Markets moves up in anticipation of the ECB

S&P 500 Summary Week: January 16 – 23, 2015

BY Howard Silverblatt | FROM CRI | 2015-01-26 10:43


  It was a very busy week of news for the market, but more to the bottom-line, it was a very good stock performance week, which turned around the gloom and doom with the first weekly gain after three weeks of declines. The result was that “everything is beautiful” again on Wall Street (but not necessarily in Greece). The key driver for the week was the ECB, with markets moving up in anticipation. On Wednesday, at 8:30 New York time, the ECB announced a USD 69 billion purchase program, which would start in March 2015 and go through at least September 2016, resulting in purchases totaling USD 1.2 trillion. Both the size and duration of the program was larger than expected. The ECB added that purchases could be extended, depending on "the path of inflation”, which was the ECB’s equivalent of the U.S. Fed’s “data dependent” program. The market reacted positively to what was seen as a more aggressive approach, as markets rose, with the U.S. gaining 1.53% for the day and the euro falling, posting an 11-year low against the U.S. dollar. Central bank actions and statements were numerous. Denmark cut its main interest rate, the Bank of Canada unexpectedly cut its rate and described the move as “insurance” against any potential fallout from lower oil prices, and the People’s Bank of China rolled over year-end loans and added funds to ease liquidity. The Bank of Japan cut its core inflation forecast, as it cited lower oil prices, as the Bank of England kept its rates, with the previous dissenters coming on board to keep rates unchanged. The IMF reduced its global 2015 and 2016 growth rate, but increased it for the U.S., as it estimated that the Middle East could post export losses of USD 300 billion due to lower oil prices. Also affecting the U.S. was earnings season, which opened poorly due to misses by the large banks, with some regional banks appearing to have high debt exposure to oil, but the earnings season improved over the week. For the shortened week, the market posted a broad 1.60% gain, after three previous weeks of declines, as the ECB and, to a lesser extent, earnings, came to the rescue. The three days of gains, with a 0.55% decline on Friday (which declined in the final 1 and half hours, as concern over the weekend Greek vote pushed some to close out their positions), left the index off 0.34% year-to-date, with a 1.85% decline from the December 29, 2014 closing high. Breadth was strongly positive, as stocks bounced back, with 380 issues up in price (last week had 179 issues up, with 200 increasing the week before that), and only 120 issues down—far from the 321 decliners last week (or the 300 the week prior to that). Nine of the 10 sectors gained for the week; four were up last week. Information technology did the best, up 3.11%, as it turned positive for the year (up 0.22%); next week’s Microsoft and Apple releases will be key to sector (after the close Monday and Tuesday respectively). Energy moved higher, as oil remained in a wide trading range (USD 45-50), but was seen as more stable; the sector added 1.59%, but remains 4.45% off year-to-date. Financials added 1.22%, as their earnings reports were mixed but generally lower than expected, with some regional banks declining on oil debt exposure. Telecommunications did the worst for the week, posting the only negative return for the week, with a 1.12% decline, as earnings (and promotional costs) continue to be a concern. The VIX fear gauge closed down at 16.66, from last week’s 20.95, which was up from the prior week’s 17.55. The increased intraday volatility in stocks has kept the index higher than its recent average (the 2014 average was 14.17), but at 16, it remains relatively low (the 25-year average is 19.95). The U.S. 10-year Treasury bond closed down at 1.79% from last week’s 1.95%, as the ECB move pushed changes in currency rates. Oil remained volatile, but it stayed within a wide trading range of USD 45-USD 50, which was a good first step to stability; its future course is still being debated, but most see it as eventually rising (eventually rising is also a theme statement for U.S. interest rates). Oil closed at USD 45.30, down from last week’s USD 48.50 and the previous week’s USD 48.20 (it closed the year at USD 52.60). Volume declined 3% from the prior week, but remained 17% higher than the one-year average, and it did have its moments of spiking because of events. With a quarter of earnings reported, actual earnings are mixed, as the consolidated weighted return is lower than the past quarter, meaning no new record. Individual issues appear to still be benefiting from share count reduction, with at least 20% of them posting at a tailwind of at least 4% in earnings (due to at least a 4% reduction in shares). Next Monday is expected to be all about earnings, as 140 issues, representing 35% of the market value reports. Trading and volatility should increase, as issue-based trading reacts to the releases. Economic reports will be slow, but additional details on the ECB program and oil prices could have an impact.

  After the close Monday, January 26, hospital and surgical center issue HCA Holdings (HCA) will replace Safeway (SWY) in the S&P 500; Safeway is being acquired by led by Cerberus Capital Management L.P. After the close on Jan. 26, 2015, S&P MidCap 400 branded and generic pharmaceutical issue Endo International (ENDP) will replace Covidien (COV) in the S&P 500; Covidien is being acquired by S&P 500 member Medtronic (MDT).


  With 28% of the earnings reported, an initial look shows 62% of the issues are beating estimates, which is lower than the historical two-thirds beat rate. Estimates have come down as oil continues to plague the energy sector, and retail sales are appearing to be less than expected, even as consumers benefited from lower gasoline prices. Lower share count, which increases earnings per share (net income/few shares raises the value) is a continuing trend. In each of the first three quarters of 2014, 20% of companies in the S&P 500, one-in-five, reduced their year-over-year share count used for calculating earnings per share by at least 4%, meaning that added a 4% tailwind to them. The initial Q4 2014 number shows a 17.5% rate based on actual reporting, but estimates point to a higher, over 20% rate, for the quarter.


  In premarket news on Monday, Chinese regulators disciplined three major houses for margin violation; reports said margin lending almost tripled over last year, with 2015 posting a 9% increase over the first two weeks. The build-up of debt to buy equities in the rising stock market came to a halt, as selling pushed the Shanghai down 7.7% (the worst single day in six years). Several houses announced capital offering to shore up their capital (Citic Holdings, Haitong Securities, GF Securities). China would release its Q4 GDP report Tuesday, 10 a.m. local time, which was expected to come in at an annual rate of 7.34%, the lowest posting since 1990. The 9 p.m. Monday New York time release could play into the U.S. Tuesday opening. The Japanese 10-year declined to 0.2%—a record low—as the Bank of Japan continues its asset purchases. French President Hollande said the ECB will decide to buy government debt later this week (at their Thursday meeting), pushing European markets higher. Denmark cut its interest rates to -0.2% from -0.05%, and its lending rate to 0.05% from 0.2%. Election rhetoric increased in the U.K., ahead of the May 7, 2015 elections, as Prime Minister Cameron called for “full employment.” Iraq said it would produce a record amount of oil this year, adding to excess supply; oil declined on the news. Oil traded at USD 47.90 and gold was at USD 1,273.30; the euro traded at 1.1632, the pound at 1.5157, and the yen at 1.1632. European markets were higher, as the IBEX led with a 1.2% gain, and the STOXX trailed but was still up 0.4%. Asian markets were mixed, as the Nikkei was up 0.9%, but the Hang Seng was off 1.5% with the Shanghai down 7.5%. In the U.S., equity markets and banks were closed for holiday. In premarket news on Tuesday, Chinese fourth quarter GDP came in a 7.3% annualized rate, below the official 7.5% target, but ahead of the 7.2% expectation; for the full year 2014 the rate was 7.4% - the lowest annual growth since 1990. The official 2015 target is 7.0%. Japanese Industrial production declined 0.5% in December 2014, when a 0.6% decline was expected, as Capacity Utilization fell 0.8%. The International Monetary Fund (IMF) reduced its 2015 growth rate to 3.5% from the previous 3.8%, and 2016 to 3.7% from the prior 4.0%, citing lower oil prices. The IMF increased the U.S. rate to 3.6% from the prior 3.1%, as it reduced China to 6.8% from the prior 7.1% estimate. Oil traded at USD 47.60, gold was at USD 1,287.20, and the U.S. 10-year yielded 1.83%; the euro traded at 1.1582, the pound at 1.5148, and the yen at 118.71. European markets were higher, as stimulus momentum helped stocks; the IBEX led, up 1.4%, with the CAC up 1.3%, and the DAX lagging but still up 0.2%. Asian markets were higher, helped by China’s Q4 GDP beat, and the Nikkei led with a 2.1% gain, as the SENSEX and the Shanghai were both up 1.8%, with the Hang Seng up 0.9%. U.S. futures were up. In the U.S., specialty metal issue Allegheny Technologies (ATI) beat estimates, as it opened 2.5% higher and closed off 0.2%. Oil, gas, and mining equipment and services issue Baker Hughes (BHI) beat estimates but warned of pressure in 2015 due to lower oil prices; the issue opened a tick down and closed up 1.2%. Airline issue Delta Air Lines (DAL) reported a slight beat and opened 2.6% higher and closed 7.3% higher, the best issue in the index for the day, as lower oil prices were seen as continuing to help the company. Oil well services issue Halliburton (HAL) beat estimates, as the issues opened 1.2% higher and closed 1.8% higher. Healthcare products maker Johnson & Johnson (JNJ) beat earnings estimates, but missed on sales, and forecast a profit decline in 2015, citing competition; the shares opened 2.4% lower and closed 2.6% lower. Financial services issue Morgan Stanley (MS) reported higher profits but missed estimates, as it (too) cited trading sales; the shares opened off 2.6% and closed off 0.4%. Commercial bank Regions Financial (RF) missed estimates, as it opened 2.3% lower and closed 3.6% lower. Oilfield services issue Schlumberger (SLB) said it would buy a minority interest (45.6%) in Russian onshore oil driller Eurasia Drilling for USD 1.7 billion; Schlumberger closed off 1.0%. President Obama would make his annual State of the Union address Tuesday evening, with most of his agenda already released; his agenda appeared to be far from the opposition party, leaving many to feel that the political stalemate may extend its presence into 2015. Privately held Fidelity Investments and eight big money managers (including BlackRock, [BLK], BNY Mellon [BK], and JPMorgan [JPM]) were reported as being close to starting a private trading unit (dark pool) for mutual fund shareholders. The market opened 0.3% higher, following Europe, Asia, and its own Friday close, but it lost ground quickly as oil prices started to decline. Pushing down oil was the IMF forecast of lower growth, even though it increased the U.S. growth rate. Prices fell into the red by 9:50 a.m. and declined to be off 0.4%, at the 2,011 level, by 10 a.m. The January NAHB Housing Market Index came in at 57, when a 58 was expected, as December 2014 was revised to 58 from the original 57. Prices started to test their level, as they gyrated up and down in a range. Oil was again in the news and affecting trades for the worse. Prices broke out of their range at 11:30 a.m., falling to the 2,004 area, off 0.7%, and then turned back up. The 12:30 reading was at 2,010, off 0.5%, as prices went into a range until 1:15 p.m. when they took a step up to the 2,015 level, off 0.2%, at 1:30 p.m. Prices started in a tight range over the next hour, when they again took a step up, passing back into the black to reach 2,022, up 0.1%. Prices then traded mostly flat, with slight tilts up and down. Trading started to come in at 3:30 p.m., as prices remained stable. The session ended the day up 0.15%, to close at 2,022.55. After the close, system software product maker CA (CA; up 1.0% for the day) beat earnings estimates and met sales expectations, as the issue traded down 1.4% in the aftermarket. Business machines and systems maker International Business Machines (IBM; off 0.1% for the day) reported lower earnings and lower sales, as it posted its eleventh consecutive quarter of sales declines; the issue traded down 1.9%. Online entertainment issue Netflix (NFLX; up 3.4% for the day) beat estimates, as it subscriptions grew by 4.3 million to end the year with 57.4 million; the issue traded 16.0% higher. Later that night, President Obama laid out his plans for the final two years of his (permitted) term, and, as expected, it was in stark contrast to the opposition party. The key question that came out of the speech was how much, if any, compromise the two sides would do, given that both needed to achieve some tasks, but neither wanted to yield to the other on any issue. The answer, many believed, would be determined behind closed doors, with the public being the last to know. In premarket news on Wednesday, anticipation was building for tomorrow’s ECB meeting (in Frankfurt), starting at 3 a.m. New York time and the press conference coming after the meeting at 8:30 a.m. New York time. A report said the ECB’s executive board was looking for USD 58 billion in monthly purchases for at least one year, making the initial commitment USD 696 billion. The People’s Bank of China rolled over year-end loans (USD 43.4 billion) and added funds (USD 8 billion) to ease liquidity issues caused by year-end demands. The Bank of Japan maintained its stimulus, as it cut its core inflation forecast for fiscal April 2015 to 1.0% from 1.7%; the bank cited lower oil prices. The Bank of England kept its rates, as the previous two dissenters (desiring an interest rate increase) agreed with the stance, making the decision unanimous. The Bank of Canada unexpectedly cut its overnight rate to 0.75% from the previous 1.0%, as it described the move as “insurance” against any potential fallout of lower oil prices. The move joins other recent central bank cuts, including Denmark, India, and Switzerland. Japanese brokerage house Nomura had reportedly hired investment bankers in the U.S. and Asia, as it trimmed its staff in Hong Kong. A report from the IMF said the Middle East could post export losses of USD 300 billion. The report cited large cash buffers, which could insulate the loss; the agency had lowered its growth rate for the region to 3.4% from their October 2014 estimate of 4.5%. Oil traded at USD 46.70, gold was at USD 1,300.00 (the last time it traded at 1,300 was August 2014), and the U.S. 10-year yielded 1.80%; the euro traded at 1.1583, the pound at 1.5109, and the yen at 117.55. European markets were down moderately, with the IBEX down the most, at off 0.5%, but the FTSE was up 0.6%. Asian markets were mostly higher, as the Shanghai continued its climb after a brief fall, up 4.7%, as Singapore was up 0.6% and the SENSEX was up 0.4%; the Nikkei was off 0.5%. U.S. futures were off 0.3%. In the U.S., the previous night’s State of the Union address was the talk, but earnings, and some economics, were the focus. The weekly mortgage application report increased 14.2%, after increasing 49.1% last week; purchase applications were off 0.3%, as refinancing was up 22.0%. The December Housing Starts came in higher than expected at an annual rate of 1.089 million when 1.041 million was expected, as the previous month was revised upward to 1.043 million from the originally reported 1.028 million. Building Permits missed the 1.06 million estimate, coming in at 1.032 million, as the previous month was also revised up to 1.052 million from the prior 1.035 million reported. Commercial bank Fifth Third Bancorp (FITB) beat estimates but opened off 0.7% and closed off 3.0%, as investors remained nervous over some regional banks. Illinois-based commercial bank Northern Trust (NTRS) beat estimates, citing equity returns, with its stock opening up 7.9% and closing up 6.2%. Bank U.S. Bancorp (USB) beat earnings estimates and significantly beat its top-line estimate, as it opened 1.3% higher and closed 2.4% higher. Health maintenance services issue UnitedHealth Group (UNH) beat estimates, as it cited higher government coverage; the issue opened up 0.9% higher and closed up 3.4%. Affected by yesterday’s releases included Netflix (NFLX), which opened 18.8% higher (and closed up 17.3%, the best issue in the index for the day), and International Business Machines (IBM), which opened off 2.5% (and closed off 3.1%). In a reversal to recent trends, the market opened lower, off 0.5%, at 2,012, and moved up quickly from there to reach 2,019, up 0.3%, at 9:40 a.m., as the size of the recommended ECB stimulus plan spread. Prices then quickly started to seek a level, as not all trades were from the Bulls. Prices wobbled above and below the break-even point until 10:40 a.m., when the ECB expectations appeared to win out and they turned up. Prices rose steadily, with no downward steps, to 2,038, up 0.75% for the 11 a.m. posting. Prices declined slightly from there, to the 2,034 level, within 15 minutes, and then went to trading in a tight range until 12:45 p.m. Prices then started decline slightly, then traded flat, and then fell again. The result was a decline to a tick above the break-even line (2,023) for the 2 p.m. posting. From there it was uphill, as prices started a slow step-by-step gain, with some declines in between. The 3 p.m. reading was back to 2,031, up 0.4%, as the 3:40 p.m. reading was at 2,033. Trading started to come in and became heavy near the end of the session, as prices remained flat from that point. The session ended the day with a 0.47% gain to close at 2,032.12 (the market’s third consecutive gain), adding 1.98% back into the market. The market was ready for the ECB and expected a full commitment for stimulus; needless to say, it will not be a good day if those expectations are not met. After the close, travel and charge card issue American Express (AXP; up 0.5% for the day) met earnings, as its costs rose. The company said it was letting 4,000 workers go (6% of its work force), and the issue traded down 1.9% in the aftermarket. Credit card issue Discover Financial Services (DFS; flat for the day), reported a steep decline in earnings, but its sales rose; the issue traded down 3.1%. Online trading services issue eBay (EBAY; down 0.6% for the day) beat estimates, as it announced plans to lay off 2,400 workers (7% of its work force) and discussed splitting the company up; the issue traded up 3.5%. Internet traffic management product maker F5 Networks (FFIV; down 0.2% for the day) missed estimates and gave a poor forecast, as the issue traded down 15.4%. Natural gas transporter and storage issue Kinder Morgan (KMI; up 0.4% for the day), missed estimates, as it traded down 1.8%. Flash memory and storage maker SanDisk (SNDK; up 2.1% for the day), beat estimates and raised its buyback program, but it gave a lower forecast; the issue traded down 7.1%. Semiconductor supplier Xilinx (XLNX; up 1.1% for the day) missed sales estimates, as its forecast fell short of expectations; the issue traded down 6.5%. Later that evening, S&P Dow Jones Indices announced that, effective after the close on January 26, 2015, S&P MidCap 400 branded and generic pharmaceutical issue Endo International (ENDP) will replace Covidien (COV) in the S&P 500. S&P 500 member Medtronic (MDT) is acquiring Covidien. In premarket news on Thursday, the ECB meeting was the only story. At 8:30 New York time, the ECB announced that it would complete a total of euro 60 billion (currently USD 68.7 billion) in purchases per month (the current program was euro 10 billion; USD 1.14 billion) starting in March 2015 and going through September 2016, a value and duration larger and longer than expected. The bank added that purchases could continue after that point (September 2016) until "sustained adjustment in the path of inflation which is consistent with our aim of achieving inflation rates below, but close to, 2%". The reaction to the aggressive approach, which was not a unanimous decision, was very positive, with both the size of the purchases and the open-ended date seen as supporting growth. The market reaction was also positive, as European markets moved up from the moderate gains to the up 1+% area and U.S. futures first ticked down but then moved higher. The euro fell to 1.1423 to the U.S. dollar, the lowest level in 11 years, and pressure on the currency to weaken was seen as growing, as the pound increased to a seven-year high against the euro. Denmark cut its main interest rate to 0.35% from 0.5%; it was their second cut this week. Elsewhere, tensions grew over the Greek election, along with that country’s debt. The Royal Bank of Canada said it would buy U.S. bank City National (CYN; Los Angeles) for USD 5.4 billion. Oil traded at USD 48.60, gold was at USD 1,300.00, and the U.S. 10-year yielded 1.93%; the euro traded at 1.1423, the pound at 1.5019, and the yen at 118.16. European markets were moderately up, improving after the ECB announcement, as they ended the day broadly higher, with both STOXX and IBEX up 1.7%, and the CAC up 1.5%. Asian markets were higher but less so, as the Hang Seng led with a 0.7% gain, Shanghai was up 0.6%, and the Nikkei trailed with a 0.3%. U.S futures were 0.5%. In the U.S., the ECB was the main story and added to the optimism on the Street, but “local” economic issues and earnings announcements were the main trading news. The weekly new unemployment claims report came in at 307,000, slightly down from the revised 317,000 last week, but higher than the 300,000 expected. The FHFA House Price Index for November posted a 0.8% gain over October, when a much smaller 0.3% advance was expected; the strong gain came after last month’s 0.6%. Commercial banks continued with earnings, as BB&T (BBT) beat estimates and forecast lower expenses; it opened 1.6% higher and closed 3.6% higher. Huntington Bancshares (HBAN) beat on both earnings and sales, as it opened up 0.5% and closed up 4.0%. KeyCorp (KEY) reported higher numbers, beating estimates and reporting lower costs, as it opened 2.3% higher and closed 7.6% higher. Auto interior parts and systems Johnson Controls (JCI) opened 3.1% higher and close 4.8% higher, as it beat expectations and increased its forecast. Airliner Southwest Airlines (LUV) beat estimates, as its fuel costs were at a five-year low; the issue opened 3.9% higher and closed 8.4% higher. Railroad issue Union Pacific (UNP) beat estimates, as it reported a 22% gain in earnings, with the issue opening 2.5% higher and closing 4.7% higher. Telecommunications issue Verizon Communications (VZ) opened off 0.2% and closed off 0.9%, as it reported a loss after taking a pension charge. Issues affected by the previous day’s after-the-close releases were on the down side. American Express (AXP) opened off 3.6% (and closed off 3.8%), Discover Financial Services (DFS) opened 4.6% lower (and closed 5.8% lower), F5 Networks (FFIV) opened off 13.7% (and closed off 10.0%, the worst issue in the index for the day), SanDisk (SNDK) started 7.2% lower (and closed 1.9% lower), as Xilinx (XLNX) opened down 8.1% and closed down 6.1%. eBay (EBAY) was one of the few gainers (from the prior night’s releases), as it opened 3.4% higher (and closed 7.1% higher). Banks opened higher, helped by the ECB actions (higher European growth), even as some regional banks with large oil exposure continued to be under pressure. Shareholders of discount retailer Family Dollar (FDO) easily approved its acquisition by Dollar Tree (DLTR), mostly ending Dollar General’s (DG) hopes of buying the issue; Dollar General went up on the news, closing the day up 3.6% (winning for losing). The market opened higher at 2,043, up 0.5% on higher volume, as opening orders then pushed the prices lower into the red within the first 15 minutes. Prices fell to 2,026, off 0.3%, a few minutes later, but then they turned and went up, as after-the-opening buying took over. The market made it back into the black by 10 a.m. and continued up, with only a few minor steps down. By 10:45 a.m., the market made its way back to the opening 2,043 level, and it reached 2,051, up 0.95%, for the 11 a.m. posting. Prices then went into a trading range, testing their levels, as well as the commitment of shareholders. ECB and earnings talk was prevalent, as trading declined from its higher levels (but there were spikes at times); overall, energy was moving against the market, as it was modestly down, with financials moving higher. The noon and 1 p.m. readings were both at 2,045, as the market started to tilt up at 1:35 p.m. The 2 p.m. reading was at 2,049, with the 2:30 p.m. reading at 2,051, up 1.0%. Trading was slightly higher and buying continued, as some momentum appeared to come into the market. Prices continued up to 2,061, up 1.4%, for the 3 p.m. reading, as they then went into a trading range, with slight moves up and down. The 3:30 p.m. reading was at 2,063, as was the 3:45 p.m. posting. Trading became heavy, as prices remained in a tight range, with little movement. The market ended near its intraday high, posting its fourth day of positive returns with a 1.50% gain, to close at 2,062.58. The four-day gain of 3.51% turned the 2015 year-to-date return positive, albeit at 0.18%; the market remained 1.34% off of its Dec. 29, 2015, high (2,090.57). The positive news had pushed the market close to another new high, compared to talk one week ago of a correction. While the ECB, mostly positive earnings, and an improving U.S. economic perspective were credited with the turnaround, the comparative better condition and position in the economic cycle of the U.S. compared to the rest of the world was also being attributed—for example, “Where do you want to invest on the risk-reward tradeoff line?”. After the close, integrated circuit maker Altera (ALTR; up 1.3% for the day) missed estimates and gave a lower forecast than expected; the issue traded down 3.0% in the aftermarket. Bank card and services issue Capital One Financial (COF; off 1.3% for the day), missed earnings expectations, as its loan reserves increased. Online discount brokerage issue E*TRADE Financial (ETFC; up 2.9% for the day), reported a 30% decline in earnings but beat estimates, as the shares traded up 15.1% in the aftermarket. Advanced surgical systems maker Intuitive Surgical (ISRG; up 1.4% for the day) beat estimates, but its shares declined 2.4%, as it appeared the “whisper” estimate may not have been reached. Electro-optical testing system maker KLA-Tencor (KLAC; up 2.2% for the day) beat on earnings but missed on its forecast, as the shares traded down 4.9% after the close. Retail high-quality coffee issue Starbucks (SBUX; up 1.8% for the day), beat estimates on higher holiday sales, as the issue traded up 3.9% in the aftermarket. Cosmetics and gift product seller Avon Products (AVP) closed up 14.6%, the best issue in the index for the day, on heavy trading, as speculation grew that it was in private talks with TPG Capital. In premarket news on Friday, markets were buoyed by ECB action, as the euro declined, with the U.S. dollar gaining against most currencies; the stronger dollar was becoming an issue for imports and exports, as prices were in flux. The January HSBC Chinese Purchasing Managers Index came in at 49.8, up from December’s 49.6, and higher than the 49.5 reading that was expected; a level below 50 indicates contraction. Electronics and entertainment issue Sony delayed its earnings report due to its studio hacking. Oil traded at USD 46.40, gold was at USD 1,296.80, and the U.S. 10-year yielded 1.83%; the euro continued lower, as it traded at 1.1216, the pound broke under 1.50 at 1.4979, and the yen was at 117.95. European markets continued yesterday’s broad gains, as the CAC and DAX were up 2.1%, the STOXX was up 1.8% and the IBEX was up 1.3%; the FTSE, however, lagged, up 0.2% (although the market was poised to post its seventh straight day of gains). Asian markets were also higher, as the Nikkei was up 1.0%, Singapore was 1.2% higher, and Shanghai lagged with a 0.25% gain. U.S. futures were off 0.2%. In the U.S., the ECB remained the news item, but earnings remained the trading issue. Express carrier and package delivery issue United Parcel Service (UPS) warned of a disappointing quarter on higher seasonal expenses (the company is expected to report February 2). The company said earnings should be good after the seasonality issue, but the shares opened off 9.2% and closed off 9.9%, the worst issue in the index for the day. Commercial Bank of New York Mellon (BK) missed on estimates and sales, as foreign exchange trading helped; the shares opened 2.1% lower and closed 4.7% lower. Consumer and industrial product maker General Electric (GE) beat expectations, as industrial sales picked up; the issue opened 0.6% higher and closed 0.8% higher. Aerospace and automotive issue Honeywell International (HON) beat estimates, as its margins increased; the issue opened up 1.6% and closed up 3.1%. Railroad issue Kansas City Southern (KSU) beat earnings estimates but missed on sales, as the issue opened off 3.3% and closed off 5.2%. Tissue, paper and health care product maker Kimberly-Clark (KMB) missed on both earnings and sales expectations, with the issue opening off 4.6% and closing off 6.2%. Fast food restaurant McDonald's (MCD) beat on earnings but missed on sales, as the issue opened flat and closed off 1.5%. Banking and financial services issue State Street (STT) beat expectations, as foreign exchange trading helped, but reported higher costs and a lower-than-expected forecast; the issue opened up off 3.6% and closed off 6.1%. Copiers and duplicator equipment maker Xerox (XRX) slightly beat expectations, as lower taxes aided the company’ bottom line; the issue opened flat and closed off 1.2%. Issues affected by the previous day’s after-the-close releases included Altera (ALTR), opening 3.0% lower (closing off 2.6%), E*TRADE Financial, (ETFC) opening 6.5% higher (closing 8.4% higher, the best issue in the index for the day), KLA-Tencor (KLAC) opening off 6.2% (closing off 8.0%), and Starbucks (SBUX), which opened 4.5% higher (and closed 6.6% higher). Cosmetics and gift product seller Avon Products (AVP), which was up 14.6% yesterday on takeover speculation (by TPG Capital), opened 2.0% lower and closed 7.9% lower. The market opened lower, as the rest of the world was higher, with the opening trades at 2,060, off 0.15% from the 2,063 close. Prices were erratic during the opening, as they posted quick, small upward and downward movements with a downward slant, but in trading a range. At 9:45 a.m., the January PMI Manufacturing Flash report came in flat at 53.7, when an increase to 54.0 was expected. At 10 a.m., the December Leading Indicator report came in up 0.55%, when a 0.4% gain was expected. November was restated down to 0.4% from the originally released 0.6%. Existing Home Sales slightly missed the 5.05 million annual rate, coming in at 5.04 million, up from the November 4.92 million rate. Prices moved higher on the economic data, but they remained in the range until 10:30 a.m., when they took a step down to the 2,053 level, off 0.5%, but then turned back up for the 11 a.m. posting to stand at 2,059, off 0.2%. Prices continued to take steps up and down in short interim moves, as trading continued at a normal level. Several of the steps made new intraday highs, with the overall impact being a slight tilt up. The noon reading was at 2,058, off 0.25%, as the 1 p.m. reading was at 2,061, off 0.1%. Prices continued to bounce around until 2:30 p.m., when the index was at 2,060, off 0.15%, started to tilt downward. Prices moved lower, as concern over Sunday’s Greek election and the impact on the EU, as selling started to outpace buying. The 3 p.m. reading was at 2,056, off 0.35%, as the market moved in short- quick steps with a tight range until 3:30 p.m. Trading then started to get heavy, and prices began to fall. Prices continued down, as it became apparent that some positions were being closed out, and few wanted to go in and buy. Trading became very heavy in the last 10 minutes, when prices took their steepest decline. The session ended as the day posted a 0.55% decline after four days of gains, to close at 2,051.82. The pullback after several strong days was typical, expected, and was seen as mild – given the weekend close-outs over Greek election. For the week, the market posted its first positive week after three consecutive weeks of declines, posting a broad 1.60% gain. The main takeaway from the market was the aggressive ECB move and the improving position of the U.S. economy relative to the rest of the world, which again had brought smiles to faces on the Street and returned some optimism (even as concern remains high). After the close, S&P Dow Jones Indices announced hospital and surgical center issue HCA Holdings (HCA) will replace Safeway (SWY) in the S&P 500 after the close of trading on Monday, January 26; Safeway is being acquired by led by Cerberus Capital Management L.P. Next week will bring the height of earnings, as 140 issues, representing 35% of the S&P 500, report. Volume and volatility should increase, as reactions occur more at an issue level than an index or sector one. Economic reports will be slow, but any details on the ECB plan could influence issues, as well as oil. I would also expect to hear more about exchange rates, as the decline of the euro will impact imports and exports, as well as income sheets.


  Next week’s economic reports will start with Tuesday’s Durable Orders for December 2014, which is expected to show a 0.8% increase, with the Durable Orders ex-transportation expected to show a 0.4% gain. The S&P/Case-Shiller Home Price Index for November 2014 will also be released. At 9:45 a.m., the January Services PMI is expected to be flat, at 53.5, as the 10 a.m. December 2014 release of New Home Sales are expected to come in at an annual rate of 446,000, up from November’s 438,000. Wednesday will bring the weekly mortgage application report. Thursday will start with the weekly unemployment claims reports. At 10 a.m., the December Pending Sales Index is expected to come in a tick lower, at 104.5, from November’s 104.8. Friday will bring the highlight of the week (for economic reports), as the Advance Q4 GDP report is expected to show a 3.2% annual rate, down from the higher than expected 5.0% finalized Q3 rate. Chain Prices are expected to show a 1.2% gain. With a quarter of the earnings reported to date, next week will bring the height of the reporting season, as 140 issues are scheduled to release, consisting of 35.5% of the market value. The following week will remain busy, but not as much, with 104 issues, representing 13.6% of the market value, scheduled to report.


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