Market 360: The Best and Worst of the Week

For the week ending Friday, February 6, 2009, all major U.S. indices had big gains for the week. Stocks edged up on a surprising rise in December pending home sales, a smaller than expected contraction in January’s ISM Non-Manufacturing Index, and strong earning results from the pharmaceutical sector, shrugging off market volatility in the financial sector, weak January automobile sales, and a more grim employment situation. Stocks also gained on hopes of passing a new $800+ billion stimulus package.

-Major indices rallied, fell, and then rallied again with the Dow closing below 8000 for the third time this year on Wednesday before climbing back above 8250 on Friday. The Dow’s lowest closing for the week was at 7936.75 on Monday, just 384.46 points or 5.1% shy from its bear-market closing low of 7552.29 set on 11/20. All major indices gained 3.5% or more for the week, marking the Dow’s and S&P’s best weekly gain since 1/02. The Nasdaq Composite fared best amongst the three major indices for the week as it finished up 7.81%, its best weekly gain since 11/28, and it closed up 4 days out of the 5 trading days.

-In an attempt to bring rates near zero to spur lending and aid the ailing U.K. economy, the Bank of England (BOE) cut its target by 50 basis points to a new record low of 1.0% from 1.5%. In contrast, the European Central Bank (ECB) left its key target rate unchanged at 2.0%, while ECB President Jean-Claude Trichet preferred to postpone any interest rate cut to March, expected at 50 basis points when new staff forecasts will be available.

-Next Week’s Highlights: Next week the markets will watch for economic data including, Wholesale Trade, International Trade, Retail Sales, Consumer Sentiment, and earning reports from a batch of technology companies such as: Applied Material, NVIDIA, Qwest Communications, DirecTV, as well as reports from Coca Cola, Beazer Homes, Whirlpool, and ArcelorMittal.

Market Moving News:
-Retailers posted another round of declining same-store sales for the first month of 2009. Overall same-store sales for January fell 1.8% but were better than the expected 2.3% decline. Amongst the 35 stores tracked by Thomson Reuters, 56% of the retailers beat expectations in January while 44% missed projections. Only a few discounters such as BJ’s Wholesale (BJ), Costco (COST), Wal-Mart (WMT) and teen chains Aeropostale (ARO), Hot Topic (HOTT), Buckle (BKE) topped analysts’ expectations and posted gains in same-store sales for January of 7.6%, 4.0%, 2.1%, 11%, 6%, and 14.7%, respectively. Among its peers, shares of Buckle gained the most for the week, up 15.4% on double digit sales growth, followed by Aeropostale whose shares also jumped 12.1%.

-Domestic car and light truck sales slowed notably in January, falling 37% to an annual rate of 9.57 million units from its previous month, the lowest level in 27 years as per the AutoData Corp.
**The inability of consumers to obtain car loans and the accumulation of job losses have led the big three U.S. carmakers, General Motors (GM), Chrysler LCC, and Ford (F) to steep auto sales declines in January as each reported big drops of 49%, 55%, 40% respectively. Shares of GM skidded 5.7% while Ford jumped 3.7% for the week, as both struggling automakers stocks have fallen to their all-time lows of $1.70/share & $1.01/share in November.
**Furthermore, foreign automakers Honda Motors (HMC), Nissan (NSANY), and Toyota (TM) also reported declines in U.S. auto sales for January of 28%, 30%, and 32%. ADR’s of the respective Japanese carmakers gained more than 3.8% for the week.
**Toyota reported its first annual loss since 1950, as the Japanese car maker lost $1.8 billion in the third quarter underlining the global fall-out in the auto industry. ADR’s of Totoya have fallen more than 35% from a year ago, but finished up 9% for the week.

-A domino affect has plagued the auto industry as distressed auto suppliers are seeking $20.5 billion in federal aid. Due to financial distress, more than 40 U.S. auto suppliers filed for Chapter 11 bankruptcy restructuring in 2008 led by automakers shutting production facilities.
**Auto parts suppliers such as American Axle (AXL), Lear Corp (LEA), ArvinMeritor (ARM), and Visteon (VC) have been hit by major financial pressure as automakers have cut production in the wake of sales declines and industry fall-outs. Shares AXL, LEA, ARM, and VC have shed more than 55% year-to-date, with American Axle leading the pack as its stock has tumbled 64% year-to-date and down 4.6% for the week. However, the truck and car parts maker ArvinMeritor was the biggest loser for the week as its stock fell to a 52-week low of $1.11/share on Thursday and shed 25% after the company reported a net loss of nearly $1 billion in its fiscal first quarter and suspended its dividend.

Health Care:
-Health care sector stocks were in good health for the week and year led by better than expected earnings results from Humana (HUM), Merck (MRK) and Schering Plough (SGP) as well as from their defensive nature. Healthcare ETF Health Care Select Sector SPDR fund (XLV) as well as the S&P Health Care Sector (.GSPU) have turned positive for the year, both up by approximately 3% year to date.
**The NJ-based pharmaceutical giant Schering Plough reported robust fourth quarter net sales in its anti-inflammatory, allergy, and brain-tumor drugs which climbed 8%, 3% and 4%. However the company had a fall out in sales of its cholesterol drugs Vytorin and Zetia in the fourth quarter which partnered with Merck fell by 26% to $1.1 billion in the fourth quarter. Nevertheless, SGP topped analysts’ estimates by 9cents/share leading its shares 12.5% higher for the week.
**Humana reported a net profit drop of 28% for its fourth quarter led by investment losses, yet the health-care administrator revenue jumped 18% to $7.49 billion driven by Medicare Advantage Business and commercial membership. Humana also managed to exceed analysts’ expectations by 1cent/share as its stock rose 17.5% for the week.

-A new flock of regional banks swarmed the U.S Treasury Department for $1.2 billion of fresh new capital. On Tuesday, the U.S. Treasury stated that 42 more state banks were added to the list of financial companies receiving government funding. The government has invested a total of $195 billion in 359 financial institutions with other portions of the rescue funds allocated to insurance company American International Group (AIG), American Express (AXP), and struggling automakers General Motors (GM) and Chrysler LLC.
**The publicly-traded regional banks that received the largest shares of funds in the latest rounds of payments included: Michigan’s Flagstar Bancorp (FBC) and Illinois’ PrivateBancorp (PVTB) which received $266.7 million and $243.8 million, respectively, as shares of FBC and PVTB soared 30% and 8.8% for the week.
-Other regional banks such as Regions Financial (RF), Marshall Ilsley (MI), Suntrust Banks (STI), and Huntington Bancshares (HBAN) weighed on the financial sector on analysts’ downgrades, and the conception of government funds mismanagement.
**Ohio-based bank Huntington was the fourth worst performing stock in the S&P for the week as its shares declined 18% even after the bank announced it will dismissed 4% of its workforce, suspended bonuses and cancelled 401K matching contributions in an effort to save $100 million in 2009.
**Goldman Sachs downgraded the Milwaukee bank Marshall Ilsley (MI) cutting its price target to $5 from $11 as its stock tumbled to a fresh 52-week low of $3.47/share on Tuesday, a level not seen since 12/1990, and sagged 7% for the week.
**Heightened volatility in the trading of Regions Financial’s (RF) stock led the Alabama bank’s share to a fresh new 52-week low of $2.35/share on Thursday after its senior debt was downgraded by Moody’s Services. Yet its stock managed to recoup earlier week’s losses rallying 21.4% for the week after its shares rose by $1.37/share on Friday to finish at $4.2 as investor await a new stimulus plan aimed at a second bank rescue. Regions Financial is amongst the initial financial institutions that benefited from the first tranche of the U.S. Troubled Asset Relief Program (TARP) as this regional bank has received $3.5 billion in bail-out money.

M&A, Deals, Corp Actions:
-Merger talks of a possible consolation of Live Nation (LYV) and Ticketmaster (TKTM) would create a new powerhouse in the music industry with a combined market value of over $640 million. As per a Wall Street report, the combined synergies would be called Live Nation Ticketmaster, thus resulting in a company that is able to manage music ticket sales, tour sponsorships and artist-managing business. Despite no deal terms were discussed or approved, shares of both LYV and TKTM advanced 1.3% and ~16% respectively for the week.

-The pipeline repair company Insituform Technologies (INSU) announced it will acquire rival companies Corrpro Companies (CRRP) and Bayou Co. for approximately $216 million as the company will offer up to 9 million shares of common stock to finance the deal. Shares of INSU shed 11.6% while CRRP’s pink sheets rallied 214% for the week on merger news.

Earnings forecast:
-As of Thursday morning, 286 companies or 57% of the S&P 500 have reported earnings, of which 58% beat estimates, 8% were in-line, and 34% missed. (Thomson Reuters).

Commodities: Crude for March delivery sagged 3.62% after a choppy trading week as it settled lower on Friday at $40.17/barrel, but fell as low as $38.6/barrel, its lowest level since 1/16. Lower oil prices were supported by oversupply and by news of more job losses in the U.S. which heightened the prospect for weaker demand. Crude which is also down 9.9% year-to-date has not gained from Organization of Petroleum Exporting Countries (OPEC’s) record cuts in crude output, as OPEC has cut quotas by 2.0 million barrels per day in September and 2.2 million barrels per day in January. OPEC has also agreed to further reduce supplies by 1 million bpd when it meets on March 15.

-Heating Oil for March delivery followed crude lower for the week, as it slipped 5.17% on declining crude prices. Heating oil fell 3 out of 5 trading days as it hit an intraday low of $1.298/gallon on Friday, its lowest level since 12/31. Deepening global recession and declined demand for petroleum products has led heating oil to a 5.7% drop year to date.

-Copper for March delivery surged more than 6% for the week, and traded at an intraday high of $1.6345/pound on Friday on hopes that China the world’s largest user of copper will soon benefit from a Chinese stimulus package and speed through an economic recovery. Copper has also jumped 11.28% year to date despite a rise in copper stocks in warehouses monitored by the Shanghai Futures Exchange were copper inventories have jumped 72% from two weeks ago.
**Copper inventories on the LME warehouses rose 2025 tones to 504,625 the highest level since 11/2003.
**China copper confidence grew stronger as the top refiner of Copper Jiangxi Copper announced plans to lift refined copper output by 12% in 2009 to 800,000 tones.

-Rough Rice for March delivery had 2-days of consecutive gains on Friday, as it settled up at $12.785/hundredweight and gained 8.6% for the week. Rice traded at a range of $11.78-$12.8/hundredweight throughout the week on the prospect of global droughts in Argentina and China. Argentina the number 3 agriculture producer is experiencing harsh droughts in its key crop areas.

-The US dollar weakened versus the euro and pound on Friday, following a rise in the US unemployment rate to 6.7%, leading some investors to anticipate that Congress might take a quick action to pass an estimated $935B stimulus package. Higher yielding stocks rose on Friday, as some investors focused on the prospects of a rebound, increasing risk appetite.

-The pound sterling gained momentum versus the greenback for the week, trading above its 50-day moving average on Friday. The BoE decided to cut its lending rate by 50 basis points on Thursday, setting its rate at 1%. Despite a 26% depreciation of the pound sterling in 2008, the global recession has taken a toll on British-made products. The annualized figure for industrial production in the UK fell to 9.4%, its lowest level since 1981. Despite of dismal economic data in the UK, the pound has managed to strengthen over 7.3% versus the US dollar since hitting its lowest level since 1985 on January 23. For the week, the pound rose about 1.7% against the dollar, trading at 1.4787 late Friday.

-The ECB decided to maintain interest rates at 2%, with ECB President Trichet emphasizing that a zero-rate policy is not on the table. However, the ECB signaled that another 50-basis point cut remains a possibility during its March meeting. The euro strengthened about 0.9% against the dollar for the week, trading at $1.2924 late Friday. Against the greenback, the euro has depreciated about 7.5% year-to-date.

-The Japanese yen lost ground versus the greenback on Friday, trading at Y91.99 late Friday, down about 2.4% for the week. The US dollar crossed its 50-day moving average this week, trading at its highest level since early January.

-The dollar index fell about 0.73% for the week, trading at 85.37 late Friday. Year-to-date, the dollar index, a measure of the US dollar versus a basket of six major currencies, has gained 5%.

Key Earnings next week:
Monday: Beazer Homes (BZH), Hasbro (HAS), Whirlpool (WHR), NYSE Euronext (NYX)
Tuesday: DirecTV (DTV), Molson (TAP), Applied Materials (AMAT), NVIDIA (NVDA)
Wednesday: ArcelorMittal (MT), Genzyme (GENZ), Ingersoll-Rand (IR), Allegheny Energy (AYE)
Thursday: Coca-Cola (KO), Waste Management (WMI), Marriott (MAR), Viacom (VIA)
Friday: PepsiCo (PEP)

Economic Data next week:
Tuesday: Wholesale Trade
Wednesday: International Trade, Crude Inventories, Treasury Budget
Thursday: Retail Sales, Jobless Claims, Business Inventories
Friday: Consumer Sentiment

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