and a flight to safety left the market with only sellers. It was, however, nowhere near the “disaster scenario”that some media outlets used to the describe it. The opening ticks put the index at 2,008, off 0.6%, as prices traded near that range, testing the level of selling and any temptation to bargain hunt; at that level, the market was still only 4.2% away from its intraday high (4.0% from its closing high). Prices traded in a range until 10 a.m., when the November Business Inventories were reported to be up 0.2% for the month, the same rate as October (with the stock-to-sales rate stating steady), but below the 0.3% gain expected. Volume was good, but stocks felt soft, without direction or conviction. Prices turned up a tick, reaching 2,012 at 10:15 a.m., but they fell back to trading in steps, with the downward steps outpacing the upward ones. The 11 a.m. posting was 2,008, as the noon reading was at 2,000, off 1.1% for the day and off 3.0% over the last three-and-a-half days (from the previous Thursday’s close), with all of the days being down.Prices went into a trading range, which was still being tested, as volume evened out (with few spikes) and steps (up and down) were smaller. The takeaway was some stability, which was more important than the level. Oil remained near USD 46, as the U.S. Treasuries remained near the lower end of their daily trading (1.81% for the 10-year). The 1 p.m. posting was at 1,999, off 1.2%, as prices declined to the 1,988 level at 1:45 p.m., off 1.7%. Prices then started to turn up. At 2 p.m. the Fed Beige Book was released, and the report showed the economy continuing to grow at a moderate pace. Price moved higher, with little resistance (there was little resistance when they declined), as they 2:30 p.m. posting was at 2,005, off 0.9%. Prices stayed in a wide range, stepping up and down until 3:15 p.m., when they took a step up to the 2,010 level, off 0.6%. Prices then went into a tighter range around the 2,010 mark, with the last 10 minutes of trading, when volume became heavy, being almost flat. The session ended the day off 0.58%, at 2,011.27. Financials did the worst, although they moved up from their lows, off 2.42% for the day. Utilities posted a strong counter gain of 0.905%, and the sector is up 1.39% for the year-to-date, as the market is down 2.31%. Energy closed with a 0.13% gain, as stocks rebounded with oil late in the session; the sector is off 6.46% year-to-date. It was a bad day for the market, but the declines were well off the lows. The market needed to find its footing, and the hope was that earnings, which have been supporting the market for two years now, would do that. So far, however, the opening issues have not lived up to the hope. In pre-market news Thursday, the Swiss National Bank unexpectedly removed its currency cap of 1.2 Swiss francs to the euro, as currency leaving the euro zone pushed the Swiss franc to a record level. The move pushed both Swiss stocks and the euro lower, while the franc strengthened. Oil prices continued to rebound, starting Wednesday afternoon, as prices broke above the USD 50 mark. Helping prices was a statement from OPEC saying it expected slightly less demand due to reductions in U.S. production, which is the result of lower prices (and is the entire idea behind a price war). How active traders were in oil prices was also becoming a question. Qatar Petroleum and Royal Dutch Shell cancelled its USD 6.5 billion petrochemical plant in Qatar, and lower oil prices were seen as the reason. Cooper rebounded slightly, up 5%, to USD 5,590 (per metric ton). The People’s Bank of China said financing increased USD 273 in December 2014, when a lower growth of USD 193 was expected. Oil continued its turn up, as it traded at USD 50.90, while gold was at USD 1255.20, and the U.S. 10-year yielded 1.84%; the euro traded at 1.1701, the pound at 1.5226, and the yen at 116.85. Global markets were universally up, with a wide range of returns. The IBEG lagged in European markets, but it was still up 0.9%, as the DAX was up 1.5% and the CAC was up 1.8%. Asian markets were led by Shanghai, which was up 3.5%, as the Nikkei was up 1.9% and Singapore trailed with a 0.4% gain. U.S. futures were up 0.2%, which was much less than the non-U.S. gains being booked. In the U.S., the weekly new unemployment claims report jumped to 316,000 new job claims (a four-month high), when a much lower 295,000 was expected. There were no unusual events to explain the increase, although year-start claims for the lag (one week) report was suggested. The PPI for December 2014 came in with a 0.3% decline, slightly less than the 0.4% decline that was forecast, as the year was up 1.1%. The PPI ex-food and energy posted a 0.3% gain, more than the 0.1% that was expected, and came in at 2.1% year-over-year rate. Bank earnings continued, as Bank of America (BAC) reported an 11% decline in earnings, citing lower trading revenue, which appears to be an industry trend; the issue opened up off 2.8% and closed off 5.2%. Citigroup (C) missed earnings, as it reported an 86% decline in earnings, citing a USD 3.5 billion charge (legal and repositioning) and lower trading revenue; the issue opened off 2.1% and closed off 3.7%. Investment management services issue BlackRock (BLK) beat estimates, as it reported strong inflows; the issue opened 1.0% higher and closed 1.0% lower. Finance issues were under pressure, as the previous day’s earnings release issues opened lower, with banks JPMorgan (JPM) opening off 1.9% (closing off 3.2%) and Wells Fargo (WFC) opening up a tick down at 0.1% (and closing off 1.0%). Residential community builder Lennar (LEN) beat earnings, as it opened 1.0% higher but closed off 7.2% for the day. Coatings and glass maker PPG Industries (PPG) beat earnings and sales estimates, as the issue opened 1.3% higher and closed 0.3% lower. Oil and gas issue Apache (APA) said it would lay off 5% of its workforce due to the lower price of oil; the issue opened up 2.5% and closed up 0.8%. Electronics store Best Buy (BBY) opened 12.0% lower and closed 14.1% lower, the worst issue in the index for the day, as it warned of the post-holiday sales (first half of 2015). Discount department store Target (TGT) opened up 4.0% higher and closed 1.8% higher, as it said it would close all of its 133 stores in Canada, which together employ 17,000 people. The market opened on higher volume, as the initial orders were buys, placing the index as high as 2,021, up 0.5%, but prices immediately started to decline as the negative employment and earnings reports took control. It took the market 10 minutes to move into the red, removing the initial 0.5% gain, as prices moved down to the 1,999 level, off 0.6% for the 10 a.m. reading. The 1.1% half-hour swing was a testament to the market’s uncertainty, as economic news and events mixed with earnings. Few doubted that, with the exception of the ECM meeting next week (on January 22 and potentially the Greek vote, January 25), earnings would grow to rule the market. Traders and investors had wanted earnings, which have been supporting the market for two years, but this season has not opened well. Prices started to rise, even as trading seemed uneven, and the index moved back up into positive territory to stand at 2,016, up 0.25%, at 10:35 a.m., when (yes) they started to decline, passing back into the red at 10:45 a.m. Prices continued to fall, as the market tried to evaluate itself. The 11:30 a.m. reading was a tick under 2,000, off 0.6%, near the intraday low. Prices continued to be erratic as oil, which had traded as high as USD 50, fell back to the USD 47-48 range. Trading started in trends, with more prolonged up moves than down, lasting between half to one hour long, but staying in wide range and in the red. The 12.45 p.m. marked one of those lows, off 0.9% at 1,993, as the 1:15 p.m. read was off 0.5%, at 2,001, with prices back down to 1,993 at 1:45 p.m. Prices moved up slowly and in an unsteady motion until 3 p.m., when they stood back at 2,003 and gyrated in short spurts until 3:45 p.m., when they were at 2,000, back to off 0.5%. Trading started to get heavy, and prices started to fall as selling dominated the market. The market closed the session at 1,992.67, off 0.92%, posting its fifth consecutive loss; the last six-day run was in July 2012, and if the morning earnings weren’t good, we would make a run for it. After the close, semiconductor maker Intel (INTC; off 0.4% for the day) reported higher profits from stronger PC sales, but fell short on its forecast, declining 3.1% in the aftermarket. Oilfield services issue Schlumberger (SLB; off 2.2% for the day) reported lower sales, citing lower oil prices. The company said it would reduce capital expenditures, cut its work force by 9,000 workers, and increase its dividend; the shares traded up 0.4%. A survey showed economists were increasing their U.S. GDP projections, citing lower oil prices for (at least) the first half of the year, as the possibility of deflation was mentioned. Earnings would continue tomorrow, but there was some negative momentum developing in the market and a poor showing could extend the trend. In pre-market news Friday, the Swiss move left several currency traders on the wrong side of the euro, as the debate widened on the timing and effectiveness of the move. In its monthly newsletter, the International Energy Agency said lower oil prices would reduce the expected increase in non-OPEC oil production. The EU (18 members) consumer prices for December 2014 came in at 0.2% lower than a year earlier, as the prospects for deflation in the EU and the euro zone in general were seen as increasing. Separately, talk of potential deflation in the U.S. grew, aided by lower oil prices. Oil traded at USD 47.00, gold was at USD 1267.40, and the U.S. 10-year yielded 1.74%; the euro traded at 1.1587, the pound at 1.5171, and the yen at 116.69. European markets were mostly down, but declines were more moderate that yesterday, as the IBEX was off 0.5% and the DAX was down 0.3%. Asian markets were mixed, but more down than up, as the Nikkei was off 1.4% and Singapore was off 1.1%, while Shanghai was up 1.2% and the SENSEX was 0.2% higher. U.S. futures were down 0.3%, in addition to being off 4.68% year-to-date, with 8 of the 10 days being down.In the U.S., the December 2014 CPI report came in as expected, posting a 0.4% decline for the month; the year-over-year rate was up 0.7% (which opened the deflation discussion). Ex-food and energy, the CPI was unchanged from November 2014, when a 0.1% gain was expected; the year-over-year rate was 1.6%. Industrial Production for December 2014 declined 0.1%, as expected, while Capacity Utilization was up 0.3%, when a lower 0.2% gain was expected. U.S. markets will be closed Monday for a holiday, so some traders expect a potential surge in end-of-day trading if positions are closed ahead of the extended weekend (some may not want to be stuck in position Monday, with no way to trade out of them).Discount brokerage issue Charles Schwab (SCHW) beat forecasts, as the issue opened up 0.4% higher and closed up 0.9%. Commercial bank in Michigan, Comerica (CMA) beat expectations, as sales grew more than expected and costs were reduced; the shares opened 1.9% higher and closed 1.2% higher. Investment bank and asset managing firm Goldman Sachs Group (GS) reported a 7% decline in earnings, as it cited lower trading sales (although sales did beat expectations); the shares opened off 0.8% and closed off 0.7%. Financial services and banking issue PNC Financial Services (PNC) reported 2% lower earnings on 3% higher sales, with both components beating expectations; the shares opened 0.5% higher and closed 2.5% higher. Commercial bank SunTrust Banks (STI) beat earnings expectations, as it reported lower earnings, citing mortgage expenses; the issue opened 2.8% higher and closed 3.0% higher. Openings affected by yesterday’s after-the-close releases included Intel (INTC), which opened off 0.2% (and closed up 0.7%) and Schlumberger (SLB), which opened 1.2% higher (and closed 6.1% higher). Metals castings issue Precision Castparts (PCP) opened 15.2% lower and closed 9.1% lower, as it warned on its earnings and sales, citing weaker energy customer demand.The market continued its volatility and uncertainty, with the opening was a tick in the red, at 1,992 (the close was 1,991), as prices moved up to just shy of 2,000, up 0.35%, within 10 minutes. Prices then declined back into the red by 10 a.m. and stood at 1,988, off 0.2% at 10:20 a.m. Prices were moving fast, based on the current availability (buys and sells), with little stability. Prices then rebounded, moving back into the black, rising to the 2,000 level, up 0.35%, where it traded until 10:50 a.m. before taking a quick step up to be at 2,005, up 0.6%, for the 11 a.m. posting. Prices then went into a wide trading range, moving up and down, as they remained solidly in the black, with the noon reading being at 2,002, up 0.5%—potentially the first positive day after five days of declines.Prices remained in a trading range until 12:30 p.m., when they tilted upward and steadily climbed to 2,012, up almost 1%, a few minutes before 1 p.m. There were no major events for the step-up, just the erratic trades on the day (and the week). Prices declined slightly from there, but then went into a tighter trading range, as both the 2 p.m. and 3 p.m. posting were at 2,010, up 0.85%. Prices moved out of their range at 3:30 pm., and started moving higher, as trading increased. Prices moved steadily up, setting new intraday highs, as the 3:45 p.m. posting was at 2,017, up 1.2%, with more trading coming in. The original concern was that some positions might be closed near the end of the day (due to the extended weekend), which would weaken the close, but buying was dominating the trades. Trading became heavy, as prices continued to increase, with only a slight tick down in the last minute of trading. The session ended on an uptick, posting its only gain for the week, closing up 1.34%, at 2,019.42. For the week, the index posted a 1.24% decline—it’s third in row, making a cumulate 3.32% decline. The mood on the Street was cautious, with hopes that earnings would again run to the rescue, along with a strong ECB program. At this point, the market was 3.40% off its closing high and 1.92% off year-to-date – with earnings season getting heavy next Tuesday.

  UPCOMING

  Next Monday is a U.S. holiday, with both equity and banks closed. Economic reports will lighten next week, as the market focuses on earnings. Reports will start on Tuesday with the January NAHB Housing Market Index, which is expected to be flat at 57. Wednesday will bring the weekly mortgage application report. The December Housing Starts are expected to come in at an annual rate of 1.04 million, up from November’s 1.028 million rate, as Building Permits are expected to tick up to 1.055 million, from the previous month’s 1.052 million. Housing Completions are expected to increase to 890,000 from November’s 863,000. Thursday will bring the weekly new unemployment claims report. Friday, at 9:45 a.m., the January PMI Manufacturing Flash report will be released. At 10 a.m., the December Leading Indicator report is expected to show a 0.2% increase, after posting a 0.6% gain in November, as Existing Home Sales will also be released. With 12.7% of the earnings reported to date, next week will pickup the pace, as 58 issues representing 14.8% of the market weight will report (week ending January 23, 2015), with the following week expected to be the height of reporting, with 140 new earnings releases, consisting of 35.0% of the market value (week ending January 30), and 104 issues, representing 13.6% the week after that (week ending February 6, 2015). Reports will drop off for the next week (week ending February 13), and then pick up again, as retail (for the 3-month period ending in January) starts to report.

  

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